CPFO Debt Exam Questions with Complete Solutions Rated 100%
Tax-increment Financing Bonds - Answers Issued to promote revitalization of a given geographic area
- Debt is paid from the increase in property taxes generated from increased assessed values
- Can be risky
Bond Covenants - Answers 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 - Answers 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 - Answers short-term financing option such as a letter of credit
Capital Improvement Plan - Answers A plan, adopted by the board, that identifies projects to be funded,
funding sources, and project expenditures over time.
Private-Activity Bonds - Answers 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 - Answers 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 - Answers 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 - Answers 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 - Answers 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 - Answers Bonds which are secured by both a dedicated revenue stream as well
as a government taxing power
Special Assessment/Special Improvement District Bonds - Answers Bonds issued to finance
improvements that benefit a specific area
Certificates of Participation (COPs) - Answers 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 - Answers 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) - Answers 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 - Answers Variable rate securities where the interest-rate is reset periodically
using a Dutch auction process.
Dutch auction - Answers May be used with variable rate securities, investors submit the interest-rate
they require to continue to hold or to purchase securities to an auction agent. The lowest interest-rate
necessary to sell the entire amount of securities becomes the interest rate at which all securities are
sold.
Tax-increment Financing Bonds - Answers Issued to promote revitalization of a given geographic area
- Debt is paid from the increase in property taxes generated from increased assessed values
- Can be risky
Bond Covenants - Answers 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 - Answers 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 - Answers short-term financing option such as a letter of credit
Capital Improvement Plan - Answers A plan, adopted by the board, that identifies projects to be funded,
funding sources, and project expenditures over time.
Private-Activity Bonds - Answers 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 - Answers 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 - Answers 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 - Answers 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 - Answers 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 - Answers Bonds which are secured by both a dedicated revenue stream as well
as a government taxing power
Special Assessment/Special Improvement District Bonds - Answers Bonds issued to finance
improvements that benefit a specific area
Certificates of Participation (COPs) - Answers 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 - Answers 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) - Answers 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 - Answers Variable rate securities where the interest-rate is reset periodically
using a Dutch auction process.
Dutch auction - Answers May be used with variable rate securities, investors submit the interest-rate
they require to continue to hold or to purchase securities to an auction agent. The lowest interest-rate
necessary to sell the entire amount of securities becomes the interest rate at which all securities are
sold.
