Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of:

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Investing in municipal bonds, also known as munis, allows investors to convert taxable income into tax-exempt income. Since interest earned on municipal bonds is not subject to federal income tax and sometimes even state and local taxes, investors can earn a higher after-tax yield compared to other taxable bonds or investments. This is known as conversion. However, it is important to note that munis may not always offer the highest yields and may have their own risks, such as credit risk and liquidity risk.

Investing in Municipal Bonds to Avoid Paying Tax on Interest