Products & Their RisksQuestion 165 of 398
Some municipal bonds, such as Build America Bonds, are TAXABLE at the federal level because:
a.The issuer failed to register them
b.They are backed by the U.S. Treasury
c.They were structured to be taxable, often in exchange for a federal interest subsidy to the issuer
d.They finance religious institutions
Explanation
Not all municipal bonds are tax-exempt. Certain issues, like Build America Bonds, were deliberately structured as taxable to the investor, with the federal government subsidizing part of the issuer's interest cost. Because their interest is taxable, they typically offer higher yields than comparable tax-exempt munis to remain competitive.
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