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CPFO Debt Exam Practice Questions with

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If it is not permissible to enter into swap transactions related to an entity's debt , where would that be stated? A. Debt Policy B. Continuing Disclosure Agreement C. Tax Certificate D. Underwriter's Agreement A. Debt Policy What should be included in an entity's debt policy A. debt issuance process B. managing the debt portfolio C. guidelines for structuring D. all of the above D. all of the above A downward sloping yield curve CANNOT be consistent with which of the following? A. Investors anticipate inflation will be higher in the future. B. Investors anticipate inflation will be lower in the future. C. Interest rates move higher in the future. D. Interest rates move lower in the future.

B. Investors anticipate inflation will be lower in the future. Which is true about LIBOR? A. LIBOR does not apply to municipal securities B. LIBOR only applies to swap contracts aligned with municipal securities C. LIBOR can not be referenced in new and needs to be phased out of existing financing contracts D. governments can not issue bonds unless they have a contract with LIBOR C. LIBOR can not be referenced in new and needs to be phased out of existing financing contracts Do all governments have the same levels of debt capacity? A. Yes, every government must maintain a debt capacity of less than 7% B. No, each government determines for themselves the appropriate level of debt capacity consistent with state law C. No, debt capacity amount is established by a rating agency D. No, federal law sets the amount of debt capacity for every issuer B. No, each government determines for themselves the appropriate level of debt capacity consistent with state law What is the most important attribute of a GO bond? A. typically is backed by the full faith and credit of the government and its taxing authority B. does not usually require voter or elected body approval

C. is limited to a certain amount set annually by the federal government D. is always issued using a competitive sale A. typically is backed by the full faith and credit of the government and its taxing authority All of the following are associated with a revenue bond transaction EXCEPT a: A. full faith and credit pledge. B. debt service reserve requirement. C. debt service coverage test. D. trust indenture. A. full faith and credit pledge. TANs, RANS, TRANs, BANs and GANs are all types of: A. short term municipal note obligations. B. investment instruments for debt service reserve funds. C. revenue bonds. D. lease structures. A. short term municipal note obligations. What determines if an entity can enter into a bank loan? A. state law allows B. you have discussed the option with your municipal advisor and/or others on your financing team and determined it is an optimal financing for your entity.

C. if they have hit their debt capacity limit D. both A and B D. both A and B Which one of these responsibilities do not apply to taxable debt? A. primary disclosure B. continuing disclosure C. arbitrage tracking D. legal opinion C. arbitrage tracking Which of the following is a clear benefit of a negotiated sale bond offering in contrast to a competitive sale bond offering? A. Ability to target specific kinds of investors B. Greater issuer involvement C. Greater responsibility on the issuer D. Issuer is assured of best pricing A. Ability to target specific kinds of investors In which of the following circumstances would an issuer be most likely to use a competitive sale? A. Issuer plans to sell bonds with a rating that is below investment grade. B. Issuer plans to sell bonds that are well understood by the investor community. C. Issuer plans to sell bonds with a complex security structure.

D. Issuer plans to sell bonds to a small group of sophisticated investors. B. Issuer plans to sell bonds that are well understood by the investor community. In comparison to similar non-callable securities, callable securities have: A. higher required and expected yields than non-callable securities. B. longer expected maturity. C. less constraint on upward price movement. D. lower coupon rates A. higher required and expected yields than non-callable securities. The ability to call bonds away from investors is of particular value to the issuer when: A. cash for coupon payments is unavailable. B. interest rates have declined significantly below the coupon interest rates on outstanding bonds. C. interest rates have increased significantly above the coupon interest rates on outstanding bonds. D. an issuer is prohibited from retaining arbitrage profits. B. interest rates have declined significantly below the coupon interest rates on outstanding bonds. Use of variable rate debt for financing has the following features EXCEPT: A. interest expenses that rise and fall with interest revenues.

B. useful to finance projects with high likelihood of prepayment. C. lower liquidity. D. requires greater financial management skill to implement. C. lower liquidity. Which of the following is not considered a derivative product? A. Interest rate swap B. Futures contract C. Variable rate demand obligations D. Option contract C. Variable rate demand obligations For a particular bond issue with a level debt service schedule, which of the following is true? A. Payments increase when interest rates rise. B. Annual interest payments increase over time. C. Principal balance decreases slowly early in the repayment, accelerating over time. D. Principal payments decrease over time. C. Principal balance decreases slowly early in the repayment, accelerating over time. A serial bond structure is one in which: A. the interest rate for each maturity is reset periodically. B. principal and interest payments are deferred for several years into the future.

C. a portion of the issue's aggregate par value matures each year. D. principal is paid in a lump sum when the issue is retired. C. a portion of the issue's aggregate par value matures each year. Duration: A. is a measure of volatility of bond returns. B. is influenced by the coupon rate and yield to maturity. C. provides an approximation of the percentage price change in a bond due to a change in interest rates. D. all of the above. D. all of the above. Bond counsel on the governmental issuer's financing team renders an opinion on: A. the validity of the tax-exempt bond offering. B. the likelihood of a successful bond offering. C. the superior benefits of the chosen structure of the bond offering. D. all of the above. A. the validity of the tax-exempt bond offering. In developing an RFP for municipal advisors, GFOA's best practices state that the government should establish that it will pay fees in the following ways: A. Contingent or hourly basis B. Hourly or retainer basis C. Contingent or retainer basis

D. None of the above B. Hourly or retainer basis While GFOA recommends use of this professional, which team member is not necessary on a bond transaction? A. bond counsel B. underwriter C. municipal advisor D. trustee/paying agent C. municipal advisor Who does an underwriter obtain an IRMA letter from A. Municipal Advisor B. Issuer C. Counsel D. Underwriter writes it themselves B. Issuer The Municipal Securities Rulemaking Board Rule G-37 prohibits a municipal securities dealer and municipal advisor from: A. underwriting a municipality's bonds within a two-year period after making contributions to an issuer official. B. serving as financial advisor to a municipality within a two-year period after making contributions to municipal officials. C. making a contribution to an issuer official within a two-year period after a negotiated sale transaction was conducted.

D. engaging in a transaction with an issuer within a two-year period after any contribution was made to an issuer official. D. engaging in a transaction with an issuer within a two-year period after any contribution was made to an issuer official. A financial institution or other required entity with trust powers that acts in a fiduciary capacity for the benefit of the bondholders, enforcing the terms of the trust indenture and often acting as paying agent, dissemination agent or escrow agent, is known as a: A. Bond Trustee B. Municipal Advisor C. Issuer D. Counsel A. Bond Trustee What is a role of a bond trustee? A. To ensure that governments submit payments so that bondholders can be paid principal and interest on their bond investments B. To monitor how an issuer spends the bond proceeds C. To facilitate communication between investors and issuers D. To make issuer filings in the EMMA system A. To ensure that governments submit payments so that bondholders can be paid principal and interest on their bond investments Investment grade bonds have the following ratings by Standard and Poor's/Fitch/Kroll and, Moody's, respectively: A. AAA/Aaa

B. AA/Aa or higher C. BBB/Baa or higher D. BB/Ba or higher C. BBB/Baa or higher How many credit ratings does GFOA recommend issuers obtain? A. Three B. Two C. The issuer themselves should determine how many ratings are appropriate for them D. How ever many are requested by the underwriter C. The issuer themselves should determine how many ratings are appropriate for them Which of the following is the preferred method for determining the interest cost of a bond issue? A. True interest cost B. Net interest cost C. Gross interest cost D. Premium interest cost A. True interest cost Bonds will sell at a discount when: A. bonds are rated below AAA. B. the coupon interest rate is lower than the market rate. C. bonds carry a fixed coupon rate.

D. interest rates have fallen since issuance at par. B. the coupon interest rate is lower than the market rate. In a negotiated sale, which of the following expenses does GFOA recommend NOT be included in the underwriter's fee? A. Reasonable costs of underwriters' counsel B. Commuting costs to and from work by the underwriters' staff C. Data service fees for transmitting information on interest rates, takedown and priority orders D. CUSIP fees B. Commuting costs to and from work by the underwriters' staff Which is NOT a component of the spread as compensation to the underwriter in a negotiated bond issue? A. The takedown B. The underwriting risk fee C. The coupon rate D. The underwriter's expenses C. The coupon rate Which of the following does not provide an investor with information about the security of a municipal bond issue? A. The agreement among underwriters B. The bond indenture C. The bond resolution D. The preliminary official statement (POS)

A. The agreement among underwriters Offering Statements and the Independent Auditor's Role use of or reference to audited financial statements. When delivered to a government, the audit reports and financial statements produced under this contract are public records and will be used: A. to fulfill the requirements of continuing disclosure under SEC rule 15c2-12. B. as inserts or incorporated by reference in offering documents issued by the government. C. for any lawful purpose of the [name of government], all without subsequent consent. D. All of the above. D. All of the above. Governments or governmental entities (Issuers) issuing bonds generally have an obligation to meet specific continuing disclosure standards set forth in continuing disclosure agreements (CDAs, also called continuing disclosure certificates or undertakings). Issuers enter into CDAs at the time of bond issuance to enable their underwriters to comply with Securities and Exchange Commission (SEC) Rule 15c2-12. This rule, which is under the Securities Exchange Act of 1934, sets forth certain obligations of: A. underwriters to receive, review and disseminate official statements prepared by issuers of most primary offerings of municipal securities. B. underwriters to obtain CDAs from issuers and other obligated persons to provide listed event disclosures and annual financial information on a continuing basis.

C. broker-dealers to have access to such continuing disclosure in order to make recommendations of municipal securities in the secondary market. D. All of the above. D. All of the above. An issuer's obligation to provide ongoing financial information for the term of a borrowing is known as: A. continuing disclosure. B. credit enhancement. C. compliance with the Rule of 1812. D. primary offering disclosure. A. continuing disclosure. In general, governments are required to provide pertinent information about their operations and financial condition for a bond issue: A. only at the time bonds are issued. B. at the time bonds are issued and then annually until they are retired. C. at the time bonds are issued and then every five years until they are retired. D. at the time bonds are issued, annually until they are retired, and whenever there is a material change in operations or financial condition.

D. at the time bonds are issued, annually until they are retired, and whenever there is a material change in operations or financial condition. What is true about laws related to municipal securities? A. Issuers only need to be concerned about federal laws B. Issuers only need to be concerned about state laws C. Issuers only need to be concerned about local laws D. Issuers need to be alert to laws at all levels of government D. Issuers need to be alert to laws at all levels of government Which of the following is an example of risk exposures that issuers should reveal to investors? A. Interest rate swaps entered into in connection with debt issuance B. Investment agreements for bond proceeds C. Insurance sureties used to fund reserve fund requirements D. All of the above D. All of the above Use of a website for disclosure will: A. provide release of information only to the desired investors. B. require a press release to confirm the information. C. reduce secondary market liquidity due to negative information. D. enhance the issuer's reputation in the credit markets. D. enhance the issuer's reputation in the credit markets.

What is the key reason to have formal post-issuance compliance policies? A. for counsel to understand the entity's policy B. to maintain compliance with federal securities and tax law C. shaving a formal policy allows governments to avoid having an IRS audit D. GFOA does not recommend having separate post-issuance compliance policies B. to maintain compliance with federal securities and tax law Do governments need to monitor how bond proceeds are spent? A. Yes, for federal securities law purposes B. Yes, for federal tax law purposes C. Governments may change the use of proceeds within the first three years of issuance D. Once the bonds are issued there are no federal laws related to use of proceeds. B. Yes, for federal tax law purposes For federal tax law purposes, how long must issuer maintain records? A. full payment of the bonds plus three years B. full payment of the bonds plus seven years C. full payment of the bonds D. three years after proceeds are spent A. full payment of the bonds plus three years

Federal arbitrage regulations are designed to achieve all of the following EXCEPT: A. limiting the ability of state and local governments to invest tax- exempt bond proceeds in taxable securities. B. preventing the over issuance of tax- exempt bonds. C. ensuring tax-exempt bond proceeds are spent in a timely manner. D. preserving flexibility for state and local governments in meeting capital needs. D. preserving flexibility for state and local governments in meeting capital needs. Which of the following federal laws relate to investment of bond proceeds? A. arbitrage calculations B. yield restrictions C. Both A and B D. None of the above C. Both A and B What should be part of an entity's debt policy regarding investment of bond proceeds? A. List permitted investments B. whether investments should be/are separated from general funds C. ensure investment strategy coincides with liquidity and spending bond proceeds D. all of the above

D. all of the above Which of the following criteria should be established in an entity's debt policy for determining when to execute a refunding? A. Stating the underwriter will notify issuer when a refunding opportunity exists B. Net Present Value (NPV) savings amount by percentage or dollar amount C. Percentage of debt outstanding D. Based solely on prevailing interest rates B. Net Present Value (NPV) savings amount by percentage or dollar amount For which of the following reasons would a government most likely undertake a refunding? A. Change call provisions on outstanding debt B. Achieve interest cost savings C. Modify restrictive bond covenants D. Both B and C D. Both B and C When is it optimal for an entity to undertake a tax-exempt advanced refunding? A. when they have another issuance in the market B. when rates are higher from the amount at original issuance C. when rates are lower than the amount at original issuance

D. governments are not allowed to advance refund their debt with tax-exempt bonds D. governments are not allowed to advance refund their debt with tax-exempt bonds What is the minimum amount of days governments should be alerted by a trustee/paying agent when a bond payment needs to occur? A. 15 days B. 45 days C. 30 days D. 60 days C. 30 days Individuals, either directly or through mutual funds or SMEs: A. are the largest group that purchases tax-exempt bonds. B. do not purchase bonds. C. the smallest group that purchases bonds. D. None of the above. A. are the largest group that purchases tax-exempt bonds. Default risk and credit risk are: A. known as risks that the issuer of a debt obligation may be unable to fulfill its obligation to pay investors. B. not known as risks. C. an amount of debt determined by the issuance team. D. None of the above.

A. known as risks that the issuer of a debt obligation may be unable to fulfill its obligation to pay investors. Conduit debt restrictions and criteria for determining the method of sale should be: A. considered for inclusion in a debt policy. B. not considered. C. considered for a procurement policy. D. None of the above. A. considered for inclusion in a debt policy. Does GFOA recommend issuing pension obligation bonds? A. Yes B. No C. Maybe D. None of the above. B. No The legal limit on the amount of bonds outstanding is typically expressed as a percentage of the jurisdiction's assessed or market value is known as: A. an entity's legal debt capacity. B. variable rate. C. the budget. D. None of the above. A. an entity's legal debt capacity.

Net revenue divided by debt service is the ratio of: A. debt service coverage. B. conduit debt. C. yields. D. None of the above. A. debt service coverage. Revenue bonds are: A. most likely to have a debt service reserve fund requirement B. least likely to have a debt service reserve fund requirement C. unrelated to debt management. D. None of the above. A. most likely to have a debt service reserve fund requirement Is voter approval required for revenue bonds? A. Yes B. No C. Maybe D. None of the above. B. No A takedown is also known as a: A. sales commission B. tax C. fee

D. levy A. sales commission The party who posts the POS in EMMA in a negotiated sale: A. Issuer B. Municipal advisor C. Underwriter D. Bond Counsel C. Underwriter