Understanding Municipal Bonds and Investment Concepts

Flashcards covering key terms and concepts related to municipal bonds, investment types, and relevant financial risks.

Municipality

A government smaller than the federal government, such as a state or county.

General Obligation Bonds (GO Bonds)

Bonds issued by municipalities for projects that benefit the community, repaid through general tax revenue.

Revenue Bonds

Bonds issued to finance specific projects, repaid through revenues generated by those projects.

Municipal Bonds

Debt securities issued by municipalities, often providing tax-free interest income to investors.

Tax-Free Income

Income from municipal bonds that is not subject to federal income tax and often state taxes.

Capital Gain

The profit from the sale of an asset, such as a municipal bond, when sold for more than its purchase price.

Alternative Minimum Tax (AMT)

A tax that requires high-income earners to pay a minimum amount of tax, which may affect the taxation of bond interest.

Callable Bonds

Bonds that can be redeemed by the issuer before the maturity date, typically when interest rates fall.

Convertible Bonds

Bonds that can be converted into a specified number of shares of common stock.

Tax Equivalent Yield

The yield on a taxable bond that makes it comparable to the yield on a tax-exempt municipal bond.

Liquid Investment

An investment that can be easily bought or sold without affecting its price.

Inflation Risk

The risk that rising prices will erode the purchasing power of interest and principal payments from bonds.

Leverage

Using borrowed capital to increase the potential return on investment.

Liquidity Risk

The risk that an investor may not be able to sell an investment quickly without incurring significant losses.

Public Offering Price (POP)

The price at which a mutual fund's shares are offered to investors, including any sales charges.

Limited Partnership

A business arrangement where general partners manage the business and limited partners provide capital but have limited liability.

Recapture

A tax obligation arising from previously claimed tax benefits that are later required to be paid back.

Deductions

Expenses that can be subtracted from income before taxes are applied, reducing taxable income.