Unit 6

Question 1

A debt security issues by a municipal authority to raise funds for new construction with the understanding that the finished structure will be rented to the authority and the rental payments will finance the bond payments

Answer 1

Lease rental bond

Question 2

An attorney retained by a municipal issuer to give an opinion concerning the legality and tax exempt status of a municipal issue

Answer 2

Bond counsel

Question 3

A short term municipal or government debt security to be paid off from future tax receipts

Answer 3

TAN (Tax Anticipation Note)

Question 4

A municipal security backed by the full faith and credit of the issuing municipality as well as by pledged revenues

Taxed twice

Answer 4

Double barreled bonds

Question 5

A self regulatory organization that adopts rules with regard to the unique municipal bond market covering professional qualifications, fair practices, uniform practice and market transparency and places administrative burdens on brokers and dealers

Answer 5

Municipal securities rule making board
(MSRB)

Question 6

An offer from a broker dealer to buy or sell securities

It indicates a willingness to execute a trade under the terms and conditions accompanying the quote

Answer 6

Bona Fide quote

Question 7

The price at which a municipal securities dealer is willing to purchase securities from another municipal dealer. The price may be revised if market conditions change

Answer 7

Workable indication

Question 8

A series quotation subject to some condition requiring confirmation by the dealer

Answer 8

Subject quote

Question 9

Tax equivalent yield calculation

Answer 9

Nominal yield ➗ 1 - fed tax income rate

Question 10

A municipal issuers proportionate share of the debt of other local governmental units that overlap it geographically, either in whole or in part

Answer 10

Overlapping debt

Question 11

Tax free municipal equivalent calculation (corporate vs. tax free municipal)

Answer 11

Corporate X (100% - tax bracket)

Question 12

A short term municipal debt security issues in anticipation of revenue to be received

Answer 12

RAN (revenue anticipation note)

Question 13

A short term municipal debt security to be paid from the proceeds of long term debt when it is issued

Answer 13

BAN (bond anticipation note)

Question 14

A term used to describe municipal entities that share the same boundaries.

Ex: a school district and fire district may issue debt separately although the debt is backed by revenues from the same tax payers

Answer 14

Coterminous

Question 15

The statement of a bond attorney affirming the validity of a new municipal bond issue but expressing reservations about its quality

Answer 15

Qualified legal opinion

Question 16

The statement of a bond counsel affirming the compliance of a new municipal bond issue with municipal statutes and tax regulations and expressing no reservations about its validity

Answer 16

Unqualified legal opinion

Question 17

1. A municipal securities broker acting as an agent or risk less principal in the purchase or sale of securities for broker dealers, sophisticated municipal securities professionals and institutions when those market participants are seeking liquidity or to adjust an inventory position
2. A designated market maker executing orders for a commission house broker or another brokerage firm
3. A floor broker on an exchange or a broker dealer in the over the counter market executing a trade as an agent for another broker

Answer 17

Brokers broker

Question 18

A municipal issue that trades without a written legal opinion of counsel from a bond attorney

Must be designated at time of trade

Answer 18

Ex legal

Question 19

Municipal revenue bonds that are quoted and traded on a basis of dollars rather than yield to maturity

Ex: term bonds

Answer 19

Dollar bonds

Question 20

A municipal revenue bond payable only from the proceeds of a tax on certain items rather than ad valorem tax

Answer 20

Special tax bond

Question 21

A short term municipal debt security issues in anticipation of receiving a funding grant, typically from a government agency.

Answer 21

GAN (grant anticipation note)

Question 22

Issued by municipalities, non profit hospital, utilities, housing finance agencies and universities.

Long term variable rate bonds tied to short term interest rates

Answer 22

Auction rate securities (ARS)

Question 23

A municipal debt issue whose interest and principal are payable only from the specific earnings of an income producing public project.

Not subject to statutory debt limits and do not require voter approval

Answer 23

Revenue bonds

Question 24

A short term municipal debt security that provides interim financing for new projects

Answer 24

Construction loan note (CLN)

Question 25

A provision of a bonds trust indenture allowing the issuer to use the same collateral backing for a bond as collateral for future bond issues, resulting in new creditors having equal claim with existing creditors

Answer 25

Open end covenant

Question 26

A date on which interest on a new bond issue begins to accrue- usually the issue date although the bonds may be delivered at a later date

Answer 26

Dated date

Question 27

An account established by an issuing corporation or municipality into which money is deposited regularly so that the issuer has the funds to redeem its bonds, debentures or preferred stock

Answer 27

Sinking fund

Question 28

A provision of a municipal revenue bonds trust indenture that helps ensure the safety of the issue by promising to insure the facilities built

Answer 28

Insurance covenant

Question 29

The flow of funds arrangement in a municipal revenue bond pledging that operating and maintenance expenses will be paid before debt service

Answer 29

Net revenue pledge

Question 30

A provision of a bonds trust indenture stating that any additional bonds secured by the same assets must have a subordinates claim to those assets

Answer 30

Closed end covenant

Question 31

A municipal revenue bond funded by assessments only placed on property owners who benefit from the services or improvements provided by the proceeds of the bond issue

Answer 31

Special assessment bond

Question 32

A provision of a municipal revenue bonds trust indenture that helps ensure the safety of the issue by specifying the rates to charge the user of the facility

Answer 32

Rate covenant

Question 33

A short term municipal debt security to be paid off from future tax receipts and revenues

Answer 33

TRAN (tax and revenue anticipation note)

Question 34

Capital gain or loss calculation

Answer 34

Amount received(at sale or maturity) - adjusted basis

Question 35

A municipal debt issue backed by the full faith and credit and taxing power of the issuer for payment of interest and principal. Issued by local governments are backed by ad valorem taxes, license fees. Issued by states are backed by income taxes, license fees and sales taxes Frequently require voter approval

Answer 35

General obligation bonds (GO Bonds)

Question 36

Accretion calculation

Answer 36

Discount➗# of years = adjustment per year

Question 37

Municipal bonds issued with variable or floating rates of interest. These securities offer interest payments tied to the movements of another specified interest rate

Answer 37

Variable rate demand obligation (VRDO)

Question 38

The flow of funds arrangement in a municipal revenue bond issue pledging that all revenues received will be used for debt service prior to deductions for any costs or expenses

Answer 38

Gross revenue pledge

Question 39

A debt security issues at a discount from face value. The discount is accreted annually for the purpose of calculating cost basis

Answer 39

Original issue discount bond (OID)

Question 40

A municipal revenue bond for which a state legislature has the authority but no legal obligation to appropriate money in the event that municipal issuer defaults

Answer 40

Moral obligation bonds

Question 41

Amortization calculation

Answer 41

Premium ➗ # of years = adjustment per year

Question 42

An alternative tax computing that adds certain tax preference items back into adjusted gross income. If it is higher than the regular tax liability for the year, the regular tax and the amount by which it exceeds the regular tax are paid

Answer 42

Alternative minimum tax (AMT)

Question 43

A provision of a municipal revenue bonds trust indenture that helps ensure the safety of the issue by promising to keep the facility and equipment in good working order

Answer 43

Maintenance covenant

Question 44

An element of income that receives favorable tax treatment. The item must be added to taxable income when computing AMT. includes accelerated depreciation on property, research, and development costs, intangible drilling costs, tax exempt interest on municipal private purpose bonds and certain incentive stock options

Answer 44

Tax preference item

Question 45

A general obligation municipal debt security issued by a municipality whose taxing power is limited to a specified maximum rate (more risky) Ex: income tax

Answer 45

Limited Tax GO

Question 46

The schedule of payments disbursed from the proceeds of a facility financed by a revenue bond. Determines the order in which the operating expenses, debt service and other expenses are paid

Answer 46

Flow of funds

Question 47

The redemption of a bond by an issuer owing to disaster. Ex: a power plant built with proceeds from an issue is destroyed by a hurricane

Answer 47

Catastrophe clause

Question 48

In general, securities issued by a state local government or development agency used to finance the construction or purchase of industrial, commercial or manufacturing facilities that are to be purchased by or leased to a private user

Answer 48

Industrial development revenue bond (IDB)

Question 49

Issued by municipalities under the American recovery and reinvestment act of 2009, they make interest payments that are taxable to bond holders. Some types offer tax credits to the issuer and others offer tax credits to the bond holder No longer issued by those previously issued are actively traded

Answer 49

Build America bonds (BAB)