Chapter 5 - Type of Debt Instruments

Question 1

A municipality borrowing for a short-term period to finance a capital project would issue:

Answer 1

Bond anticipation notes

Question 2

For an Industrial Development Bond (IDB), the primary source that backs the bond is:

Answer 2

leasing corporations only

Question 3

Which of the following approvals is required before a municipality can begin making payments on a moral obligation bond?
A) Approval by a majority of legal age voters.
B) Approval by the state legislature.
C) Approval by the bond trustee.
D) Approval by the appropriate state agency.

Answer 3

B) Approval by the state legislature.

Question 4

Has more than a 10-year maturity, interest paid semi-annually is federally taxable and is a book-entry issuance.

Answer 4

T-Bond

Question 5

A discounted security that is sold weekly at auction with interest being federally taxable and is a book-entry issuance.

Answer 5

T-Bill

Question 6

Has a 2-10 year maturity, interest paid semi-annually is federally taxable and is a book-entry issuance.

Answer 6

T-Note

Question 7

(True or False) During Treasury auctions non-competitive bids are filled first.

Answer 7

True

Question 8

(True or False) During Treasury auctions competitive bids determine price.

Answer 8

True

Question 9

(True or False) During Treasury auctions non-competitive bids submit quantity and price/yield.

Answer 9

False

Question 10

(True or False) During Treasury auctions the lowest accepted price/highest yield clears the auction.

Answer 10

True

Question 11

The most common security issued by government agencies is a:

Answer 11

mortgage-backed pass-through certificate.

Question 12

Although agency securities are not direct obligations of the US government, their credit risk is still considered _____.

Answer 12

low

Question 13

Agency securities are _____ from state and federal registration.

Answer 13

exempt

Question 14

The Federal Farm Credit Bank (FFCB) is an example of a:

Answer 14

government sponsored entity

Question 15

Minnie Mae, Fannie Mae, and Freddie Mac are examples of:

Answer 15

mortgage-backed securities

Question 16

Mortgage-backed securities represent an interest in a _____ of mortgages.

Answer 16

pool

Question 17

_____ is a unique risk to mortgage-backed securities.

Answer 17

Prepayment risk

Question 18

Agency _____ provide excellent credit quality and a slightly higher yield than Treasuries.

Answer 18

pass throughs

Question 19

_____ are created so that multiple firms share in the liability of a bond offering.

Answer 19

Syndicates

Question 20

(True or False) Voter approval is normally required when issuing general obligation bonds.

Answer 20

True

Question 21

(True or False) Feasibility studies are used when issuing revenue bonds.

Answer 21

True

Question 22

(True or False) The issuer and underwriter work out the offering terms in a competitive sale.

Answer 22

False

Question 23

(True or False) With corporate bonds, the corporation gives up control as well as a portion of profits.

Answer 23

False

Question 24

(True or False) Interest must be paid on bonds before dividends are paid on stock.

Answer 24

True

Question 25

(True or False) The corporation is required to repay the money that was a borrowed plus interest.

Answer 25

True

Question 26

A bond issued in the US by a foreign entity is a:

Answer 26

Yankee Bond

Question 27

A corporate bond backed only by the corporation’s full faith and credit.

Answer 27

Unsecured bond

Question 28

Bond where the issuer makes no promise of interest payments.

Answer 28

Income bond

Question 29

Bond issued outside the US, but pays debt service in US dollars.

Answer 29

Eurodollar bond

Question 30

Secured by third-party securities that are owned by the issuer.

Answer 30

Collateral trust

Question 31

A _____ is used for foreign trade.

Answer 31

banker’s acceptance

Question 32

A _____ involves two transactions.

Answer 32

repo

Question 33

A _____ uses unsecured bank debt.

Answer 33

Certificate of Deposit (CD)

Question 34

_____ uses unsecured corporate debt.

Answer 34

Commercial paper

Question 35

_____ is Treasury debt.

Answer 35

T-Bill