Series 7 practice questioneasyDebt Securities — Municipal Bonds — GO Bonds
General obligation (GO) bonds are backed by:
- ARevenue from a specific project such as a toll road
- BThe full faith, credit, and taxing power of the issuing municipality✓ Correct answer
- CThe US federal government
- DInsurance premiums collected by the municipality
Explanation
Why B — The full faith, credit, and taxing power of the issuing municipality
General obligation bonds are backed by the full faith, credit, and taxing power of the issuing municipality. This means the municipality pledges its ability to levy taxes (property taxes for local municipalities, income and sales taxes for states) to pay principal and interest. GO bonds require voter approval and are generally considered safer than revenue bonds.
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