Final answer:
Municipal bonds can be ranked from safest to riskiest based on the issuer's creditworthiness. The safest bonds are issued by the U.S. government, followed by bonds from large corporations, and the riskiest are junk bonds.
Step-by-step explanation:
Municipal bonds can be ranked from safest to riskiest based on their issuer's creditworthiness and ability to repay the bond. The safest municipal bonds are typically those issued by the U.S. government, which has a very low chance of defaulting on its debt. These bonds are considered low-risk because the government is virtually certain to pay them back, albeit at a low rate of interest.
Next in line would be bonds issued by large corporations that are considered safe borrowers, such as those with consistent profitability or high credit ratings. These bonds offer a slightly higher interest rate compared to government bonds to compensate for the higher risk compared to government debt.
The riskiest municipal bonds are often referred to as junk bonds or high yield bonds. These bonds are issued by companies that are seen as riskier borrowers, such as those in the early growth stage or with shaky financials. They offer a higher interest rate to attract investors willing to take on the higher risk of default.