16-23 Municipal Bonds: Paving Roads and Building Schools
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16-23 Municipal Bonds: Paving Roads and Building Schools Municipal bonds are issued by local and state governments and other municipal organizations, such as school districts and toll road authorities. Conduct online research to determine the municipal bonds that the state in which you live has issued. Research two of these municipal bond projects. What is the purpose behind each bond issue? |
Chapter 16, End of Chapter, Self Test, Exercise 16-23
Page 527
Explanation
Municipal bonds are debt security that is issued by states, or other governmental entities in a way to fund day-to-day requirements and financing capital projects. These are the loans taken to benefit the public in general.
The risk of default is generally low as compared to corporate bonds. The reason behind such projects is to provide services as taxes are also being paid by the public.
Sample Response
The state-issued municipal bonds for:
Constructing Bridge
Opening A Park
The purpose behind the project is to give public service and other infrastructure works. Interest is tax-free on such bonds, hence making it an attractive investment option for individuals in high tax brackets.
These projects fall under General Obligation Bond as the projects are not backed by any revenue, like in the case of toll road construction, there is a revenue project for the state.
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