Series 7 - General Securities Representative Exam

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Which TWO of the following are TRUE of advance refunding in municipal bonds?

Municipalities typically use it to lower borrowing costs and to take advantage of lower interest rates & Municipalities use it when seeking to postpone their debt payments instead of than having to pay off a large amount of debt in the present
A
Municipalities typically use it to lower borrowing costs and to take advantage of lower interest rates & Municipalities use it when convertible bonds are about to be exchanged for the underlying asset
B
Municipalities use it when seeking to postpone their debt payments instead of than having to pay off a large amount of debt in the present & Municipalities use it when call options are about to expire in the underlying equity asset
C
Municipalities use it when seeking to postpone their debt payments instead of than having to pay off a large amount of debt in the present & Municipalities use it when convertible bonds are about to be exchanged for the underlying asset
D

Explanations

Convertible bonds are corporate bonds. The underlying equity asset is a municipal bond, so call options that refer to an equity asset do not apply. Municipalities typically use it to lower borrowing costs and to take advantage of lower interest rates & Municipalities use it when seeking to postpone their debt payments instead of than having to pay off a large amount of debt in the present STATEMENTS are true.

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