| Municipal bonds and notes are issued by state | | | | municipal bond and securing the bond |
| and local governments. These municipalities | | | | investors with school or property tax revenue |
| include: | | | | is considered a General Obligation bond as |
| | | | well. Since taxes are the most secure source |
| States | | | | for money now and in the future, some |
| | | | investors prefer them over most revenue |
| Counties and Cities | | | | issues.Revenue BondsIssues that rely on the |
| | | | revenue producing ability of a facility or |
| Towns and Schools | | | | from the issuer through other means are |
| | | | Revenue Bonds. There are several types of |
| Municipal AuthoritiesInterest payments on | | | | issuers. These would include: |
| traditional municipal bonds are exempt from | | | | |
| federal tax. They are subject to state and | | | | Transportation - Bridges, Tolls, and |
| local tax.Tax Free YieldWhen looking to | | | | Airports would be good examples |
| purchase muni bonds, a person should | | | | |
| understand how tax exempt yields work. The | | | | Health care - City or county hospitals |
| higher the tax bracket, the higher the yield. | | | | |
| If an investor is considering buying a 6% | | | | Utility Companies - Electric or water |
| municipal bond at par and they are in the 28% | | | | companies could assess usage increases to |
| tax bracket, the tax free yield would be | | | | raise money. |
| higher than 6%. The formula is: Municipal | | | | |
| stated rate or coupon divided by 100 minus | | | | Industrial - Some municipal issuers will |
| the tax bracket.The calculation would break | | | | work with private companies and use the |
| down like this:6% divided by 72 (100-28), | | | | company's lease payments to the city as a |
| which equals 8.33%. This means that to | | | | revenue source for bond issues. |
| achieve a better return than this 6% coupon | | | | |
| bond, you would need equal to or better than | | | | Triple Tax Free Municipal BondsInvestors |
| 8.33% in a taxable investment. A lower tax | | | | who buy municipal securities issued within |
| bracket would show a lower tax free | | | | their own state are exempt from federal, |
| yield.Type of Municipal IssuesThere are two | | | | state and local taxation. An investor in |
| main types or ways a municipality can | | | | California should consider buying California |
| guarantee or back it's bond. One way is | | | | municipal bonds above issues from outside the |
| through the taxing power of the municipality. | | | | state. Retail or individual investors should |
| This would be called a General Obligation | | | | only buy from within their state because of |
| Bond or G.O. Bond. Another is called a | | | | this. Larger institutions will normally buy |
| Revenue Bond, which uses specific revenue | | | | from all over the country.Municipal bonds |
| sources to secure the issue.General | | | | should be a part of most investor portfolios. |
| Obligation BondsThese are the most common and | | | | They are also a way of supporting your local |
| normally the better rated issues. A state | | | | area.For more information: Muni Bonds at |
| raising money and backing the bond issue with | | | | Brokerjobs.comNick Hunter is the President of |
| higher income or sales tax would be | | | | American Investment Training, AIT and the |
| considered a G.O. Bond. A school district | | | | owner of - A financial education and career |
| rasing money through a broker dealer on a | | | | website. |