Reading 55: LOS h ～ Q1- 5 class, style, black

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1．When assessing the risk of tax-backed municipal bonds, it is important to analyze all of the following factors EXCEPT:

A)   the issuer's ability and political discipline to maintain a sound budgetary policy.

B)   whether there are sufficient covenants to ensure revenues are not redirected for purposes other than the payment of tax-backed municipal bonds.

C)   determining the local taxes and intergovernmental revenue available to the issuer.

D)   evaluating the issuer's socioeconomic environment.

2．Which of the following securities is analyzed in much the same way as corporate bonds?

A)   Municipal tax-backed debt.

B)   Forward contracts.

C)   Municipal revenue bonds.

D)   Foreign currency debt securities.</< p>

3.Which of the following factors used to assess municipal tax-backed debt analyzes the issuer’s ability to manage general operating funds?

A)   Issuer's debt structure.

B)   Local tax and intergovernmental revenue availability.

C)   Budgetary policy.

D)   Issuer's socioeconomic environment.

4.Each of the following factors are employed in the assessment of "tax-backed" municipal bonds EXCEPT:

A)   Issuer's debt structure.

B)   Credit quality of the collateral.

C)   The budgetary policy of the municipality.

D)   Local tax availability.

5.Which of the following statements regarding the comparison of "general obligation" and "revenue" municipal bonds is FALSE?

A)   Revenue bonds are backed by the cash flow stream of a specific municipal project such as a road or swimming pool.

B)   General obligation bonds must be evaluated with respect to the issuer's existing debt structure and the ability of the local government to generate the requisite level of taxes to repay the debt.

C)   Revenue bonds are backed by the full faith and credit of the issuing municipality.

D)   Revenue bonds must be evaluated with respect to their covenants such that revenues from the project are not redirected toward other uses within the community.

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1．When assessing the risk of tax-backed municipal bonds, it is important to analyze all of the following factors EXCEPT:

A)   the issuer's ability and political discipline to maintain a sound budgetary policy.

B)   whether there are sufficient covenants to ensure revenues are not redirected for purposes other than the payment of tax-backed municipal bonds.

C)   determining the local taxes and intergovernmental revenue available to the issuer.

D)   evaluating the issuer's socioeconomic environment.

The correct answer was  B)

When evaluating tax-backed debt the analyst should assess the issuer’s debt structure, budgetary policy, local tax and intergovernmental revenue availability, and the issuer’s socioeconomic environment.

2．Which of the following securities is analyzed in much the same way as corporate bonds?

A)   Municipal tax-backed debt.

B)   Forward contracts.

C)   Municipal revenue bonds.

D)   Foreign currency debt securities.</< p>

The correct answer was  C)

Revenue bonds are evaluated much like corporate bonds, because the primary concern is whether or not enough cash flow will be generated to satisfy the debt obligations.

3.Which of the following factors used to assess municipal tax-backed debt analyzes the issuer’s ability to manage general operating funds?

A)   Issuer's debt structure.

B)   Local tax and intergovernmental revenue availability.

C)   Budgetary policy.

D)   Issuer's socioeconomic environment.

The correct answer was  C)

The analysis of budgetary policy entails the assessment of the issuer’s ability to manage general operating funds.

4.Each of the following factors are employed in the assessment of "tax-backed" municipal bonds EXCEPT:

A)   Issuer's debt structure.

B)   Credit quality of the collateral.

C)   The budgetary policy of the municipality.

D)   Local tax availability.

The correct answer was  B)

There is typically no collateral pledged to a general obligation municipal bond.

5.Which of the following statements regarding the comparison of "general obligation" and "revenue" municipal bonds is FALSE?

A)   Revenue bonds are backed by the cash flow stream of a specific municipal project such as a road or swimming pool.

B)   General obligation bonds must be evaluated with respect to the issuer's existing debt structure and the ability of the local government to generate the requisite level of taxes to repay the debt.

C)   Revenue bonds are backed by the full faith and credit of the issuing municipality.

D)   Revenue bonds must be evaluated with respect to their covenants such that revenues from the project are not redirected toward other uses within the community.

The correct answer was  C)

The cash flows (revenue) from the project that the revenue bond funded are used to service the bond.