Consider three municipal bonds issued by the Greater Holmen Metropolitan Capital Improvement District, a local authority that carries an issuer rating of single-A from the major debt rating agencies. All three bonds have the same coupon rate and maturity date.
- Series W was issued to finance the rebuilding and expansion of local schools and is backed by the District’s authority to levy property tax.
- Series X was issued to build a water purification plant for the region. The District charges fees to the surrounding municipalities for their use of the plant. These fees are the only source of the interest and principal payments on the bonds.
- Series Y was issued to raise funds for the general use of the District in its ordinary maintenance projects and is backed by the District’s authority to levy property tax. These bonds carry a third party guarantee of principal and interest payments.
What is most likely the order of the market yields on these three bond issues, from highest to lowest?
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A) |
Series Y, Series W, Series X. | |
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B) |
Series X, Series W, Series Y. | |
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C) |
Series X, Series Y, Series W. | |
Series X is a revenue bond. Because they pay interest and principal only if revenues from the project they finance are sufficient, revenue bonds are typically riskier and therefore have higher market yields than general obligation bonds. Series Y is an insured bond. Municipal bond insurance typically results in a higher rating, and therefore a lower market yield, than an equivalent bond from the same municipal issuer. So of these three bonds, Series X should have the highest market yield and Series Y the lowest. | 
发表于 2010-4-24 22:07
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