Listen to a Business English Dialogue About Unlimited tax bond municipal bond
Edward: Audrey, have you heard of unlimited tax municipal bonds?
Audrey: No, what are they?
Edward: Unlimited tax municipal bonds are bonds issued by local governments that are backed by the full taxing authority of the issuing municipality, meaning the government can raise taxes as needed to ensure bondholders are repaid.
Audrey: How do unlimited tax municipal bonds differ from limited tax bonds?
Edward: Limited tax bonds are backed by a specific revenue source or a portion of the government’s tax revenue, while unlimited tax bonds have the full faith and credit of the municipality’s taxing authority behind them.
Audrey: Are unlimited tax municipal bonds considered safer investments?
Edward: Yes, because they have the backing of the government’s taxing power, unlimited tax municipal bonds are generally considered lower risk than limited tax bonds and are often assigned higher credit ratings by rating agencies.
Audrey: How are the interest rates on unlimited tax municipal bonds determined?
Edward: The interest rates on unlimited tax municipal bonds are typically influenced by factors such as the creditworthiness of the issuing municipality, prevailing market interest rates, and the bond’s maturity.
Audrey: Can you give me an example of how unlimited tax municipal bonds are used?
Edward: Sure, a city might issue unlimited tax municipal bonds to finance the construction of a new school or hospital, with the bond proceeds repaid over time using tax revenue generated by the community.
Audrey: Are there any risks associated with investing in unlimited tax municipal bonds?
Edward: While considered relatively safe, investors should still assess the creditworthiness of the issuing municipality and be aware of factors that could affect the government’s ability to repay the bonds, such as economic downturns or changes in tax policies.
Audrey: How do investors purchase unlimited tax municipal bonds?
Edward: Investors can buy unlimited tax municipal bonds through brokerage firms or financial institutions, either directly from the issuer or on the secondary market through bond dealers.
Audrey: Thanks for explaining, Edward. Unlimited tax municipal bonds seem like a secure investment option backed by the taxing power of local governments.