Zero-Coupon Bonds: corporations are the typical issuers (please refer to the discussion of treasury STRIPS for a description of the private sector-created
c. Municipal Bonds: these are interest-bearing certificates issued by municipalities (states, cities, counties, school districts, parishes, etc.). They are held in taxable portfolios of wealthy individuals in higher tax brackets to take advantage of the tax-exempt yield. Residents of a state with a state income tax that hold municipal bonds for that state often enjoy exemption from state income tax. Finally, interest income on obligations of a
Example: Pretax yield = tax - exempt yield/1-marginal tax rate. For an investor in the 30% marginal tax bracket, a municipal bond paying 5% would have a taxable equivalent yield of 7.14% calculated as follows. 7.14%=5%/1-30%. One may infer from the following table that the higher the individual's marginal tax bracket, the greater the advantage of using a municipal bond.
Municipal Bond Yield
Types of Municipal Bonds
InvestingLearn about individual municipal securities and municipal bond funds, whose principal stability and tax-free yield appeal to high-income investors.
Financial AdvisorHere's how to tell if municipal bonds are a better investment than taxable bonds or CDs.
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InvestingUnderstand how the addition of municipal bond mutual funds can enhance a portfolio, and learn the top-rated municipal bond funds to consider for 2016.