A revenue bond is a type of bond that can be issued by a municipality. With this type of bond, the coupon payments for investors will be generated by a specific project that was paid for with the bond funds. This technique is commonly used by municipalities in order to fund large projects.

Municipal Bond

A common example of this type of bond is when a municipality will issue bonds in order to fund a stadium project. The stadium will generate a large amount of revenue and it will be passed onto the municipality. The municipality will then use part of the money that is generated from project to pay the interest that is due to investors.

Benefits

One of the big benefits of this type of bond for municipalities is that they can get around debt limits that have been set through prior legislation. With regular bonds, you can only issue so many because of the rules that are surrounding municipal bonds. With revenue bonds, they can peg the revenue that is coming in from a particular source and use it to repay these bonds. This lowers the amount of risk for the municipality and for the investors of the bonds.

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