Question

In: Finance

Cover municipal bonds, how are the used by the issuers, how are they used by the...

Cover municipal bonds, how are the used by the issuers, how are they used by the investor, what are the risks and benefits of them? Also please look for a couple of examples of current municipal bonds being offered and explain their yield, risks and current situations?

Solutions

Expert Solution

Municipal bonds, also popularly known as munis, are debt obligations issued by government entities. Issuers of municipal bonds are government entities and issuers rely on municipal bonds for two main reasons. First of all the issuer may issue general obligation bonds and the purpose of this bond is to raise capital to cover and meet expenses. Secondly the issuer may issue revenue bonds and the purpose of revenue bonds is to fund large scale projects like infrastructure projects.

Investors who want to adopt a conservative investment strategy generally invest in municipal bonds. While the municipal bonds are not risk free, the element of risk is relatively low as these bonds are backed by government entities. Investors who want to preserve their capital and also generate a tax free income stream will invest in municipal bonds. The benefit for investors is that the interest income received by them is tax free. The risk for the investors is that the issuer may fail to make scheduled interest payments and principal payment which becomes due on maturity.

As an example in the year 2001 the City of Chicago had issued a bond for funding its Midway Airport project. The total issue size was $222,465,000 and the bond paid an interest of 5.5%. The bonds will mature in the year 2031.


Related Solutions

Cover municipal bonds, how are the used by the issuers, how are they used by the...
Cover municipal bonds, how are the used by the issuers, how are they used by the investor, what are the risks and benefits of them? also please look for a couple of examples of current municipal bonds being offered and explain their yield, risks and current situations?
Describe Municipal bonds, how are they used by government and municipalities, also how do they work...
Describe Municipal bonds, how are they used by government and municipalities, also how do they work for clients accounts. Please do some quick research and find some current municipal bonds, please make sure and include an analysis of the risk of municipalities as borrowers and the public as lenders. BE SPECIFIC
For bonds with _________ , bond issuers are required to retire a certain percentage of bonds...
For bonds with _________ , bond issuers are required to retire a certain percentage of bonds each year. call provision conversion sinking fund speculative grades
For bonds with _________ , bond issuers are required to retire a certain percentage of bonds...
For bonds with _________ , bond issuers are required to retire a certain percentage of bonds each year. call provision conversion sinking fund speculative grades
List the four main issuers of bonds and differentiate among them
List the four main issuers of bonds and differentiate among them
CCS Inc. paid $5,000 in interest on a loan it used to purchase municipal bonds. What...
CCS Inc. paid $5,000 in interest on a loan it used to purchase municipal bonds. What is the nature of the book–tax difference relating to this expense?
Bond issuers (firms) will call bonds when it is favorable for them to do so. The...
Bond issuers (firms) will call bonds when it is favorable for them to do so. The benefit the issuer receives is a cost to the bondholders. Explain at least two ways in which bondholders are protected from calls. First method: ________________ . The second method: _______________
“Municipal bonds are risk-free securities”. Discuss.
“Municipal bonds are risk-free securities”. Discuss.
If the tax-exempt status of municipal bonds were abolished, how would the interest rate on these...
If the tax-exempt status of municipal bonds were abolished, how would the interest rate on these bonds change? How would the interest rate on US treasury bonds change? Use graphs to explain the changes in both markets
How does credit analysis differ for sovereign issuers?
How does credit analysis differ for sovereign issuers?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT