Series 7 Exam Question 282: Answer and Explanation

Question: 282

Which of the following statements regarding municipal revenue bonds is NOT true?

• A. Revenue bonds are not subject to a debt ceiling.
• B. Revenue bonds may be issued by interstate authorities.
• C. The maturity date of the issue will usually exceed the useful life of the facility backing the bonds.
• D. Debt service is paid from revenue received from the facility backing the bonds.

Correct Answer: C

Explanation:

C. You need to be careful in this case because the Series 7 examiners are asking you for a false statement. The maturity of revenue bonds may be 25 to 30 years, but the facility being built by the income received from the revenue bond issue is usually expected to last a lifetime. Revenue bonds may be issued by interstate authorities, such as tolls, and the debt service (interest and principal) on the bonds is paid from revenue received from the facility backing the bonds. In addition, revenue bonds are not subject to a debt ceiling; general obligation bonds are.