How Does
How Do Municipal Bonds Work?
Contributor
By eHow Contributing Writer
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Municipal bonds are issued by the government as a way to issue debt through public investments and are also guaranteed by the government. For example, you lend money to the government (the issuer) and they will pay you the principal cost along with the fixed or variable interest amount. With the money from the bonds, government agencies can fund projects that involve the public, such as housing facilities or building schools.
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The government agency that issues the municipal bonds sells it at the issue date to investors. In return, the investor will give the government cash payment, depending on the terms of the contract. For private projects, the interest is usually determined at a lower rate than the market price.
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Once the bond is issued, the money that is collected at the time of sale needs to be spent that day or at the latest, 3 to 5 days after. The investor will receive periodic payments of interest until the bond reaches maturity. Depending on the type of project that is funded, the interest on the bond could be tax-exempt. Municipal bonds can be purchased with the Municipal Securities Rulemaking Board (MSRB).
eHow Article: How Do Municipal Bonds Work?
