A discount is the difference between the price paid for a security and the security's face value at issue. Treasury Bonds pay interest semi-annually and mature in a period of ten years or longer. Bonds issued by any district, county, state or local authority other than the federal government are municipal bonds . Unlike federal bonds, which are backed by the full faith and credit of the U.S. government, the credit risk of municipal bonds are rated by private institutions. These act much like corporate bonds, often paying interest and repaying principal out of revenues generated by the project.
Municipal bonds earn tax-free income.
National tax-free funds invest in municipal bonds issued throughout the United States to earn income free from federal income taxes. Income may still be subject to state and local taxes. There are several ways to evaluate the financial returns, or income, derived from bonds. This is usually a matter of calculating various bond yields. Yield on securities represent the return received by the investor based on the price originally paid for the security.