Which of the following statements concerning federal and municipal debt is true?
A) Interest on municipal debt is tax exempt from federal income taxes and state income taxes if the investor is a resident of the state that issued the bond. Federal debt interest is exempt from state and local income taxes.
B) Municipal debt interest is exempt only from federal income taxes. Interest on federal debt is tax exempt from all federal, state, and local income taxes.
C) Interest on federal and municipal debt is tax exempt from all federal, state, and local income taxes.
D) Interest on municipal debt is tax exempt from both federal and state income taxes regardless of the state in which the investor lives. Federal debt is tax exempt only from federal income taxes.
Correct Answer:
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