FAQ: A Municipality Would Defease Its Debt With Which Of The Following?

Which information would be found in a municipal bond resolution?

The resolution states what interest and principal bondholders will receive, the dates and terms of the payments, the way bonds can be redeemed, and what steps are to be taken if there is a default.

Which of the following statements are true regarding a municipal bond issue that is advance refund?

All of the statements are true regarding advance refunding of a municipal bond issue. In an advance refunding, the issuer floats a new bond issue and uses the proceeds to “retire” outstanding bonds that have not yet matured. These funds are deposited to an escrow account and are used to buy U.S. Government securities.

Which of the following insure municipal bonds?

AMBAC (American Municipal Bond Assurance Corporation), MBIA (Municipal Bond Insurance Association) and FGIC (Financial Guaranty Insurance Corporation) all insure municipal bonds.

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Which of the following can initiate repurchase agreements with government and agency securities as collateral?

Government securities dealers, Commercial banks, and the Federal Reserve through its open market trading desk, all initiate repurchase agreements.

What is a municipal bond resolution?

Bond Resolution or Ordinance. The document(s) representing action of the issuer authorizing the issuance and sale of municipal bonds. Issuance of the bonds is usually approved in the authorizing resolution or ordinance, and the sale is usually authorized in a separate document called the “sale” or “award” resolution.

What is a variable demand note?

A variable-rate demand note (VRDN) is a long-term municipal bond which is offered to investors through money market funds. The notes allow a municipal government to borrow money for long periods of time while paying short-term interest rates to investors.

Which security does not earn interest?

Short-term fixed-income securities include Treasury bills. The T-bill matures within one year from issuance and doesn’t pay interest. Instead, investors can buy the security at a lower price than its face value, or a discount. When the bill matures, investors are paid the face value amount.

What is a double barreled bond?

A double-barreled bond is a municipal bond in which the interest and principal payments are pledged by two distinct entities —the revenue from a defined project and the issuer and its taxing power.

What is debt to assessed valuation?

What Is Net Debt to Assessed Valuation? The term net debt to asset valuation refers to the total amount of a municipality’s debt compared to the value of total assets that are assessed or purchased for a municipal bond issue.

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What does it mean when a municipal bond is called?

If you own municipal bonds, watch out. Basically, a bond is called when the municipality that issued it decides to redeem it–to buy it back at a preset price–before it reaches maturity.

What are the benefits of municipal bonds?

Pros

  • They’re usually exempt from federal income tax. Municipal bonds are a very popular source of tax-free income.
  • Munis are less risky than stocks. Compared to other asset classes, municipal bonds are a low volatility investment option.
  • Municipal bonds provide a steady stream of income.

What is BAM municipal insurance?

Build America Mutual (BAM) is NLC’s preferred provider of financial guaranty insurance on debt for its member municipalities. Launched in July 2012, BAM delivers substantial interest cost savings for issuers of municipal bonds and durable protection against loss for municipal bond holders.

What is repo with example?

In a repo, one party sells an asset (usually fixed-income securities) to another party at one price and commits to repurchase the same or another part of the same asset from the second party at a different price at a future date or (in the case of an open repo) on demand. An example of a repo is illustrated below.

Is a repo a derivative?

We regard the repo as a derivative because it is derived from money or bond market instruments, and its value (i.e. the rate on it) is derived from another part of the money market (the price of money for the duration of the repo).

What is the purpose of a repurchase agreement?

Repurchase agreements allow the sale of a security to another party with the promise that it’ll be purchased again later at a higher price. The buyer also earns interest. With a repurchase agreement being a sell/buy-back type of loan, the seller acts as the borrower and the buyer as the lender.

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