AFSB 151 - Application (Chapters 1-8)
Questions With 100% Correct Answers
2023
Akiem owns a small hardware business. He plans to hire a contractor to build a new retail building for
his business. Akiem contacted his financial planner for advice on the type of bods he should require
from the contractor to be assured that the work will be completed properly, according to the
specifications and in compliance with city building codes. Akiem believes that personal suretyship,
backed by his brother (the surety), would be sufficient for his small business bond needs. What advice
and justification should the financial manager give Akiem regarding personal versus corporate
suretyship? - Correct Answer-Akiem's financial planner should explain to him that a person suretyship
with his brother as surety is a risky prospect. If the contractor (principal) and his brother both become
bankrupt, he could have little recourse for completing his building or recovering his lost funding, and
this could lead to conflicts with his brother. He should explain that corporate suretyship may seem
expensive, but the premiums, and corporate sureties have expert knowledge and are controlled by laws
to protect obligees form contractors' defaults. A corporate surety would evaluate the contractor
(principal) to determine whether he merits their backing and whether he has sufficient capital for
completing the job. A corporate surety would ensure that the building is completed as required.
Jacqueline is hiring a contractor to build a new home on her property after her former home was
destroyed by a disaster that struck her town. She is leery of contractors that are actively soliciting
building project in the disaster area, so she considered requiring that her selected contractor provide
construction contract bonds. Indicate whether this type of bond would be a statutory or non statutory
bond, and explain why Jacqueline might forgo this bond requirement if she confirms that the contractor
is bonded for commercial projects. - Correct Answer-The bond that Jacqueline might require is a non
statutory bond because it is not required by any statute or regulation, and it is required by an individual
in the private sector. Jacqueline may forgo this bond requirement if she confirms that the contractor is
bonded for commercial projects because she may believe that a performance guarantee is not needed
for a contractor that has qualified for a surety bond.
Russell is a producer who has been given power of attorney to execute surety bonds for Andressen
Surety, Inc. Scott, Russell's former schoolmate, owns Rooferenum, LTD, a local roofing contractor. Scott
requests that Russell obtain a performance bond form Surety, Inc., for contracts Rooferenum will
perform for the city. In the past, Scott had confided to Russell that, while operating under different
business names, he had numerous failed roofing operations and defaulted on contracts. Explain whether
Russell should execute a bond for Rooferendum and any responsibility that Russell owes to Andreeseen
Surety to share details of Scotts's previous failed roofing operations on a bond application. - Correct
, Answer-Russell should not execute a bond for Rooferendum because it likely would not fall within his
power of attorney. As a surety producer, Russell owed a responsibility to Andreessen's not to abuse his
underwriting authority. In a bond application, he should fairly and accurately develop all data on Scott
and his former business experiences, including the failures, so that Andreessen's underwriter can make
a sound decision about whether to extend a bond to Rooferendum and, if so, to require suitable
collateral.
Bowalent Construction successfully bid on a county job to build a new equipment shed. Bowalent
applied for financial from Hamilee Commerce Bank to fund the project and applied for the required
performance bond from SureRite Surety.
A) Assuming that Bowalent is granted the loan and bond, describe how the loan and bond transactions
will have been similar.
B) Assuming that Bowalent misjudged the cost of the building project and defaults on both the loan and
bond obligations, describe the similarities that will exist in Hamilee's and SureRite's handling of the
default.
C) Describe how SureRite's obligation on Bowalent's bond exceeds the extent of Hamilee's loan
obligation. - Correct Answer-A) If Bowalent is granted the loan and bond, both Hamilee and SureRite will
have performed a prequalificaiton process on Bowalent and decided to extend credit to the
organization, and both will charge a fee for extending the credit (bank interest and surety premium).
Neither will expect Bowalent to default on its obligations.
B) If Bowalent defaults on its loan and bond obligations, Hamilee and SureRite will have the right to
pursue repayment/restitution for resulting losses.
C) Because the surety bond guarantees performance of the contract as well as any monetary
obligations, SureRite must ensure that the construction contract is performed-that the shed is build
according to the contract terms, building specifications, and local building code. Hamilee's obligation
ends once it give payment to Bowalent.
Jamal was elected to the office of Daytin County treasurer and secured a surety bond form SureRite
Surety to meet the bond requirement of the office. Identify each party to the surety relationship in this
case, including any third-party beneficiaries. - Correct Answer-In this case, Jamal is the bond principal,
the Daytin County government is the obligee, SureRite Surety is the surety, and the residents of Daytin
County who may be injured by any wrongful or improper acts by Jamal may become third-party
beneficiaries.
Questions With 100% Correct Answers
2023
Akiem owns a small hardware business. He plans to hire a contractor to build a new retail building for
his business. Akiem contacted his financial planner for advice on the type of bods he should require
from the contractor to be assured that the work will be completed properly, according to the
specifications and in compliance with city building codes. Akiem believes that personal suretyship,
backed by his brother (the surety), would be sufficient for his small business bond needs. What advice
and justification should the financial manager give Akiem regarding personal versus corporate
suretyship? - Correct Answer-Akiem's financial planner should explain to him that a person suretyship
with his brother as surety is a risky prospect. If the contractor (principal) and his brother both become
bankrupt, he could have little recourse for completing his building or recovering his lost funding, and
this could lead to conflicts with his brother. He should explain that corporate suretyship may seem
expensive, but the premiums, and corporate sureties have expert knowledge and are controlled by laws
to protect obligees form contractors' defaults. A corporate surety would evaluate the contractor
(principal) to determine whether he merits their backing and whether he has sufficient capital for
completing the job. A corporate surety would ensure that the building is completed as required.
Jacqueline is hiring a contractor to build a new home on her property after her former home was
destroyed by a disaster that struck her town. She is leery of contractors that are actively soliciting
building project in the disaster area, so she considered requiring that her selected contractor provide
construction contract bonds. Indicate whether this type of bond would be a statutory or non statutory
bond, and explain why Jacqueline might forgo this bond requirement if she confirms that the contractor
is bonded for commercial projects. - Correct Answer-The bond that Jacqueline might require is a non
statutory bond because it is not required by any statute or regulation, and it is required by an individual
in the private sector. Jacqueline may forgo this bond requirement if she confirms that the contractor is
bonded for commercial projects because she may believe that a performance guarantee is not needed
for a contractor that has qualified for a surety bond.
Russell is a producer who has been given power of attorney to execute surety bonds for Andressen
Surety, Inc. Scott, Russell's former schoolmate, owns Rooferenum, LTD, a local roofing contractor. Scott
requests that Russell obtain a performance bond form Surety, Inc., for contracts Rooferenum will
perform for the city. In the past, Scott had confided to Russell that, while operating under different
business names, he had numerous failed roofing operations and defaulted on contracts. Explain whether
Russell should execute a bond for Rooferendum and any responsibility that Russell owes to Andreeseen
Surety to share details of Scotts's previous failed roofing operations on a bond application. - Correct
, Answer-Russell should not execute a bond for Rooferendum because it likely would not fall within his
power of attorney. As a surety producer, Russell owed a responsibility to Andreessen's not to abuse his
underwriting authority. In a bond application, he should fairly and accurately develop all data on Scott
and his former business experiences, including the failures, so that Andreessen's underwriter can make
a sound decision about whether to extend a bond to Rooferendum and, if so, to require suitable
collateral.
Bowalent Construction successfully bid on a county job to build a new equipment shed. Bowalent
applied for financial from Hamilee Commerce Bank to fund the project and applied for the required
performance bond from SureRite Surety.
A) Assuming that Bowalent is granted the loan and bond, describe how the loan and bond transactions
will have been similar.
B) Assuming that Bowalent misjudged the cost of the building project and defaults on both the loan and
bond obligations, describe the similarities that will exist in Hamilee's and SureRite's handling of the
default.
C) Describe how SureRite's obligation on Bowalent's bond exceeds the extent of Hamilee's loan
obligation. - Correct Answer-A) If Bowalent is granted the loan and bond, both Hamilee and SureRite will
have performed a prequalificaiton process on Bowalent and decided to extend credit to the
organization, and both will charge a fee for extending the credit (bank interest and surety premium).
Neither will expect Bowalent to default on its obligations.
B) If Bowalent defaults on its loan and bond obligations, Hamilee and SureRite will have the right to
pursue repayment/restitution for resulting losses.
C) Because the surety bond guarantees performance of the contract as well as any monetary
obligations, SureRite must ensure that the construction contract is performed-that the shed is build
according to the contract terms, building specifications, and local building code. Hamilee's obligation
ends once it give payment to Bowalent.
Jamal was elected to the office of Daytin County treasurer and secured a surety bond form SureRite
Surety to meet the bond requirement of the office. Identify each party to the surety relationship in this
case, including any third-party beneficiaries. - Correct Answer-In this case, Jamal is the bond principal,
the Daytin County government is the obligee, SureRite Surety is the surety, and the residents of Daytin
County who may be injured by any wrongful or improper acts by Jamal may become third-party
beneficiaries.
