Municipal Bond
State or local government debt, usually federally tax-exempt.
What is Municipal Bond?
Issued by states, cities, and agencies. Interest is generally exempt from federal income tax, and from state tax for in-state residents. That exemption makes munis attractive to high-bracket investors and largely pointless inside an IRA.
Municipal Bond: a worked example
A 3.5% muni equals a 5.6% taxable yield for an investor in the 37% bracket (3.5% / (1 - 0.37)).
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.