Exercise
Answer the following questions
- 1. Which of the following characteristics are most likely to generate confidence in a GO bond?
- I. The mayor of the issuing municipality serves four-year terms.
- II. The municipality is home to several retirement communities.
- III. The net overall debt per capita is $1,750.
- IV. The net debt to assessed valuation is not much higher than the net debt to estimated real valuation.
- A. I and II
- B. III and IV
- C. I and III
- D. II and IV
- 2. The city of Smithville has a population of 150,000 people. It has $200 million in outstanding GO bonds, $500 million in revenue bonds, and its citizens owe $100 million in overlapping debt to the county. Smithville currently has $50 million in cash and reserves. What is the net overall debt per capita of Smithville?
- A. $1,666.67
- B. $5,333.33
- C. $5,000.00
- D. $5,666.67
Answers
- 1. Answer: C. A municipality with a strong governing official, including one who serves four-year terms or greater, is likely to inspire more confidence than one with a weak governing official. Also, a municipality with net overall debt per capita that does not exceed $2,000 to $5,000 indicates a low tax burden on local residents. Both of these characteristics will make a GO bond appear less risky to investors.
If a municipal