CFA Level I · CFA Level I Exam · Fixed-Income Markets for Government Issuers
A city government issues bonds to build a toll-free bridge. Interest and principal on the bonds are to be paid from the general taxing power of the city. These bonds are best described as:
The bonds are general obligation bonds. They are backed by the issuer's general taxing power rather than by the revenue of a particular project. Revenue bonds rely on project cash flows, and supranational bonds are issued by multilateral institutions, so neither describes this city issue.
- Arevenue bonds
- Bgeneral obligation bondsCorrect
- Csupranational bonds
Explanation
Bonds backed by the full faith and credit and general taxing authority of a local government are general obligation bonds. Revenue bonds are repaid from the cash flows of a specific project, such as tolls. Supranational bonds are issued by multilateral organizations, not cities.
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