Municipal Bonds
Debt of states, cities, and other political subdivisions; general obligation (GO) bonds are backed by taxing power, while revenue bonds are repaid from the earnings of a specific facility such as a toll road.
The classic item gives you an investor’s tax bracket and asks you to compare a muni yield to a corporate yield — the trap is comparing the stated yields directly. You must convert to a tax-equivalent yield, and the higher the bracket, the more the muni wins. A second favorite reverses the state/local angle: a muni is double or triple tax-exempt only for an in-state resident, the mirror image of Treasuries (federally taxable, state- and local-exempt). Don’t assume “tax-free” means all gains escape tax — sell above your cost and the capital gain is fully taxable (only the coupon interest is tax-advantaged).
Keep the GO-versus-revenue distinction crisp: GO bonds lean on taxing power and usually voter approval, revenue bonds on a specific project’s net revenues and a feasibility study, no vote needed. Confusing the disclosure regime is common — munis use an official statement, not a corporate-style prospectus or the bondholder contract called an indenture. Memory hook: “GO = Government’s pocketbook; revenue = the project pays its own way.”
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