Many savers are willing to accept a lower interest rate on municipal bonds than on comparable instruments because
A)the after-tax yield on municipal bonds is greater.
B)municipal bonds invariably have lower default risk.
C)municipal bonds are more liquid than most other instruments.
D)the yield on municipal bonds is considered inflation proof.

Question

Quizplus · Accepted Answer

The main reason savers are willing to accept a lower interest rate on municipal bonds compared to other instruments is because the after-tax yield on municipal bonds is greater. This is because the interest earned on municipal bonds is usually exempt from federal income tax and sometimes from state and local income taxes as well, making them a tax-efficient investment choice.

Many Savers Are Willing to Accept a Lower Interest Rate