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Question

Difficulty: EasyGovernment, Municipal, and Corporate Bonds

Match each fixed-income security type with its primary defining characteristic or backing mechanism.

  • General Obligation (GO) BondMunicipal debt backed by the full faith, credit, and general taxing power of the issuing government.
  • Revenue BondMunicipal debt secured solely by earnings generated from a specific project or facility.
  • Corporate DebentureUnsecured corporate debt backed only by the general creditworthiness and reputation of the issuing company.
  • Treasury Inflation-Protected Security (TIPS)U.S. Treasury debt whose principal value adjusts semiannually based on the Consumer Price Index (CPI).

Answer

General Obligation (GO) Bond matches municipal debt backed by general taxing power; Revenue Bond matches municipal debt secured by earnings from a specific project; Corporate Debenture matches unsecured corporate debt backed by general credit; TIPS matches U.S. Treasury debt adjusted for CPI inflation.
Each bond type is accurately linked to its defining structure and backing mechanism: General Obligation bonds utilize local taxing power, Revenue bonds depend on project earnings, Corporate debentures are unsecured corporate obligations, and TIPS adjust principal value according to inflation.

Step-by-Step Solution

1
Distinguish between municipal bond backing sources
General Obligation bonds use general municipal tax revenue backing, whereas Revenue bonds rely on specific facility revenue.
Municipal debt instruments are primarily categorized by the underlying revenue stream used for debt service.
2
Identify corporate debt structures
A corporate debenture is backed by general corporate credit rather than specific collateral.
Corporate bonds are divided into secured bonds (backed by assets) and debentures (unsecured debt).
3
Identify Treasury security protections
TIPS adjust their principal value semiannually based on inflation metrics.
The federal government issues inflation-indexed securities to safeguard investor purchasing power.

Key Concept

Classification and backing mechanisms of government, municipal, and corporate bond instruments.
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Topics

Government, Municipal, and Corporate Bonds

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