Chapter 8

Municipal Bonds: Local Government Securities

IN THIS CHAPTER

Bullet Understanding municipal bond basics

Bullet Comparing general obligation bonds to revenue bonds

Bullet Reviewing other types of municipal bonds

Bullet Following the rules

Bullet Recognizing sources of municipal bond information

Municipal bonds are securities that state governments, local governments, or U.S. territories issue. The municipality uses the money it borrows from investors to fund and support projects, such as roads, sewer systems, hospitals, and so on. In most cases, the interest received from these bonds is federally tax free to investors.

Even though you’re most likely going to spend a majority of your time selling equity securities (stocks), for some unknown reason, the Series 7 tests heavily on municipal securities. As a matter of fact, municipal bonds are one of the most heavily tested areas on the entire exam. If you’ve flipped ahead, you may have noticed that this chapter isn’t one of the biggest in the book. Why is that? ...

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