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Series 7 practice questionhardDebt Securities — Municipal Bonds — Flow of Funds

Under a net revenue pledge for a municipal revenue bond, debt service is paid from:

  1. AGross revenues before any operating expenses are paid
  2. BProperty tax assessments
  3. CThe municipality's general fund
  4. DNet revenues remaining after operating and maintenance expenses are paid✓ Correct answer
Explanation

Why D — Net revenues remaining after operating and maintenance expenses are paid

Under a net revenue pledge, operating and maintenance expenses are paid first from gross revenues, and then debt service is paid from the remaining net revenues. This contrasts with a gross revenue pledge, where debt service is paid first from gross revenues before operating expenses. A gross revenue pledge provides greater protection to bondholders because they have the first claim on all revenues.

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