#1
What is a municipal bond?
A bond issued by state or local governments
ExplanationMunicipal bonds are debt securities issued by state or local governments to raise funds for public projects or services.
#2
What is the primary purpose of municipal bonds?
To fund state and local government projects
ExplanationMunicipal bonds are primarily issued to finance infrastructure, public works, and other projects undertaken by state and local governments.
#3
What is the tax status of interest earned from municipal bonds in the United States?
Tax-exempt
ExplanationInterest earned from municipal bonds is typically exempt from federal income tax, providing a tax advantage to investors.
#4
What is the typical source of repayment for general obligation bonds?
Tax revenues from the issuing government entity
ExplanationGeneral obligation bonds are repaid using tax revenues, making the issuing government entity accountable for repayment.
#5
What is a revenue bond, and how is it typically repaid?
A bond issued to fund a specific project, repaid from project-generated revenues
ExplanationRevenue bonds finance specific projects and are repaid using the revenue generated by the project itself.
#6
What is the purpose of a sinking fund in municipal bond management?
To retire a portion of the outstanding bonds before maturity
ExplanationA sinking fund is established to systematically retire a portion of outstanding bonds before their maturity date.
#7
What is the role of an underwriter in the issuance of municipal bonds?
To purchase and resell the bonds to investors
ExplanationUnderwriters facilitate the issuance process by purchasing bonds from the issuer and reselling them to investors, assuming the risk of selling the entire issue.
#8
What is a bond rating, and why is it important for municipal bonds?
It is a measure of creditworthiness assigned by rating agencies
ExplanationA bond rating assesses the creditworthiness of the issuer, influencing investor confidence and the interest rates at which bonds are issued.
#9
Which of the following factors does not affect the interest rate on municipal bonds?
Geographic location of the issuer
ExplanationUnlike corporate bonds, the geographic location of the issuer does not significantly impact the interest rate on municipal bonds.
#10
What is the role of a bond trustee in municipal bond issuance?
To represent the interests of bondholders and ensure compliance with bond terms
ExplanationBond trustees safeguard bondholders' interests and ensure issuer compliance with agreed-upon terms and conditions.
#11
In the context of municipal bonds, what is a call provision?
A provision that allows the issuer to redeem the bonds before maturity
ExplanationA call provision grants the issuer the option to redeem bonds before their scheduled maturity date.