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James Volley, CFA, is evaluating a number of municipal bonds. One of the revenue bonds on his list is marked as "prercfunded." When Volley asks his assistant about the bonds, the assistant tells him that the collateral behind the bonds is a portfolio of U.S. government securities, and that, therefore, these bonds have "less credit risk than insured municipal bonds." Which of the following statements regarding these bonds is most accurate"?
A. Prerefunded bonds are secured by a cash escrow account, not by US government securities.
B. The bonds do indeed have less credit risk than insured municipal bonds.
C. Only general obligation bonds can be prerefunded, not revenue bonds.
Answer: B
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