Series 7 - General Securities Representative Exam
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A municipality is preparing for a bond offering. Interest rates have been low, but they have risen just slightly in the past 3 months. The outlook is that interest rates will be going up due to the Federal Reserve outlook and tightening. Which of the following is the municipality MOST likely to do?
Issue long term bonds
A
Issue short term bonds
B
Delay the issuance
C
Call in their bonds that are issued at lower interest rates
D
Explanations
The municipality would most likely issue longer term bonds; therefore locking in a lower rate of interest for an extended period of time. Short term bonds would cost more money in interest payments; since they would have to issue short term bonds again in a few years, at higher interest rates