Recommendations & StrategiesQuestion 44 of 100
An investor holds municipal bonds. The interest is generally MOST attractive to which type of investor?
a.A tax-exempt pension fund
b.A high-income investor in a high marginal tax bracket
c.A foreign investor with no U.S. tax liability
d.A young investor with minimal income
Explanation
Municipal bond interest is generally exempt from federal income tax, so its after-tax yield is most valuable to high-bracket investors. Tax-exempt entities and low-income investors gain little from the exemption. Comparing taxable-equivalent yield is essential in suitability.
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