What is a revenue bond?

A revenue bond is distinguished primarily by its backing, which comes from the income generated by a specific project or source, rather than from the issuing authority's general credit. This means that the funds used to pay interest and principal on the bond originate from the revenue produced by the project financed by the bond. This could include tolls from a toll road, fees from a public utility, or any other income directly tied to the project itself.

The unique structure of revenue bonds makes them an attractive financing option for entities looking to fund specific projects without putting their entire general fund at risk. Investors typically assess the viability of the project closely, as the repayment relies solely on the revenues expected from it. This is different from general obligation bonds, which are a promise to repay based on the issuer's overall creditworthiness and rely on taxing power.

The other choices reflect characteristics that do not apply to a revenue bond. For instance, a bond secured by the issuing authority's general credit would be a general obligation bond, and bonds for nonprofit organizations do not specifically denote revenue bonds. Additionally, the notion of a bond that does not require repayment is inherently flawed as all bonds obligate the issuer to repay the principal and interest. Thus, the key characteristic of a revenue bond pertains