Your neighbor asks you about Municipal Bonds, you would be correct in telling him all of the following ...

By Investopedia Staff AAA
Q:
Your neighbor asks you about Municipal Bonds, you would be correct in telling him all of the following EXCEPT:
a) Capital gains from the sale of municipal bonds are exempt from federal income taxes
b) Municipal bond income is sometimes exempt from state tax
c) Income from a revenue bond is payable from the earnings of the income-producing facility
d) General Obligation bonds are backed by the full faith and credit of the issuer
A:
The correct answer is a):
The two types of Municipal Bonds (Muni-Bonds) are general-obligation (GO) bonds and revenue bonds. GO bonds are backed by the full faith and credit of the issuing authority and usually include city, county, and school district bonds- their income payments are made from the taxes collected. Revenue Bonds are issued to finance income-producing facilities such as airports, colleges, electric and gas systems- their income is paid from the revenues of the project. The income generated from a muni-bond is exempt from federal taxes, and sometimes exempt from state taxes if issued in the state of residence of the taxpayer. Capital gains are taxed at the ordinary capital gains rate.

RELATED FAQS

  1. If an investor has a required rate of return of 10% on a 20-year zero ...

    The correct answer is d. The value of a zero coupon bond is the present value of the lump-sum principal payment. There is ...
  2. XYZ Corp. has an asset turnover ratio of 0.75. Because the economy is currently ...

    The correct answer is: b) Return on Assets = NI/Sales = Sales/Assets x NI/Sales
  3. At the beginning of the year, ABC Corp. began to lease a major piece of equipment ...

    The correct answer is: A) Under the capitalized lease method, the lessee must treat the asset as if it was purchased with ...
  4. Which of the following statements is (are) true with respect to the factors that ...

    The correct answer is: d) (I) is incorrect because if interest rates are expected to rise, banks will generally "increase" ...
RELATED TERMS
  1. Series 79

    A examination to ensure a candidate is qualified to become a ...
  2. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  3. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  4. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  5. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  6. Series 28

    An exam given by the Financial Industry Regulatory Authority ...

You May Also Like

Related Articles
  1. Insurance

    Municipal Bond Tips For The Series 7 ...

  2. Retirement

    6 Proven Tips For Series 6 Success

  3. Insurance

    Tips For Passing The Series 6 Exam

  4. Professionals

    Banker Or Broker: Which Career Is Right ...

  5. Professionals

    Breaking Down Financial Securities Licenses

Trading Center