What is the impact of a general obligation bond?

What is the impact of a general obligation bond?

• A. It is backed solely by project revenues
• B. It is secured by the issuer's overall taxing power
• C. It has no interest payments
• D. It is only available to government entities

Answer: (B)

A general obligation bond is a type of municipal bond that is backed by the issuer's overall taxing power, meaning it is secured by the issuer's ability to levy taxes to repay the bondholders. This backing can come from property taxes or other taxes, providing a strong security for investors because the issuer must prioritize debt repayment, even under budget constraints or economic downturns. The nature of general obligation bonds makes them generally considered lower risk compared to other types of bonds, such as revenue bonds, which rely solely on the income generated from specific projects. The ability to raise funds through taxation allows the issuer to support the repayment obligations of the bond, giving investors more confidence in their investment. This characteristic distinguishes general obligation bonds in the market and is essential for understanding the risks and benefits associated with municipal securities.

A general obligation bond is a type of municipal bond that is backed by the issuer's overall taxing power, meaning it is secured by the issuer's ability to levy taxes to repay the bondholders. This backing can come from property taxes or other taxes, providing a strong security for investors because the issuer must prioritize debt repayment, even under budget constraints or economic downturns.

The nature of general obligation bonds makes them generally considered lower risk compared to other types of bonds, such as revenue bonds, which rely solely on the income generated from specific projects. The ability to raise funds through taxation allows the issuer to support the repayment obligations of the bond, giving investors more confidence in their investment.

This characteristic distinguishes general obligation bonds in the market and is essential for understanding the risks and benefits associated with municipal securities.