Series 7 Exam Question 360: Answer and Explanation

Question: 360

The largest source of backing for a local GO bond is

• A. property tax
• B. sales tax
• C. income tax
• D. traffic fines and parking tickets

Correct Answer: A

Explanation:

A. The largest backing for municipal GO (general obligation) bonds is property (ad valorem) taxes. The credit rating of GO bonds is highly dependent on the municipality's tax collection record, the number of people living in the municipality, property values, whether it's a limited tax GO bond or unlimited tax GO bond, and so on. Unlike revenue bonds, GO bonds typically require voter approval prior to being issued.