In Early 2014, Jackson City Issued $10 Million of 6

question 39

Multiple Choice

In early 2014, Jackson City issued $10 million of 6 percent term bonds to finance a highway construction project.Because of problems related to the Endangered Species Act, the city deferred highway construction that year.In early 2015, the city entered into contracts for construction that will begin in summer 2015 and be completed by summer 2016.When the city realized they would not need the bond proceeds in 2015, they invested the proceeds in risk-free federal government securities bought to yield 7 percent.What potential arbitrage liability, if any, should the city recognize as a result of the year 2015 transactions?

• A)None.
• B)The amount of the earnings from the federal government securities.
• C)The amount of the interest paid on the term bonds.
• D)The difference between the earnings from the federal government securities and the interest paid on the bonds.

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Definitions:

Deprived Economically

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The decade ranging from 1960 to 1969, notable for significant cultural, political, and social change worldwide.