Ethics Challenge 1. Do you think the actions of the politicians and the bankers

Question

Ethics Challenge

1. Do you think the actions of the politicians and the bankers in this situation are ethical?

2. In terms of risk, how do the tax-exempt securities used to pay for the building compare to a conventional municipal bond issued by Traverse County?

ETHICS CHALLENGE C4 A 0 BTN 10-3 Traverse County needs a new county government building that would cost $10 million. The politicians feel that voters will not approve a municipal bond issue to fund the building since it would increase taxes. They opt to have a state bank issue $10 million of tax-exempt securities to pay for the building construction. The county then will make yearly lease payments of principal and interest) to repay the obligation. Unlike conventional municipal bonds, the lease payments are not binding obligations on the county and, therefore, require no voter approval. Required 1. Do you think the actions of the politicians and the bankers in this situation are ethical? 2. In terms of risk, how do the tax-exempt securities used to pay for the building compare to a 2 In terms of risk, how do the tax-exempt securities used to pay for the building compare to a conventional municipal bond issued by Traverse County?

Explanation / Answer

1. Yes, politician and banker in this situation are ethical as this bond is raaised for goverment bulding and not for personal use. Also for government building why additional ta to be paid by voter by increasing taxes. Government should fund building without any extra load on voters

2. For example, let's assume that John purchases $1,000 of municipal bonds. The bonds pay 7% interest per year, or $70. Because municipal bonds are typically tax-exempt securities, John does not have to pay federal income tax on the $70 worth of interest income. He may also not have to pay state or local taxes on that income, depending on whether he lives in the municipality issuing the bonds.

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