Big Guns Municipal Bond Dealer Corporation buys 100M of 7% 20-year GO bonds at par. The bonds are marked up and immediately re-offered for sale.Which of the following re-offering prices would probably be deemed excessive?
Answer(s): D
5.00% net. The other quotes indicate moderate markups over cost. A quote of 5% net indicates a large markup and a price not “reasonably related to the market”. The dollar price would be about $125, a 25% markup over the dealer’s cost.
Municipal bonds would be least attractive as an investment for which of the following?
Answer(s): B
a pension fund. Since the pension fund does not pay income tax, the tax benefits of the municipal bonds are not realized.
If a municipality has funds available to make a partial call of an issue of outstanding serial bonds, which bonds should be called first?
Answer(s): C
the longest maturity. These bonds are called first because the municipality will save the interest costs for the longest period of time.
Which of the following is least relevant in evaluating the safety of a general obligation bond?
total debt service as a percentage of net operating revenue. This ratio is applicable to revenue bonds but not general obligation bonds. The other choices are all used in measuring credit risk in a GO bond.
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