ikoreaii

Which of the following statements about special purpose vehicles (SPVs) is most accurate?

A) SPVs do not legally own the assets of the asset backed pool.

B) SPVs are used exclusively for asset backed transactions.

C) If bankruptcy occurs, a judge could rule that the SPVs assets can be considered general assets of the corporation.

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Legal experts believe this is unlikely, but the issue is still a bit ambiguous legally.

ikoreaii

Which of the following statements concerning taxable bonds is most accurate?

A) Treasuries have the lowest yields, followed by corporates, then by agencies, which provide the highest returns.

B) Treasuries have the lowest yields, followed by agencies, then by corporates, which provide the highest returns.

C) Corporates have the lowest yields, followed by Treasuries, then by corporates, which provide the highest returns.

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The difference in yields is largely due to the default risk premium. Treasuries are considered to be default-risk free, while corporate bonds have the highest default risk.

ikoreaii

What is the typical face value of a corporate bond?

A) $1,000.

B) $100,000.

C) $100.

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The most common face value of a corporate bond is $1,000.

ikoreaii

Which of the following statements concerning corporate bonds is most accurate? The denomination is usually:

A) $1,000, and the maturities usually range from 10 to 20 years.

B) $100,000, and the maturities usually range from 5 to 10 years.

C) $1,000, and the maturities usually range from 5 to 10 years.

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Corporate bonds usually have a face value of $1,000 and mature between 5 and 10 years.

ikoreaii

Which of the following attributes does NOT describe commercial paper?

A) The most common maturity is 50 days or less.

B) All commercial paper must be registered with the Securities and Exchange Commission (SEC).

C) It is typically issued as a zero coupon instrument.

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According to the Securities Act of 1933, commercial paper must be registered with the SEC. However, there are special provisions that exempt commercial paper form registration if the maturity is less than 270 days.

ikoreaii

Which of the following statements accurately describes direct and dealer paper?

A) Direct paper tends to incur more issue costs versus dealer paper.

B) Direct paper is the same as dealer paper.

C) The majority of direct paper issuers are financial companies.

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Dealer paper is issued via agents, whereas direct paper is issued directly by the issuer. Since it is issued directly by the company, direct paper is less expensive to issue.

ikoreaii

Support for the revenue bonds comes from:

A) the gross revenues of the underlying project.

B) the net revenues of the underlying project.

C) property taxes based on the project.

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Revenue bonds are serviced by the net income generated from specific income-producing projects (e.g., toll roads).

manchester88

The most junior type of municipal bond is the:

A) income or revenue bond.

B) indenture bond.

C) general obligation bond.

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General obligation bonds are backed by the full faith, credit, and taxing power of the issuer. Revenue bonds are serviced by the income generated from specific income-producing projects and can not be paid from other proceeds unrelated to the project.

manchester88

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?

A) Series Y, Series W, Series X.

B) Series X, Series W, Series Y.

C) Series X, Series Y, Series W.

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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.

manchester88

Which of the following statements about U.S. debt securities is most accurate?

A) General obligation bonds are backed by the full faith and credit of the issuer.

B) Government agency issues are backed by the full faith and credit of the Treasury.

C) Municipal bond guarantees apply to principal but not interest payments in the event of default.

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One type of issuer of federal agency securities is government sponsored enterprises (GSE). GSE securities are not backed by the full faith and credit of the Treasury. Municipal bond guarantees may apply to both principal and interest guarantees.