Indiana Municipal Bond Coupon Definition
An Indiana municipal bond is an investment issued by the state of Indiana that pays you interest, usually tax-free. The coupon is the interest rate you receive on the bond, although most bonds do not have actual coupons attached. You may receive additional tax benefits on an Indiana municipal bond if you are a resident of the state.
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Municipal Bonds
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Municipal bonds are investments that reflect promises from a lender to an investor. When you buy a municipal bond, you give the lender a sum of money known as principal. In return, the lender promises to return your principal to you at an agreed-upon future date, in addition to regular interest payments. Municipal bonds are issued by state and local governments to finance public projects such as highway construction or school construction.
Indiana Municipal Bonds
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Like other states, Indiana issues municipal bonds to fund public projects. In addition to being exempt from federal tax like, most other municipal bonds, Indiana municipal bonds are also state tax-free to residents of Indiana. Municipal bonds that the state has issued include the Mishawaka Industry Sewage Works Revenue bond and the Indiana Municipal Power Agency Power Supply bond series.
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Indiana Municipal Bond Coupons
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The term "bond coupon" refers to the interest rate that a bond pays. Usually, a municipal bond will pay out twice per year, but the coupon rate refers to the annual interest rate. For example, an Indiana bond with a five percent coupon will pay you $50 annually for every $1,000 of bond principal value you own. Typically, this payment will come in two $25 installments.
Origin and History
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Bond coupons used to be small "coupons" of paper attached to a physical bond that investors would clip and redeem through the mail or at the issuer. While the advent of electronic bookkeeping rendered this cumbersome method obsolete, the term "coupon" remains as a description of the payment a bond investor receives from an issuer.
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