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i On October 29, 1976, the Internal Revenue Service published new proposed arbitrage bond regulations. The preamble to the regulations stated that the main purpose of the new rules was to eliminate arbitrage as an inducement to refund. Arbitrage resulted from the yield differential between a municipal issuer's borrowing and lending rates. In an advance refunding, a municipal issuer borrows funds at a taxexempt rate and then reinvests the net proceeds in a portfolio of government securities which normally has a higher market yield. The portfolio is then structured to meet the debt service requirements of the issue being refunded. A primary determinant of the size of the new issue required to defease the outstanding debt is the differential in yield allowed on the government portfolio and the interest rate on the outstanding debt. Under the old regulations, 85% of the new issue proceeds were required to be invested at a yield not in ex