When advertising the availability of a municipal security at a 'yield,' a municipal firm: I must own the security II does not have to own the security III must disclose whether the yield is the coupon rate or yield to maturity IV must disclose whether the yield is the coupon rate or current yield

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

Answer: (A)

When a municipal security is advertised at a yield, the ad must be truthful about what is being offered and what the quote represents. The dealer must actually own the security that it is advertising as available; otherwise the ad could mislead investors about inventory and availability. At the same time, the ad must clearly indicate what kind of yield is being quoted, so investors know whether the figure refers to a yield to maturity (or another defined yield) or, in some cases, the coupon rate. These two requirements—ownership of the security and clear disclosure of the yield type—together explain why the best answer includes both statements.