Municipal bonds

Definition

Municipal bonds are debt securities issued by local government entities to finance public projects. They offer tax-exempt interest income to investors, making them an attractive investment option.

5 Must Know Facts For Your Next Test

1. Municipal bonds can be classified into general obligation bonds and revenue bonds.
2. The interest earned on municipal bonds is often exempt from federal income tax and sometimes state and local taxes.
3. The issuance of municipal bonds requires voter approval in many jurisdictions.
4. Credit ratings for municipal bonds assess the issuer's ability to repay the debt, affecting the bond's interest rate.
5. Journal entries for municipal bonds include recording the sale, interest payments, amortization of any premium or discount, and repayment at maturity.

Review Questions

Related terms

General Obligation Bonds: Bonds backed by the full faith and credit of the issuing municipality, supported by taxing power

Revenue Bonds: Bonds repaid from specific revenue sources generated by projects like toll roads or utilities

Bond Premium/Discount: The amount by which a bond's market price exceeds (premium) or falls short (discount) of its face value