What is a key distinction between general obligation bonds and revenue bonds?

The key distinction between general obligation bonds and revenue bonds lies in the source of repayment. General obligation bonds are backed by the full faith and credit of the issuing government entity, meaning that they are repaid through general tax revenues. This often includes property taxes and other general taxes collected by the government. As such, they represent a commitment from the government to use its taxing power to ensure repayment to bondholders.

On the other hand, revenue bonds are repaid from the specific revenues generated by the projects they are issued to finance. For example, bonds issued to construct a toll road would rely on the tolls collected from users of that road to make interest and principal payments. This distinction is fundamental because it affects the risk profile for investors; general obligation bonds are typically considered less risky compared to revenue bonds due to the broader base for repayment.

The other options—types of investors, duration of the bonds, and applicable interest rates—while they may vary between the two types of bonds, do not fundamentally define their key distinction regarding how they are repaid. Thus, the source of repayment is the core factor that differentiates general obligation bonds from revenue bonds.