CPFO ACTUAL EXAM PAPER 2026
QUESTIONS WITH SOLUTIONS GRADED A+
◉ Bond Covenants
Answer: Promises a government makes about paying for the bond.
Usually includes
- Rate covenants
- Additional bond test
- Operation and maintenance requirements
May be required to have a debt service reserve fund and/or bond
insurance
◉ Limited Tax Government Obligation Bond
Answer: Issued when debt limits become a factor.
Government pledges property tax up to a certain amount or secures
the bond with available general fund revenues
◉ Liquidity Facility
Answer: short-term financing option such as a letter of credit
◉ Capital Improvement Plan
,Answer: A plan, adopted by the board, that identifies projects to be
funded, funding sources, and project expenditures over time.
◉ Private-Activity Bonds
Answer: Bonds for which:
1. Greater than 10% of the proceeds will be used by a private entity
or will finance facilities to be used by private entity and
2. Payment of the principle of or interest on greater than 10% of the
balance will be paid from or secured by private sources
◉ Exempt Facility Bonds
Answer: A type of private activity bond that is tax-exempt
95% or greater of the net proceeds are used to finance a facility, and
the facility must be available on a regular basis for general public
use
◉ Qualified 501(c)(3) Bonds
Answer: A type of tax exempt private - activity bond
,Issued for projects of 501 (c)(3) non-profit organizations such as
educational or healthcare facilities
◉ General Obligation Bonds
Answer: Bonds used to finance government improvements that
benefit the community as a whole
Secured by the full faith and credit and taxing authority of the issuer
◉ Revenue Bonds
Answer: Bonds issued to finance facilities that have a definable user
or revenue base
Secured by a special source of funds: 1) operations of the project
being financed or 2) a dedicated revenue stream
◉ Double-barreled bonds
Answer: Bonds which are secured by both a dedicated revenue
stream as well as a government taxing power
◉ Special Assessment/Special Improvement District Bonds
Answer: Bonds issued to finance improvements that benefit a
specific area
, ◉ Certificates of Participation (COPs)
Answer: Lease-purchase agreements where the government leases
an asset over a specified time with a predetermined cost sufficient to
cover principal and interest; the lesser identifies investors to find
the asset and the investors' interest is tax-exempt
◉ Variable-rate Instruments
Answer: Bonds that are structured with maturities as long as an
issuer's fixed rate (example, 20-30 years), but where interest is
adjusted daily, weekly, or at some other interval
◉ Variable Demand Rate Obligations (VRDO)
Answer: Debt instruments with long-term maturities and a coupon
interest rate that is reset periodically. Includes a demand or "put"
feature that permits the investor to require repayment of debt at the
time of reset or at other intervals. Issuers usually also purchase a
liquidity facility to offset risk of the put feature being used.
◉ Auction Rate Securities
Answer: Variable rate securities where the interest-rate is reset
periodically using a Dutch auction process.
◉ Dutch auction
QUESTIONS WITH SOLUTIONS GRADED A+
◉ Bond Covenants
Answer: Promises a government makes about paying for the bond.
Usually includes
- Rate covenants
- Additional bond test
- Operation and maintenance requirements
May be required to have a debt service reserve fund and/or bond
insurance
◉ Limited Tax Government Obligation Bond
Answer: Issued when debt limits become a factor.
Government pledges property tax up to a certain amount or secures
the bond with available general fund revenues
◉ Liquidity Facility
Answer: short-term financing option such as a letter of credit
◉ Capital Improvement Plan
,Answer: A plan, adopted by the board, that identifies projects to be
funded, funding sources, and project expenditures over time.
◉ Private-Activity Bonds
Answer: Bonds for which:
1. Greater than 10% of the proceeds will be used by a private entity
or will finance facilities to be used by private entity and
2. Payment of the principle of or interest on greater than 10% of the
balance will be paid from or secured by private sources
◉ Exempt Facility Bonds
Answer: A type of private activity bond that is tax-exempt
95% or greater of the net proceeds are used to finance a facility, and
the facility must be available on a regular basis for general public
use
◉ Qualified 501(c)(3) Bonds
Answer: A type of tax exempt private - activity bond
,Issued for projects of 501 (c)(3) non-profit organizations such as
educational or healthcare facilities
◉ General Obligation Bonds
Answer: Bonds used to finance government improvements that
benefit the community as a whole
Secured by the full faith and credit and taxing authority of the issuer
◉ Revenue Bonds
Answer: Bonds issued to finance facilities that have a definable user
or revenue base
Secured by a special source of funds: 1) operations of the project
being financed or 2) a dedicated revenue stream
◉ Double-barreled bonds
Answer: Bonds which are secured by both a dedicated revenue
stream as well as a government taxing power
◉ Special Assessment/Special Improvement District Bonds
Answer: Bonds issued to finance improvements that benefit a
specific area
, ◉ Certificates of Participation (COPs)
Answer: Lease-purchase agreements where the government leases
an asset over a specified time with a predetermined cost sufficient to
cover principal and interest; the lesser identifies investors to find
the asset and the investors' interest is tax-exempt
◉ Variable-rate Instruments
Answer: Bonds that are structured with maturities as long as an
issuer's fixed rate (example, 20-30 years), but where interest is
adjusted daily, weekly, or at some other interval
◉ Variable Demand Rate Obligations (VRDO)
Answer: Debt instruments with long-term maturities and a coupon
interest rate that is reset periodically. Includes a demand or "put"
feature that permits the investor to require repayment of debt at the
time of reset or at other intervals. Issuers usually also purchase a
liquidity facility to offset risk of the put feature being used.
◉ Auction Rate Securities
Answer: Variable rate securities where the interest-rate is reset
periodically using a Dutch auction process.
◉ Dutch auction
