Income Beginner: Taxes in Bond Investing

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1.
The original price you pay for a discount or premium bond is called its basis.
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True. This has important implications when it comes time to pay taxes.
2.
Of the following tax brackets, which one will leave you with the highest yield on a municipal bond compared to a taxable bond?
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35 percent. The higher the tax bracket, the more you earn when the bond is compared to a taxable bond.
3.
If you know your tax bracket, you already know the taxable equivalent yield on your municipal bond.
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False. You will need to know the yield on the municipal bond in question.
4.
When both federal and state taxes are accounted for in the formula for taxable equivalent yield, the yield rises.
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True. When more than one tax is involved, it will rise.
5.
The tax advantages of Series EE and Series I bonds include all of the following except _______.
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No federal tax on earnings. Unless the bonds are owned by your child or special exclusions for educational expenses apply, you must pay federal taxes on the earnings of your Series EE and Series I bonds. State and local taxes, however, are not paid.
6.
If you earn interest on an inflation-adjusted bond, _______.
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The income is taxed as ordinary income by the IRS. If you earn interest on an inflation-adjusted bond, the income is taxed as ordinary income by the IRS.