SIE practice questionhardMunicipal Bonds — Build America Bonds
Which of the following is TRUE regarding the analysis of GO bonds versus revenue bonds?
- ARevenue bonds are analyzed based on the taxing power of the municipality
- BThere is no difference in how GO and revenue bonds are analyzed
- CGO bonds are analyzed based on the feasibility study of a specific project
- DGO bonds are analyzed based on the issuer's tax base, debt ratios, and economic conditions; revenue bonds are analyzed based on project feasibility and revenue projections✓ Correct answer
Explanation
Why D — GO bonds are analyzed based on the issuer's tax base, debt ratios, and economic conditions; revenue bonds are analyzed based on project feasibility and revenue projections
GO bond analysis focuses on the municipality's ability to levy and collect taxes: assessed property values, tax collection rates, debt per capita, and overall economic health. Revenue bond analysis focuses on the specific project: the feasibility study, projected revenue, coverage ratio (revenue to debt service), and competing facilities. Each type has its own distinct credit analysis framework.
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