Which of the following best describes revenue bonds?

Revenue bonds are specifically designed to be backed by the revenue generated from particular projects, rather than being secured by the full faith and credit of the issuing government. This makes the correct choice particularly important in understanding how these bonds function.

When a municipality issues revenue bonds, it typically does so to finance the construction or improvement of facilities such as utilities, toll roads, or public transportation systems. The key point is that these bonds rely on the income produced by these specific projects to pay bondholders. This structure additionally allows municipalities to fund projects without directly impacting their general tax revenues or requiring voter approval, which can be advantageous.

The other choices do not accurately reflect the characteristics of revenue bonds. For instance, bonds secured by governmental taxes would refer to general obligation bonds, not revenue bonds. Bonds issued without collateral refers to unsecured bonds, and bonds offered at reduced interest rates do not pertain directly to the defining feature of revenue bonds. Understanding the specific nature of revenue bonds is crucial for those in the field of municipal finance, as it helps them make informed decisions regarding funding and investment in public projects.