Question

15. Compare and contrast the two main types of municipal debt.

Answer 1

The two types of municipal debt are :

• General obligation debt : These bonds are secured by the full faith of the local government who is issuing the debt. In these kinds of bonds , the source of revenue is the revenue that is generated from taxes , through which it pays the principal and interest of the bond holders.
• Revenue Debt : This form of bond is guaranteed by the revenue stream generated by the issuer. It is not backed by the full faith of the city, so the investors demand an interest rate which is little higher than the General obligations bond. For example A county may build a amusement park which will then use cash from regular, ongoing operations to pay back the bonds.

the revenue bond less safer than the general obligation debt, as general obligation bonds are less likely to default.

These two types municipal bonds are safe instruments and secured by the government issuing these bonds.