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