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CFA Level I · CFA Level I Exam · Fixed-Income Markets for Government Issuers

Compared with a revenue bond issued by a regional government to fund a toll road, a general obligation bond issued by the same regional government is most likely to:

A general obligation bond is most likely repaid from the issuer's general taxing authority. Revenue bonds, by contrast, depend on the cash flows of a specific project such as toll traffic. General obligation bonds are not weaker for lacking a source, because taxation is their source.

  1. Adepend on the traffic volume of the project for repayment
  2. Bbe repaid from the issuer's general taxing authorityCorrect
  3. Ccarry a higher credit risk because it lacks a specific funding source

Explanation

General obligation bonds are supported by the issuer's broad tax base and general revenues. Revenue bonds depend on the specific project's cash flows, such as toll traffic. The claim in C reverses the usual relationship, since the general taxing power is a source of repayment.

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