Question

What are municipal bonds? Describe two different types of municipal bonds.

Answer 1

There are two common types: General Obligation Bonds and Revenue Bonds.

GOB: Issued by cities, states or countries and are not primarily secured by assets. The issuer can tax all who apply (citizens, residents, etc) for the bondholders.

RB: Are NOT backed by the government and come from a specific source such as the toll paid for driving on a toll road.

Answer 2

FROM GRADPOINT

These are debt securities issued by state or local governments to pay for ongoing products such as roads, schools, and airports. When state and local governments issue securities, they are one of two types: general obligation bonds or revenue bonds. In general, municipal bonds are safe investments, although defaults do occasionally happen. Insurance can be purchased on these bonds if defaults are a concern. One advantage of municipal bonds over many other types of investments is that the interest earned on them may be exempt from federal U.S. taxes. This generally depends on how the money from the sale is used; however, capital gains from these sales are generally subject to taxes.

General obligation bonds are backed by the taxing power and credit of the government.

Revenue bonds are backed by profits from the project for which the bond was issued.

Explanation: