Select the best answer.

1. A government repaves a section of highway every four years at a cost of $2 million to preserve it at a specific condition level. How much should it report in depreciation charges under the modified approach to accounting for infrastructure? The standard approach?

   	Modified Approach	Standard Approach
   a.	$ 0	$ 0
   b.	$500,000	$500,000
   c.	$500,000	$ 0
   d.	$ 0	$500,000

2. States typically maintain investment pools for their towns and counties primarily to
   1. provide the participants with the benefits of increased portfolio size.
   2. ensure that the participants maximize their investment returns.
   3. enable the participants to engage in arbitrage.
   4. spread the risk of losses among the participants.
3. A government owns shares of common stock in a publicly owned company, the stock of which is widely traded. Such an investment would be categorized as
   1. a Level 1 investment.
   2. a Level 2 investment.
   3. a Level 3 investment.
   4. an investment that fits into none of the three categories.
4. A government acquires as an investment a 30year U.S. Treasury bond having a face value of $10,000. At the end of year 20, with 10 years remaining until maturity, the bond had a fair value of $10,200. Taking into account the discount at which the government initially purchased the bond, its amortized cost was $9,760. Assuming that it held the bond in a governmental fund, the government should report the bond at a value of
   1. $0.
   2. $9,760.
   3. $10,000.
   4. $10,200.
5. Derivatives are
   1. variable interest rate bonds, the interest rate on which is derived from (based on) the prime rate of interest.
   2. shares of common stock, the value of which is derived from the market value of the underlying assets (typically investments in subsidiaries) of the issuing corporation.
   3. investments, the value of which is derived from some underlying asset or reference rate.
   4. investment pools, the value of which is derived from the pools' investments.
6. Which of the following statements is true with respect to derivatives?
   1. They are highly speculative instruments and therefore are suitable only for governments that are willing to accept a high degree of investment risk.
   2. Their market values are typically less volatile than those of the underlying assets.
   3. GASB standards require that governments explain in their annual reports the reasons why they invested in derivatives.
   4. They need not be reported on governments' financial statements; they need only be disclosed in notes to the financial statements.
7. The risk that a company will go bankrupt and thereby be unable to repay a bond that a government holds as an investment as required is known as
   1. credit risk.
   2. market value risk.
   3. interest rate risk.
   4. counterparty risk.
8. Investments would generally be considered subject to the least custodial risk if they are
   1. registered in the government's name but in the possession of a brokerdealer.
   2. registered in the government's name and in the physical possession of the government itself.
   3. registered in the brokerdealer's name and in the possession of the brokerdealer.
   4. registered in the brokerdealer's name but in the possession of the government itself.
9. A city needs to determine whether it should sell its downtown administrative facility and move to an outlying location. The value of the facility that is most relevant to this decision is
   1. historical cost.
   2. fair value.
   3. historical cost less accumulated depreciation.
   4. assessed value.
10. Which of the following costs should not be included in the cost of a highway that a county constructed itself?
    1. Insurance premiums paid while the project was under construction
    2. Interest incurred on debt used to finance the project while it was under construction
    3. Overhead costs of the construction department
    4. Fees paid to consultants to determine the highway's optimum route