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