What is the purpose of municipal bonds?

Municipal bonds serve a primary purpose of raising funds for public projects that benefit the community, such as the construction of schools, roads, parks, and other infrastructure improvements. These bonds are issued by municipalities or local government entities, allowing them to gather necessary capital without imposing immediate tax burdens on citizens. Investors who purchase municipal bonds typically receive interest payments that may be exempt from federal income tax, making them an attractive investment option.

This financing mechanism is critical for enabling municipalities to undertake necessary projects that might otherwise be unaffordable, thereby enhancing the quality of life and fostering economic growth within the community. While the other options may relate to financial aspects of municipal management, they do not capture the primary function of municipal bonds in supporting public projects.