CGFO Debt Administration 5

Question 1

What is the purpose of a 'preliminary official statement' (POS) in a municipal bond offering?

Accepted Answer

To disclose material information to potential investors before final terms are set

Answer

The POS discloses financial, legal, and security information to potential investors during the marketing period before final pricing and terms are established.

Question 2

Which measure calculates the total interest cost of a bond issue by discounting all cash flows to the sale date at a single rate?

Accepted Answer

True Interest Cost (TIC)

Answer

True Interest Cost (TIC), also called the Canadian method, is the single discount rate that equates the present value of all debt service cash flows to the bond proceeds received.

Question 3

Under GASB standards, how are general obligation bonds typically reported on a government's financial statements?

Accepted Answer

As long-term liabilities in the government-wide statement of net position

Answer

Under GASB, GO bonds are reported as long-term liabilities in the government-wide statement of net position, while governmental fund statements recognize only current maturities.

Question 4

What is a 'private activity bond' test under federal tax law?

Accepted Answer

A test to determine if more than 10% of bond proceeds benefit private entities, which may affect tax-exempt status

Answer

A bond is a private activity bond if more than 10% of proceeds are used for private business use and more than 10% of debt service is secured by or derived from private payments.

Question 5

A government uses a competitive bidding process and receives three bids. How is the winning bidder determined?

Accepted Answer

The bidder offering the lowest True Interest Cost (TIC) or Net Interest Cost (NIC) as specified in the notice of sale

Answer

In a competitive sale, the issuer awards bonds to the underwriter offering the lowest borrowing cost as measured by TIC or NIC, as specified in the notice of sale.

(CGFO) Certified Government Finance Officer Practice Test

(CGFO) Certified Government Finance Officer Practice Test

CGFO Debt Administration 5