Question

Municipal bonds are essentially the same as corporate bonds. Thus, the coupon (interest) rate set on a not-for-profit hospital bond will be the same (for all practical purposes) as the rate set on a similar for-profit hospital bond.a. Trueb. False

Answer 1

Answer:

False

Explanation:

Since interest income from municipal bonds is exempt from federal taxes, and usually it is also exempt from state and local taxes, the coupon rate that they pay is generally lower than private or federal bonds.

If the coupon rate is the same for a municipal hospital than that of a private hospital, the real interest rate paid by the municipal bond is higher. For example, both pay a 10% coupon: if you own a municipal bond you will earn 10%, but if you own a private bond your net earning will be = 10% - federal income taxes (and state/local income taxes)