CFA Level I · CFA Level I Exam · Credit Analysis for Government Issuers
A municipal government issues a bond backed by the full faith, credit and taxing power of the issuer. Which type of bond is this most likely?
This is a general obligation bond. Such bonds are backed by the issuer's full faith and credit and its ability to tax and raise general revenue. Revenue bonds, by contrast, depend only on cash flows from a specific project or facility.
- ARevenue bond
- BGeneral obligation bondCorrect
- CSpecial purpose bond
Explanation
General obligation bonds are unsecured debt backed by the issuer's general taxing power and overall resources. Revenue bonds are repaid only from the cash flows of a specific project, so they do not rely on general taxing power.
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