Industrial development bonds are issued in the name of a government with the proceeds used to attract private businesses to a community. Which of the following is a true statement about industrial development bonds?
A) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation. The government backs the bonds in the event of default by the private corporation.
B) The proceeds are used by the private corporations and principal and interest payments are made by the private corporation. The government does not back the bonds in the event of default by the private corporation.
C) The proceeds are used by the government to build infrastructure to service private corporations, with principal and interest payments made by the government out of the additional tax revenues received from the private corporation.
D) The proceeds are used by the government to build infrastructure to service private corporations, with principal and interest payments made by the private corporation in lieu of property taxes.

Question

Quizplus · Accepted Answer

Industrial development bonds are indeed issued in the name of a government entity, but the proceeds are typically used directly by private corporations for development projects. The key aspect of these bonds is that while they are issued by a government entity, the government does not guarantee the bonds. Instead, the responsibility for repaying the principal and interest lies solely with the private corporation that benefits from the bond proceeds. This arrangement allows private corporations to benefit from the typically lower interest rates associated with government bonds without direct financial risk to the government in case of default.

Industrial Development Bonds Are Issued in the Name of a Government