Which of the following statements is true?
A) Because coupon payments on tax-exempt bonds are exempt from federal income tax, the expected after-tax return on them will be higher for individuals in higher income tax brackets.
B) An decrease in tax rates will increase the demand for U.S Treasury bonds, lowering their interest rates.
C) Interest rates on tax-exempt bonds will be higher than comparable bonds without the tax exemption.
D) An decrease in tax rates will increase the supply of U.S Treasury bonds, lowering their interest rates.

Question

Quizplus · Accepted Answer

Tax-exempt bonds provide a higher after-tax return to individuals in higher income tax brackets because they don't have to pay federal income tax on the coupon payments. Therefore, they are more attractive to investors in higher tax brackets.

Which of the Following Statements Is True