Bonds issued by city, county, and state governments that are exempt from federal taxation are called what?

Bonds issued by city, county, and state governments that are exempt from federal taxation are called what?

• A. Government Bonds
• B. Government Agency Bonds
• C. Municipal Bonds
• D. Corporate Bonds

Answer: (C)

Municipal bonds are bonds issued by city, county, and state governments to fund public projects. Their defining feature is tax-exempt interest at the federal level, and often exemption from state income tax if you reside in the issuing state. This tax-advantaged status makes them the go-to option for investors seeking tax-efficient income. In contrast, government bonds like Treasuries are subject to federal taxes, government agency bonds aren’t typically tax-exempt, and corporate bonds are generally taxable. So the description matches municipal bonds.

Municipal bonds are bonds issued by city, county, and state governments to fund public projects. Their defining feature is tax-exempt interest at the federal level, and often exemption from state income tax if you reside in the issuing state. This tax-advantaged status makes them the go-to option for investors seeking tax-efficient income. In contrast, government bonds like Treasuries are subject to federal taxes, government agency bonds aren’t typically tax-exempt, and corporate bonds are generally taxable. So the description matches municipal bonds.