Products & Their RisksQuestion 100 of 398
For which investor is a tax-exempt municipal bond generally MOST suitable?
a.A low-income investor in a tax-deferred IRA
b.A high-income investor in a high federal tax bracket holding the bond in a taxable account
c.A tax-exempt pension fund
d.A young investor seeking maximum growth
Explanation
Municipal bonds are most beneficial to investors in high tax brackets who hold them in taxable accounts, because the federal tax exemption raises their after-tax yield relative to taxable bonds. Placing munis in a tax-deferred account (like an IRA) or a tax-exempt entity wastes the tax benefit, and growth-seekers are better served by equities.
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- A general obligation (GO) municipal bond is backed primarily by:
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- A city wants to finance a new municipal water and sewer system, and plans to repay bondholders only from the fees charged to users of that system. Which type of bond is this?
- A key tax feature of a direct participation program (DPP) is that it:
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