Question

Your institution holds 100,000 par value of ABC Municipal Bonds. Mr. Lee owns 100,000 par value. Mrs. DeMaris owns 50,000 par value. Mr. Divers owns 20,000 par value. You are notified that 20,000 par value of the holding has been called. You should process the call:

a. in Mr. Divers account.
b. utilizing a lottery method.
c. per your supervisor's direction.
d. per the account executive's decision.

Answer 1

The call should be processed utilizing a lottery method. Option B is answer.

Step-by-step explanation:

Call Requirements:

20,000 par value of ABC Municipal Bonds needs to be called.

Ownership Breakdown:

Institution: 100,000 par value

Mr. Lee: 100,000 par value

Mrs. DeMaris: 50,000 par value

Mr. Divers: 20,000 par value

Objective of Call Processing:

Fair and equitable distribution of the call across all bondholders.

Reasons for Choosing Lottery Method:

Ensures randomness and eliminates the possibility of favoring any specific individual or group of bondholders.

Provides transparency and accountability in the call process.

Protects the institution from potential accusations of bias or subjectivity.

Unfavorable Alternatives:

Processing the call in Mr. Divers's account solely could be perceived as unfair to other bondholders with larger holdings.

Relying solely on the supervisor or account executive introduces subjective judgment and potential bias.

Therefore, the lottery method offers the most objective and fair approach for processing the call, ensuring equal treatment for all bondholders.

Option B is answer.