Question

The features of Municipal bonds make them attractive to high income, _________ bracket investors. a) Low-tax b) Average-tax c) High-tax d) No-tax e) Extra-tax

Answer 1

Answer: c) High-tax

Explanation:

Municipal bonds are quite attractive because they offer returns that are free of Federal taxes which means that the return quoted on them is the after-tax return already.

For this reason their returns are usually less than corporate bond returns. Investors in high tax brackets will therefore be attracted to municipal bonds as it gives them a chance to get tax savings on amounts they would have paid as taxes.