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Funds 309: Municipal Bond Funds

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1.
The lower a bond issuer's credit rating, the lower its bond coupon rate.
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False. The lower the credit rating, the higher the interest rate; this is how issuers with low credit ratings attract investors.
2.
The collateral for revenue bonds comes from the projects that they fund.
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True. The tolls, rents, etc. serve as collateral in the event of default.
3.
Municipal bond funds earn less than corporate bond funds because their bonds are _______.
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Tax-free. Issuers of municipal bonds can afford to offer less because investors will save money on taxes.
4.
A "tax-free fund" is likely to be a municipal bond mutual fund.
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True. Most tax-free funds invest in municipal bonds.
5.
Municipal bond funds that carry _______ on their bonds guarantee payments of interest and principal.
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Insurance. The insurance guarantees that investors receive interest and principal even if the bond issuer defaults.