Income Beginner: Taxes in Bond Investing

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1.
Phantom income is taxable income on an inflation-adjusted bond's coupon interest.
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False. Phantom income refers to taxable income on an inflation-adjusted bond's principal interest.
2.
All the earnings on a municipal bond are tax-free at the federal level.
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False. The capital gains on the sale of a municipal bond are taxable.
3.
If you buy a premium bond, you may have to report original issue discount interest on your tax return.
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False. You may have to report interest from original issue discounts if you buy a discount bond, not a premium bond.
4.
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.
5.
To qualify for the tax exclusion offered through the Education Bond Program, you must ______.
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Be at least 24 years old at the time you purchase your bond. To qualify for this program, an adult age 24 or older must buy the bonds.
6.
Assume that you are in the 32 percent federal tax bracket and you pay a 5 percent state tax. What will be your taxable equivalent yield on a municipal bond earning 4 percent?
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6.19 percent.