How are bonds not pledged against specific assets or revenue streams classified__________?
Show answer Hide answer
Answer: A. general obligation bonds
Explanation
General obligation bonds are backed by the full faith and credit of the issuer without specific asset pledges. Issuers rely on their taxing power and general revenues to service and repay these unsecured debt securities. Because they lack collateral backing, the creditworthiness of general obligation bonds depends entirely on issuer taxation. Municipalities issue general obligation bonds to finance public projects like schools, parks, and infrastructure. Investors view these municipal bonds as relatively safe because local governments possess legal authority to levy taxes. Voter approval is frequently required before a local government can issue general obligation debt securities.
General obligation notes are short term debt instruments rather than long term municipal bonds. General obligation tax is a confusing misnomer that does not describe a recognized municipal bond security. General obligation savings is an incorrect term unrelated to municipal debt issuance and underwriting practices.
- Subject
- Accounting and Finance
- Category
- Finance
- Topic
- —
- Difficulty
- medium
Related questions
Q1. How are unsecured bonds backed solely by the creditworthiness of the issuing firm classified____________?
Show answer Hide answer
Answer: D. debentures
Debentures are unsecured bonds backed solely by the general creditworthiness of the issuing company. Because they lack specific physical collateral, debenture holders rely entirely on corporate earnings power. In liquida...
Q2. How are bonds rated below triple-B by Standard & Poor's considered______________?
Show answer Hide answer
Answer: C. junk bonds
Bonds rated below investment grade by major agencies are commonly referred to as junk bonds. Standard and Poor's assigns ratings below BBB-minus to debt instruments carrying higher default risks. Investors demand higher...
Q3. When market value compares to conversion value, how can a bondholder profit by surrendering bonds for other securities
Show answer Hide answer
Answer: D. exceeds market value of bond
Convertible bondholders can profit when the conversion value exceeds the bond's regular market value. Investors exercise their conversion option to exchange bonds for common stock at predetermined rates. This structural...
Q4. If the call premium is $456 and the bond's face value is $234, what is the bond's call price
Show answer Hide answer
Answer: D. 690
The call price is determined by adding the call premium to the bond's face value (456 + 234 = 690). Issuers exercising a call provision must pay investors the face value plus any stipulated call premium. This total call...
Q5. What is calculated by adding the call premium to the bond's face value: _____________?
Show answer Hide answer
Answer: A. call price of bond
Adding the call premium to the bond face value determines the total call price. Issuers pay this predetermined call price when exercising their right to redeem bonds early. Call price formulas ensure bondholders receive...
Q6. How are bonds with original loan maturities longer than promised payments classified_________?
Show answer Hide answer
Answer: C. Brady bonds
Brady bonds are restructured debt instruments issued by developing nations to resolve sovereign loan crises. Named after a former United States Treasury Secretary, these bonds helped stabilize international banking. Deve...