CGFO EXAM STUDY TEST
QUESTIONS AND
CORRECT ANSWERS
GRADED A+ 2025-2026
Ad Valorem Tax - ANS-A direct tax based "according to value" of property. Counties
and school districts and municipalities usually are, and special tax districts may be,
authorized by law to levy ad valorem taxes on property other than intangible personal
property. Local governmental bodies with taxing power may issue bonds or short-term
certificates payable from ad valorem taxation.
Advance Refunding - ANS-The refinancing of outstanding bonds by the issuance of a
new issue of bonds prior to the date on which the outstanding bonds become due or
are callable. Accordingly, for a period of time, both the issue being refunded and the
refunding issue are outstanding.
Bonds are "escrowed to maturity" when the proceeds of the refunding bonds are
deposited in
escrow for investment in federal securities in an amount sufficient to pay, when due,
the principal
of and interest on the issue being refunded. Bonds are considered "pre-refunded" when
the
refunding bond proceeds are escrowed only until the call day of the refunded issue.
The Internal
Revenue Code restricts the yield which may be earned on investment of the proceeds
of
refunding bonds.
Amortization - ANS-The process of paying the principal amount of an issue of bonds
by the periodic payments either directly to bondholders or to a sinking fund for the
,benefit of bondholders. Payments are usually calculated to include interest in addition
to a partial payment of the original principal amount.
Arbitrage - ANS-Generally, transactions by which securities are bought and sold in
different markets at
the same time for the sake of profit arising from a difference in prices in the two
markets. With
respect to the issuance of municipal bonds, arbitrage usually refers to the difference
between the
interest paid on the bonds issued and the interest earned by investing the bond
proceeds in other
securities. Arbitrage profits are permitted on bond proceeds for various temporary
periods after
issuance of municipal bonds. Internal Revenue Service regulations govern arbitrage of
municipal bond proceeds.
Balloon Maturity - ANS-A later maturity within an issue of bonds which contains a
disproportionately large percentage of the principal amount of the original issue.
Provision is often made for payment of the balloon maturity by making periodic
payments to a sinking fund for the
mandatory redemption of specified amounts prior to their stated maturity.
Average Life or Average Maturity - ANS-The number of years equal to the total bond
years divided by the total number of bonds (1 bond=$1,000 regardless of actual
denomination). The average
maturity reflects how rapidly the principal of an issue is expected to be paid and is
important to
underwriters in calculating bids for new issues of municipal securities.
Basis Point - ANS-One basis point is equal to 1/100 of one percent. If interest rates
increase from 8.25% to 8.50%, the difference is refereed to as a 25 basis point increase.
Bidding Syndicate - ANS-One or more firms of underwriters that act together to submit
a proposal to underwrite a bond issue.
, Blue Sky Laws - ANS-Common term for state securities law, which vary from state to
state. Generally refers to provision related to prohibitions against fraud, dealer and
broker regulations, and securities registration.
Bond - ANS-A way of borrowing money long term for capital projects. A bond is a
promise to repay
money borrowed on a particular date often 10 or 20 years in the future. Most bonds
also involve
a promise to pay a specified dollar amount of interest at predetermined intervals.
Bond Buyer, The - ANS-A trade paper of the municipal bond industry published in New
York City each business day, which contains advertisements for offerings of new
issues of municipal bonds, notices of bond redemptions, statistical analyses of market
activity, results of previous bond sales, and articles reacting to financial markets and
public finance.
Bond Contract - ANS-The legal agreement between the issuer and the debt holder,
which defines the security and terms of the debt. Usually found in: (1) any substantive
resolution, ordinance, or bond legislation authorizing the debt; (2) the trust indenture
(if applicable); and (3) the form of
the bond itself.
Bond Counsel or Bond Approving Counsel - ANS-An attorney (or firm of attorneys)
retained by the
issuer to give a legal option that the issuer is authorized to issue proposed bonds, the
issuer has
met all legal requirements necessary for issuance, and interest in the proposed bonds
will be
exempt from federal income taxation and , where applicable, from state and local
taxation.
Typically, bond counsel may prepare, or review and advise the issuer regarding,
authorizing
resolutions or ordinances, trust indentures, official statements, validation proceedings
and
litigation.
QUESTIONS AND
CORRECT ANSWERS
GRADED A+ 2025-2026
Ad Valorem Tax - ANS-A direct tax based "according to value" of property. Counties
and school districts and municipalities usually are, and special tax districts may be,
authorized by law to levy ad valorem taxes on property other than intangible personal
property. Local governmental bodies with taxing power may issue bonds or short-term
certificates payable from ad valorem taxation.
Advance Refunding - ANS-The refinancing of outstanding bonds by the issuance of a
new issue of bonds prior to the date on which the outstanding bonds become due or
are callable. Accordingly, for a period of time, both the issue being refunded and the
refunding issue are outstanding.
Bonds are "escrowed to maturity" when the proceeds of the refunding bonds are
deposited in
escrow for investment in federal securities in an amount sufficient to pay, when due,
the principal
of and interest on the issue being refunded. Bonds are considered "pre-refunded" when
the
refunding bond proceeds are escrowed only until the call day of the refunded issue.
The Internal
Revenue Code restricts the yield which may be earned on investment of the proceeds
of
refunding bonds.
Amortization - ANS-The process of paying the principal amount of an issue of bonds
by the periodic payments either directly to bondholders or to a sinking fund for the
,benefit of bondholders. Payments are usually calculated to include interest in addition
to a partial payment of the original principal amount.
Arbitrage - ANS-Generally, transactions by which securities are bought and sold in
different markets at
the same time for the sake of profit arising from a difference in prices in the two
markets. With
respect to the issuance of municipal bonds, arbitrage usually refers to the difference
between the
interest paid on the bonds issued and the interest earned by investing the bond
proceeds in other
securities. Arbitrage profits are permitted on bond proceeds for various temporary
periods after
issuance of municipal bonds. Internal Revenue Service regulations govern arbitrage of
municipal bond proceeds.
Balloon Maturity - ANS-A later maturity within an issue of bonds which contains a
disproportionately large percentage of the principal amount of the original issue.
Provision is often made for payment of the balloon maturity by making periodic
payments to a sinking fund for the
mandatory redemption of specified amounts prior to their stated maturity.
Average Life or Average Maturity - ANS-The number of years equal to the total bond
years divided by the total number of bonds (1 bond=$1,000 regardless of actual
denomination). The average
maturity reflects how rapidly the principal of an issue is expected to be paid and is
important to
underwriters in calculating bids for new issues of municipal securities.
Basis Point - ANS-One basis point is equal to 1/100 of one percent. If interest rates
increase from 8.25% to 8.50%, the difference is refereed to as a 25 basis point increase.
Bidding Syndicate - ANS-One or more firms of underwriters that act together to submit
a proposal to underwrite a bond issue.
, Blue Sky Laws - ANS-Common term for state securities law, which vary from state to
state. Generally refers to provision related to prohibitions against fraud, dealer and
broker regulations, and securities registration.
Bond - ANS-A way of borrowing money long term for capital projects. A bond is a
promise to repay
money borrowed on a particular date often 10 or 20 years in the future. Most bonds
also involve
a promise to pay a specified dollar amount of interest at predetermined intervals.
Bond Buyer, The - ANS-A trade paper of the municipal bond industry published in New
York City each business day, which contains advertisements for offerings of new
issues of municipal bonds, notices of bond redemptions, statistical analyses of market
activity, results of previous bond sales, and articles reacting to financial markets and
public finance.
Bond Contract - ANS-The legal agreement between the issuer and the debt holder,
which defines the security and terms of the debt. Usually found in: (1) any substantive
resolution, ordinance, or bond legislation authorizing the debt; (2) the trust indenture
(if applicable); and (3) the form of
the bond itself.
Bond Counsel or Bond Approving Counsel - ANS-An attorney (or firm of attorneys)
retained by the
issuer to give a legal option that the issuer is authorized to issue proposed bonds, the
issuer has
met all legal requirements necessary for issuance, and interest in the proposed bonds
will be
exempt from federal income taxation and , where applicable, from state and local
taxation.
Typically, bond counsel may prepare, or review and advise the issuer regarding,
authorizing
resolutions or ordinances, trust indentures, official statements, validation proceedings
and
litigation.
