The investor in a municipal security is not exposed to credit risk.

Question

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Municipal securities are not risk-free investments as they are subject to credit risk. The issuer may default on interest payments or principal repayments, leading to a loss for the investor. However, the credit risk associated with municipal bonds is generally considered lower than that of corporate bonds as the local government or agency issuing the security has the power to raise revenues through taxes or fees to ensure timely payments.

The Investor in a Municipal Security Is Not Exposed to Credit