REVENUE BONDS

Revenue bonds are secured by revenue generated by the projects they fund.

Such revenues include tolls, fees, and lease payments. For example, a city may issue revenue bonds to pay for a new stadium. It will pay bondholders their interest and principal from the stadium's revenues. Default will occur if revenues are not high enough to pay bondholders. In that case, payments to bondholders will be deferred. Endowments donated by companies or individuals who want to help finance a particular project partially secure some revenue bonds.

Revenue bonds involve higher risk than general obligation bonds. This is because of the possibility that the projects financed may not bring in enough revenue to pay bondholders. However, these bonds also pay higher yields. Their maturities are usually serial. This means that individual bonds of one whole issue mature on different dates.

On the next screen, we will introduce some characteristics of municipal bonds.