Series 7 Exam Question 308: Answer and Explanation

Question: 308

Which of the following statements is TRUE regarding municipal revenue bond issues?

• A. The bonds are backed by the issuer's unlimited taxing power.
• B. User fees provide revenue for bondholders.
• C. The bonds' feasibility is not dependent on the earnings potential of the facility or project.
• D. Revenue bonds are most suitable for investors with high risk tolerance.

Correct Answer: B

Explanation:

B. The answer is Choice (B). Choices (A), (C), and (D) are incorrect. Revenue bonds are generally considered low-risk because they're issued by municipalities. The riskiest municipal bonds are IDRs (Industrial Development Revenue bonds), which are backed by a corporation, not the municipality.