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Financial analysis | Contributor © John Petroff |
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A- Municipal bonds
All government jurisdictions do not have the same taxing power and revenue generating ability. Municipalities issue GO bonds (or general obligation bonds) and revenue bonds. Revenue bonds finance various major projects such as roads, schools or hospitals, and are repaid from revenues generated by these facilities. A careful evaluation of the real capacity of these facilities to generate the predicted revenues, is conducted by specialized services which then offer a rating as a result. Rating of municipals is available in S&P Blue Book, also present on-line at http://www.bluelist.com/
Most municipal bonds (as well as some corporate bonds issued by municipalities on corporate behalf) are tax-exempt, but not all. This means that the interest earned by the bondholder needs not be included in bondholder's taxable income. Yields on tax-exempt municipal bonds are significantly lower than corporate bonds because of the potential tax saving. This implies that individuals in low tax brackets will find tax-exempt municipal bonds less attractive than non tax-exempt bonds.
See review questions Q-3A3.1 and Q-3A3.2
See research assignment R-3.5.
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