CPFO COMPENSATION BENEFITS
COMPREHENSIVE TEST PAPER 2026
QUESTIONS AND CORRECT ANSWERS
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.
Answer: May be used with variable rate securities, investors submit the
interest-rate they require to continue to hold or to purchase securities to
COMPREHENSIVE TEST PAPER 2026
QUESTIONS AND CORRECT ANSWERS
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.
Answer: May be used with variable rate securities, investors submit the
interest-rate they require to continue to hold or to purchase securities to
