Question

Define each word:

1. Tax-exempt bond.

2. General obligation bond.

3. Revenue bond.

4. Industrial development bond.

5. Tax anticipation note.

6. Equivalent taxable yield.

Answer 1

1) Tax exempt bond is a bond on whose income no tax has to be paid. Federal bonds are usually tax exepmt and interest earnings on tax exempt bonds are non taxable.

2) A general obligation bond is a type of a municipal bond which is backed by the institution issuing it. It is backed by credit and taxing power of the issuing jurisdiction and not by the revenue of the project its procceds are invested into. It is beleived that municipality would repay through its taxing power.

3)Revenue bond: Revenue bonds are municipal bonds that are used to carry out municipalities projects. These projects produce income and hence they are secured by a specified revenue source. Revenue bond can be issued by government agencies that usually have both operating revenue and expenses.

4) Revenue bond is a different type of revenue bond brought forward a country or local government.The bond is sponsored by a government entity but the proceeds are usually used for private business projects that may have some social benefits too.

5) Tax anticipation notes are a type of bonds which are issued usually by municipalities for stream of revenue before they collect taxes from the public. When they get their revenue in form of taxes these bonds are retired.