What is the difference between a general obligation municipal bond and a revenue municipal bond?
A) Revenue bonds are backed by the full faith and credit of the issuing agency.
B) Revenue bonds have no call on other revenue sources to ensure payment.
C) General obligation bonds may face an inadequate source of revenue more often that the revenue bond.
D) General obligation bonds are backed by a specific project or authority.

Question

Quizplus · Accepted Answer

Revenue bonds are backed by a specific revenue source such as toll road fees, whereas general obligation bonds are backed by the full faith and credit of the issuing agency, which means they have the ability to levy taxes to ensure payment. Therefore, revenue bonds have no call on other revenue sources to ensure payment, making them more risky than general obligation bonds. Option A is incorrect as it is the other way around, and option C and D do not accurately describe the differences between the two types of bonds.

What Is the Difference Between a General Obligation Municipal Bond