Generally speaking, municipal bonds are the tax-exempt debt obligations of
states, cities, towns, municipalities, municipal authorities and government
entities. They are issued to build schools, tunnels and bridges or to
finance infrastructure repairs or improvements. Like most debt obligations,
they function like promissory notes. The issuer of these bonds agrees to
make scheduled interest payments, at a specified rate, for a fixed period
of time, and return the principal at maturity. Investors buy municipal bonds
because the interest earned is free of federal income taxes and also may be
free of state and/or local income taxes if purchased by residents of the
issuing state. Income for some investors may be subject to the Federal
Alternative Minimum Tax (AMT).
Municipal underwriting is the procedure by which an underwriter brings a
new security issue to the investing public in an offering.
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