Tax-exempt bonds:
A) Generate higher returns for the bondholder when purchased through a tax-exempt retirement account
B) Are not affected by changes in yields on taxable bonds
C) Are most beneficial to those who pay higher income tax rates
D) Include U.S. Treasury securities because the Internal Revenue Service does not charge income tax on interest earned from these bonds

Question

Quizplus · Accepted Answer

Tax-exempt bonds are most beneficial to those who pay higher income tax rates since the interest earned on these bonds is exempt from federal income tax, and often state and local income tax as well. This means that individuals in higher income tax brackets can earn a higher after-tax yield on tax-exempt bonds compared to taxable bonds.

Tax-Exempt Bonds