This content was originally published by Keygent Managing Member, Chet Wang.
While there are many types of municipal bonds such as GO bonds and revenue bonds, these bonds are generally issued as either current interest bonds or capital appreciation bonds.
A current interest bond is a principal maturity that pays interest semiannually
As an example, if a $100,000 principal maturity with a 5% interest rate comes due 10 years from now, the investor will receive $2,500 every 6 months with their principal and interest due as the final payment.
A common misconception is that current interest bonds pay both regular interest and regular principal. This is not true.
Multiple current interest bond maturities though could be structured such that principal is amortized more regularly, as shown in the following example:
Current interest bonds are typically utilized with there is capacity to pay the regular interest payments.