STC Series 7 Practice Exam 2025 – Complete Study Guide

Estimating debt service coverage ratios in bond issues primarily serves the purpose of evaluating repayment ability. This ratio measures the ability of an entity, such as a municipality or corporation, to generate enough income to cover its debt obligations, particularly interest and principal payments. A higher debt service coverage ratio indicates a stronger capacity to meet these obligations, which is a crucial consideration for investors and creditors when assessing the creditworthiness of the issuer.

By analyzing this ratio, stakeholders can gauge whether the entity is likely to default on its debt, which is paramount in maintaining investor trust and ensuring financial stability. The evaluation of repayment ability through this ratio thus helps to inform investment decisions and affects the interest rate an issuer might need to offer to attract investors, ultimately impacting the cost of borrowing.

The other options pertain to different financial assessments that do not directly measure an entity's capacity to repay its debts. Predicting interest rate changes, determining tax liabilities, and assessing market risks are important areas of financial analysis but do not specifically relate to the core objective of evaluating debt repayment capability.