CFA Practice Question

CFA Practice Question

Which of the following is (are) true about state/municipal bonds?

I. General Obligation bonds are backed by the full taxing power of the issuer.
II. Revenue bonds have a higher yield than General Obligation bonds.
III. Revenue bond payments are uncertain while those on GO bonds are backed by issuers.
A. I and II.
B. II and III.
C. I, II and III.
Explanation: Payments on revenue bonds are made from proceeds resulting from specific revenue-producing projects like toll-bridge or water-works construction. Since these payments are not certain, revenue bonds carry a higher yield as compensation.

User Contributed Comments 5

User Comment
danlan Both general obligation bonds and revenue bonds are state/municipal bonds.
jhuanghuy GO bond payments aren't certain either...
indrayudha GO bonds is backed through the taxing power of the state/municipal. So as long as their balance sheet is good, it's relatively more certain than Revenue bond.
jsykora The way option III is phrased leads you to beleive they are contrasting Revenue bonds uncertainity with GO bonds "certainty". GO bonds aren't certain, just backed by their taxing authority (not really the issuers).
ConnerVP1 The 'uncertain' statement threw me off. Thought they meant that the value of the payments was uncertain, i.e. floating rate or able to be postponed like a preferred share... chose A and got it wrong.
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