SIE practice questionmediumMunicipal Bonds
Which statement about municipal bonds is TRUE?
- AThey always have lower yields than Treasury bonds.
- BThey are typically issued by corporations.
- CInterest income is generally exempt from federal income tax.✓ Correct answer
- DThey are regulated by the FDIC.
Explanation
Why C — Interest income is generally exempt from federal income tax.
Municipal bond interest is generally exempt from federal income tax. Municipal bonds are issued by state and local governments, not corporations. Their yields vary by issuer and market conditions, and municipal securities rules are written by the MSRB rather than the FDIC.
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