CFA Level I · CFA Level I Exam · Fixed-Income Markets for Government Issuers
A municipality in a developed market issues a bond to fund a new toll bridge. Interest and principal will be paid solely from the toll revenue the bridge generates. This bond is best described as a:
The bond is a revenue bond. Its payments come only from the income of the financed project, here the toll bridge. A general obligation bond would instead rely on the issuer's general taxing authority, and a supranational bond comes from a multilateral institution.
- Arevenue bondCorrect
- Bgeneral obligation bond
- Csupranational bond
Explanation
Bonds serviced from the cash flows of a specific project, such as bridge tolls, are revenue bonds. General obligation bonds are backed by the issuer's general taxing power. Supranational bonds are issued by multilateral organizations, not municipalities.
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