Series 50 Example Questions

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Sample Questions


Which of the following is not an exception to federal arbitrage rules?

A ) Exception for advance refunded bonds
B ) Exception for reserve fund
C ) Small issuer exception
D ) Exception for a minor portion

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Answer: The Best Answer is A

Feedback: There are no arbitrage exceptions for advance refunded bonds. The proceeds may not be invested at a higher yield than that of the bond.


Which of the following is a true statement regarding the difference between an ETM refunding and a pre-funding?

A ) An ETM refunding is generally used to refund a bond at its first call date, while a pre-funding is used to free the issuer from debt ceiling limits.
B ) A pre-funding will always take place earlier in the life of a refunded bond than an ETM refunding.
C ) Funds from an ETM refunding are supplemented by other revenue, while funds from pre-funding bonds are not.
D ) A pre-funding bond is generally used to save money on interest payments, while an ETM refunding is often used to lift restrictive covenants.

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Answer: The Best Answer is D

Feedback: Pre-funding bonds are used to retire an older bond at its earliest call date. This often saves the issuer money on interest payments. An ETM refunding, or escrow-to-maturity refunding, helps to make payments on the older bonds until they mature. ETM refundings are often used to free the issuer from restrictions initiated by the refunding bonds


Which of the following would you be the least interested in looking at to analyze a revenue bond?

A ) Feasibility study
B ) Protective Covenants
C ) Flow of Funds
D ) Net overall debt per capita

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Answer: The Best Answer is D

Feedback: The feasibility study, protective covenants, flow of funds and the debt service coverage ratio will all be important factors in analyzing a revenue bond. The net overall debt per capita is an important factor when analyzing a GO bond.


Which of the following municipal bonds are always tax-exempt?

A ) BABs
B ) AMT Bonds
C ) Private activity bonds
D ) Bank Qualified Bonds

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Answer: The Best Answer is D

Feedback: When it comes to federal tax status, the two main, broad categories that municipals fall into are public purpose bonds and private activity bonds (PABs). Public purpose bonds enjoy the full extent of the federal tax-exempt status typically associated with munis. PABs, however, are usually taxable with some exceptions.

Bank qualified (BQ) bonds are always tax-exempt at the federal level, because in order to qualify as BQ bonds, they must be public purpose bonds. AMT bonds are a special kind of PAB that are exempt from ordinary federal income tax, but are taxable under the alternative minimum tax (AMT). Therefore, AMT bonds are not federally tax-exempt for taxpayers who must pay the AMT. BABs are Build America Bonds, a special type of federally subsidized muni available from 2009-2010. They are not federally tax-exempt.


Snowy Falls has GO bond debt of $50 million and revenue bond debt of $40 million. The assessed value of the town’s real estate is $1 billion, while its estimated real value is $1.5 billion. Which of the following are true?

I. The net debt to estimated real valuation is 3.3%. II. The net debt to estimated real valuation is 6%. III. The net debt to assessed valuation is 5%. IV. The net debt to assessed valuation is 9%.

A ) I and IV
B ) II and IV
C ) II and III
D ) I and III

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Answer: The Best Answer is D

Feedback: Revenue bond debt is not considered when determining net debt to estimated real valuation and net debt to assessed valuation. This means that net debt to estimated real valuation is $50 million / $1.5 billion = 3.3%, while net debt to assessed valuation is $50 million / $1 billion = 5%.

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