Marcus Perry.  Municipal Bonds are issued by state and local governments.  Municipal Bonds are attractive to investors due to the federal tax exemption.

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Presentation transcript:

Marcus Perry

 Municipal Bonds are issued by state and local governments.  Municipal Bonds are attractive to investors due to the federal tax exemption.  Municipal Bonds tax exemption was established as an incentive for investors to fund municipal projects.

 Federal Tax Exemption: The tax exemption applies to interest income not capital gains.  State Tax Exemption: A municipal bond may also be exempt from state taxes depending on the states own rule on how interest on municipal securities is taxed.

 The corporate bond has a higher return until the Federal tax on the interest begins to rise over 25%.  This shows that the people who would purchase Municipal Bonds tend to be in the highest tax brackets, meaning they are the wealthy.  Notice at 30% the highly taxed investor will be better off investing in municipal bonds than Corporate bonds.  Explain the breakeven formula, how it can be used to understand the relationship between returns of the different bonds issued.

 General Obligation Bonds: are a tax backed debt obligations issued by states, counties, special districts, and cities that are secured by revenue in the form of taxes.  Revenue Bonds: are issued for financing projects where the bond issuers promise the bondholders the eventual revenues generated by operating the project.  Moral Obligation Bonds: are revenue bonds that are backed by moral, but not legal, obligation of a government to appropriate funds in case of default.

 Serial Bonds: are bonds that mature in portions over several different dates. Enables the Issuer to spread principal payment over several periods.

 If you find your name to the left take a piece of paper and write your Bond Serial # on it. (this will be turned in)  $15 million in serial bonds over a time period of 10 years.  Structured so that $3,000,000 matures after year 5, $3,000,000 matures after year 6, and so on.

 Sinking Fund: the repaying of funds that were borrowed through bond issue. The municipal entity deposits money over time in order to be able to pay the lump-sum principal at maturity of the bonds issued.

 Who tends to purchase Municipal bonds and why?  What is the difference between a General Obligation Bond and a Revenue Bond?  What are the two ways that bonds are retired so the bond issuer can effectively pay the principal back to the bond holder without having to pay a lump-sum principal repayment at maturity?