Marley
The amortization of the cost basis of a bond results in
A. An increased cost basis to the investor
B. A deductible expense for the investor
C. Tax-free interest for the investor
D. A reduced cost basis to the investor
D. A reduced cost basis to the investor
A bond issued by the Virgin Islands offers interest income that
A. Is higher than that of bonds issued by other US territories
B. Is exempt from local, state, and federal income tax
C. Is subject to state income tax but exempt from federal income tax
D. Must be included in an investor’s AMT computation
B. Is exempt from local, state, and federal income tax
Which of the following is not a common source of information regarding the tax treatment of the interest income on municipal bonds?
A. Bond Buyer Index
B. Official statement
C. Private placement memorandum
D. Legal opinion
A. Bond Buyer Index
All of the following statements regarding taxation of Direct Payment Build America Bonds (BABs) are true EXCEPT
A. Investors in BAB bonds receive an annual tax credit
B. Interest on BABs is fully taxable
C. Capital gains on BAB bonds are fully taxable.
D. Issuers of BABs receive a 35% rebate on interest costs for the bonds
A. Investors in BAB bonds receive an annual tax credit
An investor purchases a 10-year new issue municipal bond at an offering price of $995. Because this discount is classified as a de minimis discount, it is
A. Amortized over the life of the bond
B. Ignored and not subject to taxation
C. Accreted over the life of the bond
D. Considered interest income subject to ordinary income taxes
B. Ignored and not subject to taxation
For a negotiated issue, the date of sale is defined as:
A. The settlement date
B. The date on which the underwriter priced the issue
C. The date on which the contract to purchase the securities has been executed or awarded
D. The dated date
C. The date on which the contract to purchase the securities has been executed or awarded
A bond that is purchased in the secondary market for 110 is held until its maturity in 10 years. Which of the following statements is TRUE?
A. The investor must report a capital loss of $100
B. The investor has neither gain nor loss to report
C. The investor must report ordinary income of $100
D. The investor must report a capital gain of $100
B. The investor has neither gain nor loss to report
All of the following secondary market information may be found on the Electronic Municipal Market Access (EMMA) system, EXCEPT:
A. The most actively traded municipal securities
B. The price a municipal securities transaction was executed by a broker-dealer
C. The amount of the transaction that was executed by a broker-dealer
D. Pricing information of municipal securities which are currently being offered by broker-dealers
D. Pricing information of municipal securities which are currently being offered by broker-dealers
What is the consequence if the IRS later determines that the issuer violated the Treasury arbitrage restrictions?
A. The interest on the bonds will become federally tax-exempt
B. The interest payments will no longer be made
C. Any interest payments made in the past will become federally taxable
D. Any future interest payments will be federally taxable.
C. Any interest payments made in the past will become federally taxable
A bond which was originally purchased 2 years ago at 90 will mature in 2020. The bond is presently trading at 88 and is sold. For tax purposes the investor must report
A. Ordinary income of $20
B. long term capital loss of $120
C. A long term capital gain of $120
D. A long term capital loss of $20
D. A long term capital loss of $20
XYZ Bank purchases $5mm of qualified bonds. What percentage of the interest expense used to fund the purchase is tax-deductible?
A. 80%
B. 100%
C. 20%
D. No tax deduction is available
A. 80%
An investor purchases a 20-year municipal bond at a price of 110. The bond is sold five years later for 107. If the bond's cost basis at the time of sale is 109, the tax consequence is
A. A capital loss of $30
B. A capital gain of $30
C. A capital loss of $20
D. A capital gain of $10
C. A capital loss of $20
When comparing a negotiated sale to a competitive sale, which of the following statements is true?
A. Competitive sales usually have a higher gross spread
B. Negotiated sales usually ensure that the lowest price was paid for the bonds
C. A competitive sale is likely to include a higher risk premium
D. Negotiated sales are usually less flexible than competitive sales
C. A competitive sale is likely to include a higher risk premium
For a municipal bond issuer, what is the biggest difference between true interest cost (TIC) and net interest cost (NIC)
A. TIC measures interest cost over the full life of the bond; NIC does not
B. NIC measures interest cost over the full life of the bond; TIC does not
C. NIC includes the time value of money; TIC does not
D. TIC includes the time value of money; NIC does not
D. TIC includes the time value of money; NIC does not
The private activity use test classifies a bond as a private activity bond if more than
I. 5% of the bond proceeds are used for a private purpose
II. 10% of the bond proceeds are used for a private purpose
III. 5% of the bond proceeds is the maximum amount used to make or finance loans
IV. 10% of the bond proceeds is the maximum amount used to make or finance loans
A. II and IV
B. I and IV
C. II and III
D. I and III
C. II and III
If a bank invests in bank qualified municipal bonds which two of the following statements are true?
I. The bank can deduct 80% of the cost of the issue it purchases
II. The bank can deduct 80% of the carrying costs associated with the issue
III. The bank will earn a rate of interest that is higher than most similar municipal issues
IV. The bank will earn a rate of interest that is lower than most similar municipal issues
A. II and III
B. I and III
C. I and IV
D. II and IV
D. II and IV
An investor purchases a municipal zero coupon bond. The tax treatment that applies to this bond is most similar to.
A. The taxation of municipal bonds that are purchased in the secondary market at a premium
B. The taxation of secondary market discount municipal bonds
C. The tax treatment of municipal OID bonds
D. The taxation of U.S. treasury bonds
C. The tax treatment of municipal OID bonds
With regard to long term capital gains taxation, which two of the following statements are TRUE?
I. A long term gain requires a holding period of at least 24 months
II. A long term gain requires a holding period of greater than 12 months
III. A long term capital gain is taxed at a higher rate than a short term capital gain
IV. A long term capital gain is taxed at a lower rate than a short term capital gain
A. I and III
B. II and III
C. II and IV
D. I and IV
C. II and IV
Characteristics of private activity bonds include which two of the following:
I. May trade with a higher yield than other municipal bonds
II. May trade with a lower yield than other municipal bonds
III. Are often subject to alternative minimum tax
IV. Are usually exempt from alternative minimum tax
A. I and IV
B. II and III
C. I and IV
D. I and III
D. I and III
For the purpose of price discovery, similar securities may be determined to be:
I. of similar credit quality
II. of similar geographic region
III. of similar structure and revenue source
IV. of similar size and issue date
A. II and IV
B. II and III
C. I and II
D. I and III
D. I and III
What is the typical sequence for the order period:
I. Designated Orders
II. Group Orders
III. Member Orders
IV. Presale Orders
A. I, II, III, IV
B. IV, II, I, III
C. IV, I, III, II
D. IV, III, II, I
B. IV, II, I, III
An underwriter is submitting a bid at par on the following $10,000,000 serial bond. The maturities included in the issue are:$2,000,000 maturing in 5 years offered at 4.00%; $3,000,000 maturing in 6 years offered at 4.25%; and $5,000,000 maturing in 7 years offered at 4.50%. The computation of the bid includes
A. 35 bond years
B. 63 bond years
C. 35,000 bond years
D. 63,000 bond years
D. 63,000 bond years
Which two of the following statements correctly state the tax treatment that applies to municipal securities?
I. Capital gains are fully taxable
II. Capital gains are tax deductible
III. Interest payments are generally tax free at the federal level
IV. Interest payments are taxable at the federal level but exempt at the state level.
A. II and IV
B. I and III
C. I and IV
D. II and III
B. I and III
A municipal financial advisor hired by a California City School District (Aa1) is charged with constructing a new issue scale based on comparable securities. Which of the following is the best comparison?
A. San Jose Unified School District CA GO (Aa2 rated).
B. Trustees of the California State University Rev (Aa2).
C. Los Angeles Depart. of Water and Power Rev.(Aa)
D. State of California GO (Aa3 rated).
A. San Jose Unified School District CA GO (Aa2 rated).
A new issue of municipal bonds includes $100mm that matures in 2037 and $400mm that matures in 2038. On the first day after the date of sale $20 mm of the '37s are sold and $25mm of the '38s are sold. Which of the following statements regarding the issue price is true?
A. Only the issue price of the '38s can be determined from the information above.
B. The issue price from both '37s and '38s can be determined form the information above.
C. The issue price of neither the '37s nor '38s can be determined form the information above.
D. Only the issue price of the '37s can be determined from the information above.
D. Only the issue price of the '37s can be determined from the information above.