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Free Series 7 flashcards 2026
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Terms in this set (58)
Which type of security is considered to have the highest level of risk when compared to U.S. government obligations?
A guaranteed corporate bond.
How are the bid and ask prices for U.S. treasury bonds established in the market?
Prices are determined by competitive bidding.
Which type of savings bond is a direct obligation of the U.S. government?
Series EE bonds.
Are bonds from the Import-Export Bank or the Farm Credit System considered direct obligations of the U.S. government?
No, they are not direct obligations of the U.S. government.
A financial institution selling bonds to a dealer will receive which price: the bid or the ask?
The institution will receive the bid price.
In a U.S. government bond quote like 98.02, what does the number after the decimal represent?
It represents thirty-seconds of a point (e.g., .02 is 2/32).
Why can't Series EE bonds be used as collateral for a loan?
Because they are not negotiable securities.
In an _____ account underwriting, liability for unsold bonds remains open for all members until the entire syndication is closed.
Eastern
How is the remaining liability for an underwriter calculated in an Eastern account?
It is their participation percentage applied to the total amount of unsold bonds.
In a _____ account underwriting, each underwriter has divided liability and is responsible only for their respective part of the issue.
Western
A municipal bond secured by revenues from a specific project and also backed by the full financial strength of the issuer is known as a _____ bond.
double-barreled
Which type of municipal bond is least likely to be used to provide construction funds for a public school?
Revenue bonds.
Public schools are typically financed by what type of municipal bond?
General obligation (GO) bonds.
The rate covenant of a revenue bond issued for a municipal toll road typically requires rates to cover what percentage of maintenance and debt service?
120%.
Municipal bond brokers typically act as agents for what types of clients?
They trade for dealer banks and non-bank dealers, but not for their own accounts.
What is a 'workable bid' in the context of municipal securities?
It is an indication of a price where a dealer is willing to negotiate, but it is not a firm bid and can be changed.
For what primary purpose do municipalities issue notes?
For short-term cash needs.
A state agency issues a revenue bond where the state legislature can appropriate funds for debt service but is not legally required to. What is this type of bond called?
A moral obligation bond.
How are fees from a 'group net order' in a municipal syndicate distributed to its members?
According to each member's percentage participation in the account.
Which service provides the fastest public information on the award of a new municipal bond issue?
Munifacts, a wire service from the daily Bond Buyer.
Under what circumstances may a municipal securities dealer guarantee a customer against a loss in the market value of bonds?
Under no circumstances.
The 'price to call' calculation for a callable municipal bond is based upon which specific type of call?
In-whole calls, where all bonds are called simultaneously.
For which type of new bond offering are feasibility studies and engineering surveys most essential?
Revenue bonds.
What key information is absent from the official notice of sale for a new municipal bond issue?
The names of the underwriting syndicate members, as the syndicate has usually not been formed yet.
How is the premium treated for tax purposes when a municipal bond is purchased at 102 and held to maturity?
The premium is amortized over the life of the bond, resulting in no capital loss at maturity.
A 10-year municipal bond bought at 102 is sold five years later at 101. What is the realized capital gain or loss?
There is no capital loss or gain because the bond's cost basis was adjusted down to 101 through amortization of the premium.
Which type of municipal security is backed by the full faith and credit of the U.S. government if the issuer's funds are insufficient?
New housing authority (NHA) bonds.
If a municipal bond is purchased at a discount in the secondary market and held to maturity, how is the gain taxed?
The interest is tax-exempt, but the capital gain is taxable as ordinary income.
Where should prospective bidders look to find the official procedures for a municipal bond issuance?
In the official notice of sale.
What element, determined by the successful bidder, does NOT appear in a municipal bond's official notice of sale?
An offering scale of serial maturities.
Which of the following does not appear in a municipal syndicate letter: participation amounts, manager's authority, or specific bid and offering terms?
The specific bid and offering terms of the issue.
Which publication provides underwriters with news of prospective municipal securities sales?
The daily Bond Buyer.
What is the function of The Blue List in the municipal bond market?
It shows current offerings of municipal bonds for sale in the secondary market.
Under a leaseback arrangement used to finance a facility like a school, who is typically the issuer of the municipal bonds?
A legal authority created for this purpose.
Who is responsible for obtaining and paying the municipal bond attorney who provides a legal opinion on a new issue?
The issuing municipality.
Special tax bonds, which are secured by a tax on a specific item like tobacco or gasoline, are classified under what broad category of municipal bonds?
Revenue bonds.
According to the flow of funds for a revenue bond, which fund receives the highest priority for payments from derived income?
The operation and maintenance fund.
Limited tax bonds, which are backed by a specified tax that cannot be raised, are placed in what broad category of municipal bonds?
General obligation bonds.
What is the term for the discount from the list price paid to a municipal underwriting group member for its sales participation?
The takedown.
A 5% municipal bond is trading at a price of 85. What is its nominal yield?
5.00%, which is the coupon rate.
How is the current yield of a bond calculated?
Current yield is the annual interest payment divided by the bond's current market price.
Which Bond Buyer index reflects the highest quality bonds and, consequently, the lowest average yield?
The 11-bond index.
What does the Bond Buyer placement ratio measure?
The amount of new municipal bonds distributed weekly as a percentage of that week's new issues over $1 million.
In municipal bond pricing, how much is a concession of 3/8 on a single $1,000 par value bond worth in dollars?
$3.75.
Which rating service for municipal bonds focuses on trading market data to assess liquidity?
White's Ratings.
Which form of underwriting is least common for municipal bond offerings?
Best efforts.
Municipal bond offerings are typically underwritten on what basis?
On a firm commitment basis, through either a competitive bid or a negotiated sale.
For which type of investor would the tax benefits of municipal bonds be least attractive?
A tax-exempt entity, such as a pension fund.
If a municipality has funds for a partial call of an outstanding serial bond issue, which bonds should be called first to maximize interest savings?
The bonds with the longest maturity.
Which financial ratio is least relevant when evaluating the safety of a general obligation (GO) bond?
Total debt service as a percentage of net operating revenue, as this is used for revenue bonds.
In which document are the allocation procedures for a competitive bid municipal syndicate described?
The syndicate account letter.
What term describes the priority of applying income and revenues from a facility financed by a revenue bond?
Flow of funds.
When a dealer acts as an underwriter for a new issue, they are said to have a _____, which is a guarantee to the issuer.
firm commitment
In a _____ distribution, the broker/dealer acts as an agent for the issuer and does not guarantee the sale of the securities.
best efforts
When does a registration statement for a new security offering become effective?
It becomes effective only after the SEC specifically clears the issue in writing.
What crucial piece of information is typically not included in a preliminary prospectus (red herring)?
The final offering price of the issue.
What is the common name for an advertisement that announces a new securities offering and lists the underwriting firms?
A tombstone ad.
For how long does a Form 144, filed for the sale of restricted or control stock, remain in effect?
90 days.