Series 7 Exam Question 388: Answer and Explanation

Question: 388

Which of the following municipal bonds is backed by lease payments made by an underlying facility?

• A. IDR
• B. LTGO
• C. LRB
• D. BAB

Correct Answer: C

Explanation:

C. LRBs (lease revenue bonds) are similar to IDRs (industrial development revenue bonds), but instead of the bonds being backed by corporations, they're backed by lease payments made by office buildings, universities, prisons, and so forth. LTGOs (limited tax general obligation bonds) are a type of GO (general obligation) bond that's backed by taxes that aren't used to back other bonds. BABs (build America bonds) are taxable municipal bonds in which the U.S. Treasury either reimburses the issuer or gives a tax credit to investors for up to 35 percent of the interest cost.