Question

Municipal bonds fall into what two broad categories?

A) General obligation and revenue bonds
B) Corporate bonds and government bonds
C) Junk bonds and high-yield bonds
D) Treasury bonds and savings bonds

Answer 1

Municipal bonds are categorized as general obligation bonds and revenue bonds, with the former backed by taxes and the latter by project revenues. These differ from corporate bonds, which are issued by firms, and Treasury bonds issued by the federal government. The correct option is A.

Step-by-step explanation:

Municipal bonds fall into two broad categories: general obligation bonds and revenue bonds. General obligation bonds are backed by the full faith and credit of the issuing municipality and are usually funded by taxes.

Revenue bonds, on the other hand, are financed through the income generated by the specific projects they are meant to fund, such as toll roads or utilities.

A bond is a financial instrument through which a borrower agrees to repay the borrowed amount plus interest over a period. While corporate bonds are issued by firms, municipal bonds are issued by cities or other local government entities.

For comparison, Treasury bonds, also known as 'notes' for the 10-year variety, are issued by the federal government and are considered low-risk with relatively lower yields compared to corporate bonds. The correct option is A.