Series 52 Exam Flashcards

Trading flat means

Trading without accrued interest: zero coupon bonds, bonds in default, and sales that settle on the interest payment date

Settlement date can be extended beyond regular way

Yes, by agreement of both parties (e.g., T+9)

Split coupon bonds

Part zero-coupon and part coupon-paying; same issuer; different coupons that mature at the same time

Stepped coupon securities: what must be on confirmation

The interest rate currently being paid

Treasury notes/bonds quoted in

% of par in 1/32 increments; some actively traded issues in 1/64 shown by a “+”

104.07+ means

104 and 7/32 plus 1/64

Semiannual interest payments are based on

The maturity month of the bond issue

Put feature provides

Liquidity (not marketability)

Call protection and call premiums improve

Marketability

Level debt service

Combined annual principal + interest payments remain relatively constant

Current refunding

New issue proceeds deposited into escrow and used within 90 days to retire outstanding bonds

Advance refunding

New proceeds invested in very safe gov’t securities in escrow; once original bonds callable, escrow used to call them

Defeased bonds means

Backed by gov’t securities in escrow; no longer a liability on issuer’s balance sheet; new issue becomes liability

CABs (Capital Appreciation Bonds) are

A type of zero-coupon bond

Dated date

Date a bond begins accruing interest (not relevant for a zero)

Yield-to-worst (YTW)

Lower of YTM or YTC; shown on customer confirmation

For a discount bond, YTW is usually

YTM

For a premium bond, YTW is usually

YTC (earliest call date)

Rule-of-thumb: NY vs CY vs YTM spacing

Difference (NY−CY) ≈ difference (CY−YTM)

Investor prefers longer call date because

Better protection from reinvestment rate risk

Paying agent affects marketability?

No (it’s just the bank that disperses payments)

Larger issue size impact

Generally more marketable than smaller issue size

Do interest rate movements change credit risk?

No (they impact interest rate risk/price, not credit risk)

Which bonds are more impacted by interest rate risk

Longer maturity bonds

Duration: 30-year zero vs 30-year 4% coupon

30-year zero has longer duration

Same maturity & coupon, which has shorter duration

Bond with earlier call date

IRS arbitrage restrictions apply to

Tax-exempt bonds; limit earnings on invested proceeds exceeding coupon payments (not for taxable bonds)

SLGS are designed to help issuers comply with

IRS arbitrage restriction rules (avoid investing tax-exempt proceeds in higher-yielding taxable securities)

Partial call selection method

Lottery

Convexity measures

Change in duration in response to interest rate changes

Sewer/water system problem might be financed by

Special assessment bond (paid by property managers/owners assessed)

Super sinkers usually associated with

Mortgage revenue bond issues

Super sinker risk

Higher prepayment risk; first tranche repaid from mortgage prepayments

Why super sinkers attract certain investors

Long-term coupon with potentially short-term maturity

Bond insurance

Insurer guarantees debt service as due if issuer fails; pays on original schedule

Bond insurance effect on yields

Increases marketability; insured bonds have lower yields than comparable uninsured

Where to find credit rating for outstanding muni

Rating agency (and disclosure sources)

Maximum issuance size for bank-qualified bonds

$10 million

Underfunded pension liability means

Municipality lacks funds to cover retirement needs; hurts GO credit quality

Conduit financing

Municipality issues munis on behalf of another party (e.g., corp); example: industrial development revenue bonds

Appropriation bond definition

Requires municipality to appropriate funds in annual budget to pay debt service; example: lease revenue bond

Coverage ratio

Net revenues ÷ annual debt service; used for revenue bond analysis; higher is better

Additional bonds test applies to

Revenue bonds

Housing bonds trade at premium less often because

Greater call risk via special/extraordinary redemption provisions (calls at fixed price)

Underwriter credit quality vs issuer

Credit quality is issuer’s, not underwriter’s

VRDOs typically are

Puttable and backed by letter of credit (LOC)

VRDO put feature does what

Lets investor put back at par if they don’t like reset rate

VRDO vs Auction Rate Securities

VRDO: puttable + LOC; ARS: not

Feasibility study

Determines economic practicality of a proposed revenue issuance

Tax collection record

Taxes received ÷ taxes levied

529 plan: can health expenses be paid tax-free

No (not education-related)

BAN likely used for

Short-term financing of general expenses

Special assessment bonds default risk in weak economy

High (assessed population limited; concentrated hardship)

Which is more harmed by reduced consumer spending: airport vs utility revenue bond

Airport revenue bond (more discretionary)

AAA GO vs AAA revenue bond

GO AAA considered safer than revenue AAA

Roadway construction/maintenance commonly supported by

Toll revenue, fuel taxes, vehicle registration fees

Least likely roadway support source

Tax on sale of cars

Courthouse financing more likely

GO bonds

Revenue bond indenture may allow additional bonds

Yes (if same priority = parity/pari passu)

Parity bonds

Same priority claim against revenue source

EMMA provides

Free access to disclosure info including ratings

LGIP contribution maximum

No maximum limit

529 vs LGIP contributions

Larger contributions possible to LGIP than to 529

2025 annual gift tax limit

$19,000 per donee per year

529 superfunding amount (2025)

$95,000 in one year if treated as spread over 5 years

529 superfunding name

Superfunding / 5-year gift tax averaging

Municipal fund securities: rep must tell customer

Info in Official Statement; read carefully; consider objectives and risks (not required to mention EMMA)

ABLE account: beneficiary & account owner can be same

Yes

ABLE annual contribution limit equals

Annual gift tax limit ($19,000)

Capital gain holding period begins

Day following trade date (settlement date not needed)

De minimis exemption threshold

Less than 0.25% discount (de minimis rule)

Accreted value determination needs

Purchase date, maturity date, purchase price (current market price not relevant)

Qualified legal opinion

Subject to qualifications/concerns (less preferred)

Unqualified legal opinion

No concerns about legality (preferred)

AAU (Agreement Among Underwriters)

Contract binding syndicate in negotiated underwriting

AAU name in competitive sale

Syndicate account letter

Competitive bid underwriting flexibility

Generally less structurally flexible

Bond years used for

Determining net interest cost over life of bonds

Bond years found on customer confirmation

No

CUSIP application requires accrued interest

No

ARS and VRDOs are reported to

SHORT System

Financial advisor may become underwriter on same issue

No (applies to competitive and negotiated)

Underwriters fiduciaries under federal law

No

Municipal Advisors fiduciaries

Yes

Disclosures: Negotiated underwritings require

Additional disclosure; cannot omit material facts or misrepresent expertise (written or oral) in RFP/RFQ responses

Negotiated underwriting written conflict disclosures include

Duty to obtain fair price for issuer vs fair price to public; OS review responsibility; marketing/profit-sharing; payments for complex strategies (swaps, etc.)

Timing: issuer must receive arm’s-length disclosure

At earliest stage

Timing: disclosure of role/comp/conflicts

When underwriter brought in, no later than signing bond purchase agreement

Timing: disclosure of financing risks/conflicts

Prior to execution of bond purchase agreement

Underwriter must request this for receipt of disclosures from authorized official

Written acknowledgment

Underwriting compensation must be fair/reasonable based on

Credit quality; issue size; market conditions; time structuring; whether underwriter pays additional costs (e.g., counsel)

Selling group firms act as

Agent; no liability for unsold securities

Underwriter cannot discourage hiring a municipal advisor by implying

Underwriter can supply same advisory services

Municipal Finance Professional (MFP) definition

Associated person engaged in trading/underwriting/financial advising/origination of muni business

Retail-only sales person is an MFP

No

Political contribution: if not MFP then later becomes MFP

Two-year look-back applies; prohibited contributions trigger ban

Spouse contributions count under G-37

Not unless directed by MFP

$1,000 per plate fundraiser hosted by firm is

A contribution; triggers two-year ban

$5,000 to a PAC is

Not a G-37 violation (per this doc)

G-37 reporting form

Form G-37