CFA Practice Question

CFA Practice Question

Which of the following rankings is CORRECT concerning the security of a municipal bond. The symbol ">" means "more secure than."
A. Revenue bond > General obligation bond
B. Privately insured revenue bonds > General obligation bonds secured by supplemental fees
C. Pre-refunded bonds > General obligation bonds
Explanation: Pre-refunded bonds are the safest of all municipal bonds. They are secured by the deposit of an equivalent amount of U.S. Treasury securities in a trust as collateral, with matching cash flows.

User Contributed Comments 5

User Comment
danlan How about A?
george2006 I guess that C trumped A.
jayjunk If revenue bonds are backed by revenues (possibly from specific sources), whereas general obligation bonds are backed by all sources, that would make general obligation bonds more secure than revenue bonds.
kfly General obligation bond > Revenue bond because investor w/ Revenue bond is only paid if the project backing the bond succeeds
ofabian General obligation bonds are secured by the full faith and credit of the issuing government. Revenue bonds are secured by a revenue source that may or may not continue to support debt service. GO bonds obligate the municipality to step in and use its general fund or raise taxes - no matter what - to ensure payment. The only thing backing revenue bonds are revenues - imagine a toll road - tolls pay the debt service - now imagine a new road is built to compete and draw users away - GO bonds are far more secure. A is not correct.
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