Municipal bonds pay interest that is federally tax free, making them attractive to investors in higher tax brackets. However, municipal bonds are not totally risk-free and they may have default risk. The coupon rates on municipal bonds can vary and may be lower or higher than corporate bonds, and some municipal bonds may be callable.

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Municipal Bonds

Question 43

Multiple Choice

Municipal bonds:

A) are totally risk free.
B) generally have higher coupon rates than corporate bonds.
C) pay interest that is federally tax free.
D) are rarely callable.
E) are free of default risk.

Correct Answer: