A municipal dealer is reoffering 7% bonds; which quotes would be considered fair and reasonable?

• A. III and IV
• B. II and IV
• C. I and II
• D. I and III

Answer: (A)

The key idea is that quotes for reoffering municipal bonds must be fair and reasonable, reflecting current market conditions for similar securities. A dealer’s price or yield should be comparable to what other dealers are quoting for similar issues with the same coupon, maturity, credit quality, and features. If the quotes offered lie within the prevailing market range and don’t inflate or depress the price relative to comparable bonds, they’re considered fair and reasonable. The two quotes identified as fair and reasonable would be the ones that align with current trading levels for similar 7% bonds and with the spreads dealers are actually quoting, while the other options would be outside that market range or show an unreasonable premium or discount.