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 to avoid paying tax on interest earned and earning a higher after-tax yield is an example of conversion. Conversion involves the use of financial instruments and strategies to convert taxable income into tax-free or tax-advantaged income. In this case, municipal bonds are tax-exempt, which means that the interest income is not subject to federal income tax. By investing in municipal bonds, individuals can reduce their tax liability on interest income and increase their after-tax yield. It is legal and a common strategy for tax planning.

Investing in Municipal Bonds to Avoid Paying Tax on Interest