Test your knowledge

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Which of the following does not affect a municipal bond fund's coupon rate?

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Inflation

Interest rates

Maturities of bonds in the fund

Credit risk

Inflation. Inflation affects the purchasing power of returns, but only after they have been earned.

The collateral for revenue bonds comes from the projects that they fund.

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True

False

True. The tolls, rents, etc. serve as collateral in the event of default.

Municipal bond funds that carry _______ on their bonds guarantee payments of interest and principal.

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Insurance

Tax-free yields

Customer accounts

Insurance. The insurance guarantees that investors receive interest and principal even if the bond issuer defaults.

Municipal bond funds contain more general obligation bonds than revenue bonds.

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True

False

False. Generally, they contain more revenue bonds, since revenue bonds are much more common.

Municipal bond funds include all of the following except _______.

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Municipal notes

General obligation bonds

Revenue bonds

Corporate bonds

Corporate bonds. Companies in the private sector issue corporate bonds; that is why they cannot be included in municipal bond funds.

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