Taxable Municipal Bond

  

Categories: Tax, Muni Bonds

Most municipal bonds are exempt from federal taxes. The theory goes that these local government projects create value for the community, so the federal government gives the bonds a market advantage by making them tax-free.

However, if the federal government determines that a particular bond issue does not create funds that will be used for helping the overall local community, it might deny tax-exempt status. Like, say, new rims for the mayor's car, or a luxury salon in City Hall that can only be used by members of the city council.

These situations lead to taxable municipal bonds: debt securities issued by local governments that don’t get the usual break from federal taxes.

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Finance: What are serial bonds, term bon...5 Views

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Finance Allah Shmoop What are serial bonds term bonds and

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staggered maturity Sze of bonds Well let's start with the

00:10

serial bonds No not not that serial bonds Come do

00:14

it Purposely measured durations like we dig you Tractor company

00:18

needs to buy a new factory that'll cost one hundred

00:20

million bucks They know that they're operating Profits will pay

00:23

Hey back that hundred meal over time So they sell

00:25

one hundred million dollars worth of cereal bonds to the

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public that come do serially in two years four years

00:31

six years and eight years and then are fully retired

00:34

a decade later where every two years ah lottery wheel

00:37

spins and a traunch of those serial bonds is called

00:40

they have effectively staggered the maturity of their bonds in

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having these serial bonds come due on different dates you

00:47

know spread nicely apart like years apart Technically they could

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have also just offered five different series of bonds at

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twenty million bucks each which come do it different durations

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that would be directly staggering The maturity Sze of them

01:01

Well why would you want to stagger The maturity is

01:03

of bonds anyway because companies do much better refinancing or

01:07

raising money in small amounts all the time over long

01:11

periods of time rather than say having all fourteen billion

01:14

dollars of some huge principal debt come do all that

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same week Should something go awry in the company be

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unable to either refinance that principle or pay it all

01:24

back Well then they end up here structurally Financial managers

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of companies embrace term bonds I'ii bonds that run for

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a certain term or time period and then they're callable

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or they mature or they convert into stock at a

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given price per share But simply while those bonds then

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don't at least come do all the same day and

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put the company at risk for the goal here is

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to stagger the maturity of bonds so that companies never

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feel illiquid or like they have a gun to their

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head to suddenly come up with a ton of cash

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to a snarling group of Wall Street bond investors who

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spell forgive this way

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