TEST BANK
CAPITAL MARKETS: INSTITUTIONS AND INSTRUMENTS
FABOZZI/MODIGLIANI
Chapter 24
MUNICIPAL SECURITIES MARKETS
MULTIPLE CHOICE
1. Municipal bonds are securities issued by:
[E]
2. Investors in municipal bonds whose primary interest is in opportunities to benefit from
leveraged strategies that seek to generate capital gains include:
[M]
3. Municipal securities are issued for various purposes including:
[M]
4. Municipal securities secured by some form of tax revenues include:
5. General obligations bonds are secured by:
[M]
6. Revenue bonds have a security structure where the bond issuer:
[M]
7. Municipal securities issued for periods up to three years are considered:
[E]
8. Municipal bonds may be retired with a:
[M]
9. To evaluate general obligation bonds, commercial rating companies assess:
10. Regarding the default risk associated with municipal bonds:
[D]
11. The risk that the federal income tax rate will be reduced, resulting in a decline in the
value of municipal bonds, is called:
[M]
12. Most states mandate that general obligation issues be marketed through:
[M]
13. Usually, state and local governments require a competitive sale to be announced in a
recognized financial publication, such as:
[M]
14. Municipal bonds are traded in the:
15. Municipal bonds are generally traded and quoted in terms of the:
[M]
16. Because of the tax-exempt feature of municipal bonds, the yield on municipal securities
compared to Treasuries with the same maturity is:
[M]
17. In general, the municipal yield curve is:
[M]
18. Congress has specifically exempted municipal securities from:
[D]
19. A general obligation bond is said to be double-barreled when it is secured by:
20. If the escrow is properly structured, prerefunded bonds are among the safest of all
municipal securities since they are collateralized by:
TRUE/FALSE
1. Revenue bonds are debt obligations of municipalities that are backed by tax revenues.
[E]
2. A serial maturity structure requires that a portion of the debt obligation be retired each
year.
[E]
3. Commercial rating companies evaluate the credit risk associated with municipal
securities.
[E]
4. Antifraud provisions apply to offerings of municipal securities.
[M]
5. State and local governments require competitive bidding on all municipal securities.
[M]
6. Tax-backed debt includes airport bonds, public power bonds, and sports complex bonds.
7. Grant anticipation notes, revenue anticipation notes, and tax-exempt commercial paper
are examples of short-term municipal securities.
[E]
8. For a tax-exempt municipal security, the higher the marginal tax rate, the less valuable
the tax-exemption feature will be.
[M]
9. The difference in yield between tax-exempt securities and Treasury securities is typically
measured not in percentage terms, but in basis points.
[M]
10. A tax risk associated with municipal bonds is that a tax-exempt issue may be eventually
declared by the IRS to be taxable.
ESSAY QUESTIONS
1. Describe the risks specific to investments in municipal securities.
Key Issues:
2. Explain the yield relationship between municipal securities and taxable bonds.
Key Issues:
3. Discuss why a municipality would want to issue a taxable municipal bond, thereby
paying a higher yield than if it issued a tax-exempt municipal bond.
Key Issues: