Encyclopedia > Municipal bond

  Article Content

Municipal bond

Municipal bonds (munis) in the United States are issued by government agencies. Municipal bonds are guaranteed only by the local government and are rated accordingly. Municipal bonds are tax exempt from Federal taxes and the state in which they are issued.

The relation between the interest rate of a municipal bond and a comparable corporate bond is as follows:

 rm = rc ( 1 - t )


 rm = interest rate of municipal bond
 rc = interest rate of comparable corporate bond
 t = tax rate

For example if:

 rc = 10%
 t = 38%
 rm = .10 (1 - .38) = 6.2%

A municipal bond that pays 6.2% is comparable to a corporate bond that pays 10% (assuming all else is equal)

All Wikipedia text is available under the terms of the GNU Free Documentation License

  Search Encyclopedia

Search over one million articles, find something about almost anything!
  Featured Article
Grand Prix

... with ...

This page was created in 69.6 ms