CGFO Exam Questions and Answers
Graded A+
Ad Valorem Tax - Correct answer-A direct tax based "according to value" of
property. Counties and school districts and municipalities usually are, and special
tax districts may be, authorized by law to levy ad valorem taxes on property other
than intangible personal property. Local governmental bodies with taxing power
may issue bonds or short-term certificates payable from ad valorem taxation.
Advance Refunding - Correct answer-The refinancing of outstanding bonds by the
issuance of a new issue of bonds prior to the date on which the outstanding bonds
become due or are callable. Accordingly, for a period of time, both the issue being
refunded and the refunding issue are outstanding.
Bonds are "escrowed to maturity" when the proceeds of the refunding bonds are
deposited in
escrow for investment in federal securities in an amount sufficient to pay, when
due, the principal
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,of and interest on the issue being refunded. Bonds are considered "pre-refunded"
when the
refunding bond proceeds are escrowed only until the call day of the refunded issue.
The Internal
Revenue Code restricts the yield which may be earned on investment of the
proceeds of
refunding bonds.
Amortization - Correct answer-The process of paying the principal amount of an
issue of bonds by the periodic payments either directly to bondholders or to a
sinking fund for the benefit of bondholders. Payments are usually calculated to
include interest in addition to a partial payment of the original principal amount.
Arbitrage - Correct answer-Generally, transactions by which securities are bought
and sold in different markets at
the same time for the sake of profit arising from a difference in prices in the two
markets. With
respect to the issuance of municipal bonds, arbitrage usually refers to the
difference between the
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,interest paid on the bonds issued and the interest earned by investing the bond
proceeds in other
securities. Arbitrage profits are permitted on bond proceeds for various temporary
periods after
issuance of municipal bonds. Internal Revenue Service regulations govern
arbitrage of
municipal bond proceeds.
Balloon Maturity - Correct answer-A later maturity within an issue of bonds which
contains a disproportionately large percentage of the principal amount of the
original issue. Provision is often made for payment of the balloon maturity by
making periodic payments to a sinking fund for the
mandatory redemption of specified amounts prior to their stated maturity.
Average Life or Average Maturity - Correct answer-The number of years equal to
the total bond years divided by the total number of bonds (1 bond=$1,000
regardless of actual denomination). The average
maturity reflects how rapidly the principal of an issue is expected to be paid and is
important to
underwriters in calculating bids for new issues of municipal securities.
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, Basis Point - Correct answer-One basis point is equal to 1/100 of one percent. If
interest rates increase from 8.25% to 8.50%, the difference is refereed to as a 25
basis point increase.
Bidding Syndicate - Correct answer-One or more firms of underwriters that act
together to submit a proposal to underwrite a bond issue.
Blue Sky Laws - Correct answer-Common term for state securities law, which vary
from state to state. Generally refers to provision related to prohibitions against
fraud, dealer and broker regulations, and securities registration.
Bond - Correct answer-A way of borrowing money long term for capital projects. A
bond is a promise to repay
money borrowed on a particular date often 10 or 20 years in the future. Most bonds
also involve
a promise to pay a specified dollar amount of interest at predetermined intervals.
Bond Buyer, The - Correct answer-A trade paper of the municipal bond industry
published in New York City each business day, which contains advertisements for
offerings of new issues of municipal bonds, notices of bond redemptions, statistical
analyses of market activity, results of previous bond sales, and articles reacting to
financial markets and public finance.
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Graded A+
Ad Valorem Tax - Correct answer-A direct tax based "according to value" of
property. Counties and school districts and municipalities usually are, and special
tax districts may be, authorized by law to levy ad valorem taxes on property other
than intangible personal property. Local governmental bodies with taxing power
may issue bonds or short-term certificates payable from ad valorem taxation.
Advance Refunding - Correct answer-The refinancing of outstanding bonds by the
issuance of a new issue of bonds prior to the date on which the outstanding bonds
become due or are callable. Accordingly, for a period of time, both the issue being
refunded and the refunding issue are outstanding.
Bonds are "escrowed to maturity" when the proceeds of the refunding bonds are
deposited in
escrow for investment in federal securities in an amount sufficient to pay, when
due, the principal
©COPYRIGHT 2025, ALL RIGHTS RESERVED 1
,of and interest on the issue being refunded. Bonds are considered "pre-refunded"
when the
refunding bond proceeds are escrowed only until the call day of the refunded issue.
The Internal
Revenue Code restricts the yield which may be earned on investment of the
proceeds of
refunding bonds.
Amortization - Correct answer-The process of paying the principal amount of an
issue of bonds by the periodic payments either directly to bondholders or to a
sinking fund for the benefit of bondholders. Payments are usually calculated to
include interest in addition to a partial payment of the original principal amount.
Arbitrage - Correct answer-Generally, transactions by which securities are bought
and sold in different markets at
the same time for the sake of profit arising from a difference in prices in the two
markets. With
respect to the issuance of municipal bonds, arbitrage usually refers to the
difference between the
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,interest paid on the bonds issued and the interest earned by investing the bond
proceeds in other
securities. Arbitrage profits are permitted on bond proceeds for various temporary
periods after
issuance of municipal bonds. Internal Revenue Service regulations govern
arbitrage of
municipal bond proceeds.
Balloon Maturity - Correct answer-A later maturity within an issue of bonds which
contains a disproportionately large percentage of the principal amount of the
original issue. Provision is often made for payment of the balloon maturity by
making periodic payments to a sinking fund for the
mandatory redemption of specified amounts prior to their stated maturity.
Average Life or Average Maturity - Correct answer-The number of years equal to
the total bond years divided by the total number of bonds (1 bond=$1,000
regardless of actual denomination). The average
maturity reflects how rapidly the principal of an issue is expected to be paid and is
important to
underwriters in calculating bids for new issues of municipal securities.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 3
, Basis Point - Correct answer-One basis point is equal to 1/100 of one percent. If
interest rates increase from 8.25% to 8.50%, the difference is refereed to as a 25
basis point increase.
Bidding Syndicate - Correct answer-One or more firms of underwriters that act
together to submit a proposal to underwrite a bond issue.
Blue Sky Laws - Correct answer-Common term for state securities law, which vary
from state to state. Generally refers to provision related to prohibitions against
fraud, dealer and broker regulations, and securities registration.
Bond - Correct answer-A way of borrowing money long term for capital projects. A
bond is a promise to repay
money borrowed on a particular date often 10 or 20 years in the future. Most bonds
also involve
a promise to pay a specified dollar amount of interest at predetermined intervals.
Bond Buyer, The - Correct answer-A trade paper of the municipal bond industry
published in New York City each business day, which contains advertisements for
offerings of new issues of municipal bonds, notices of bond redemptions, statistical
analyses of market activity, results of previous bond sales, and articles reacting to
financial markets and public finance.
©COPYRIGHT 2025, ALL RIGHTS RESERVED 4
