SIE practice questionmediumMunicipal Bonds
A customer is considering investing in municipal bonds for tax-advantaged income. Which statement about municipal bonds is accurate?
- AAll are exempt from state taxes
- BThey are guaranteed by the U.S. Treasury
- CThe interest is generally exempt from federal income tax✓ Correct answer
- DThey carry no market risk
Explanation
Why C — The interest is generally exempt from federal income tax
Municipal bond interest is generally exempt from federal taxes, but not always from state/local taxes. They are not U.S. Treasury obligations and are subject to market risk.
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