Series 79 practice questionmediumMunicipal Securities
Why do investors often focus on debt service coverage in revenue bond deals?
- ABecause coverage determines whether the bonds are equity
- BBecause coverage replaces project feasibility review
- CBecause coverage eliminates interest-rate risk
- DBecause pledged revenues must be sufficient to cover principal and interest obligations with an adequate cushion✓ Correct answer
Explanation
Why D — Because pledged revenues must be sufficient to cover principal and interest obligations with an adequate cushion
Because pledged revenues must be sufficient to cover principal and interest obligations with an adequate cushion Coverage ratios are a core measure of the strength of the pledged revenue stream relative to debt requirements. Weak coverage can signal elevated default risk or restrictive additional-bonds tests.
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