SIE Understanding Products and Their Risks Question 43: Answer and Explanation

Question: 43

Since a competitive sale would typically be more advantageous to the issuer than a negotiated sale, why would an issuer user a negotiated sale?

• A. The issuer has a weak credit rating.
• B. The economy is unusually strong.
• C. The bond issue is especially simple and straightforward.
• D. The size of the bond issue is small.

Correct Answer: A

Explanation:

A: Choice A is correct because, though an issuing municipality would typically benefit from a competitive sale, a negotiated sale may occur because of uncertainty in the financial markets, creative characteristics of the issue, the newness of the municipality, high total value of the bonds, or a weak credit rating. Choices B, C, and D are incorrect because a competitive sale would be more likely in these situations.