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The Series 7 Exam covers municipal bonds as a core, high-weight section focusing on tax-exempt debt securities issued by state/local governments to fund public projects. Key topics include General Obligation (GO) vs. revenue bondstax treatmentMSRB rules, bond mathematics (premium amortization), and underwriting procedures.
Key Areas for Municipal Bonds on the Series 7 Exam Types of Municipal Bonds: General Obligation (GO) Bonds: Backed by the full faith, credit, and taxing power of the municipality. Revenue Bonds: Backed by revenue from specific projects (e.g., toll roads, hospitals).
Key Concepts and Rules: Taxation: Interest is generally free from federal income tax and sometimes state/local tax, particularly for residents of the issuing state. MSRB (Municipal Securities Rulemaking Board): Rules governing the activities of broker-dealers, including Rule G-37 (political contributions) and G-20 (gifts). Bond Math: Premium bond amortization (straight-line) and calculating accrued interest. Underwriting: Procedures for new issues, including competitive vs. negotiated sales.
Key Documents: Official Statement (OS): The disclosure document for a new municipal issue. Bond Resolution: Authorizes the issuance and outlines issuer responsibilities.
Exam Focus Candidates must be able to identify the suitability of these bonds for investors, understand the risks (such as default, though rare), and navigate the regulatory framework established by the MSRB.
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