Chapter Fifteen
Questions and Exercises
1. a. Corporate higher because municipal (usually) pays tax-excluded interest.
2. Five Points Securities bid
Principal Paid Paid in Year
4. The investment yields about 8 percent or more than comparable returns. The yield may
be computed from the following internal rate of return series.
Examination Questions
1. Municipal debt ratings:
2. A bond with which of the following bond ratings would likely bear the LOWEST
interest rate?
3. What are the two main components of a normal debt service payment?
4. Mr. Clark W. Griswold owns a municipal bond with a par value of $1000. The
coupon rate is 6% and the current market interest rate on similar investments is 4%.
What is the semiannual interest payment Mr. Clark W. Griswold receives from this
bond?
5. Why are state and local governments unable to carry large levels of debt?
6. In March 1982, Moody’s lowered its rating for City of Indianapolis debt from Aaa to Aa.
Which of the following would result from that change?
7. A city has issued 25-year general obligation bonds with a coupon rate of 8 percent. If the
market rate currently available on comparable bonds is 10 percent, what has happened to
the market value of those bonds?
8. A municipal bond underwriter performs what function?
9. Municipal bonds with a serial component are sold on the basis of coupon bids. Bids may be
evaluated according to either net interest cost or true interest cost. Evaluations should use
true interest cost because:
10. A municipal bond issue has a serial component when:
11. Notes are appropriately used to:
12. Solsberry has sold a twenty-year serial bond issue with a face value of $15 million. The
average maturity of the issue is fifteen years. Total interest to be paid on the bonds, payable
semi-annually, equals $12,375 thousand. What is the net interest cost (NIC) of the issue?