Friday, December 4, 2009

Municipal Bonds in the Lone Star State

Sometimes it's dangerous to read the Wall Street Journal, Forbes, etc. when studying for the Series 7 because the terminology used in the "real world" often doesn't jibe with what you're studying for the exam. However, more often than not, the "real world" will help you understand what the heck the Series 7 is talking about.

Take a look at the article from the Bond Buyer at the link posted below. You may struggle a bit with some jargon, but you will almost certainly come away with a better understanding of municipal bonds after reading this:

You will see why a credit analyst looks at competing facilities, such as a free highway, when analyzing the credit quality of a tollway bond. You will see that qualifying for tax-exempt status is something to be approached creatively. Since "PABs" would normally not be tax-exempt, the politicians figured out a way to create a separate entity to issue the bonds and thereby make the interest tax-exempt. And you'll see references to the three major credit ratings agencies.

I'll let you take it from here--feel free to post questions if you have them.

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