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Bonds 210: Municipal Bond Insurance

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1.
Why is municipal bond insurance less widespread today than in the past?
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Strong credit ratings and historically low default rates reduce the need for insurance. Investors increasingly rely on credit ratings and market research, reducing demand for municipal bond insurance compared to previous years.
2.
The risk that a government will be unable to repay the principal of a bond is called _______.
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Default risk. The risk that a government will be unable to repay the principal of a bond is called default risk.
3.
Municipal bond insurance helps to ensure _______.
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All of the above. Municipal bond insurance helps to ensure the payment of bond interest, principal, and sinking fund payments.
4.
Insured municipal bonds are not subject to interest rate risk.
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False. Insurance does not protect municipal bonds from interest rate risk.
5.
A CUSIP number identifies a municipal bond for tax purposes.
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False. The CUSIP number is used to identify the security when it is traded and settled.