Income Beginner: Taxes in Bond Investing

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1.
If you are in the 12 percent tax bracket and you are contemplating buying a municipal bond that pays a 7 percent yield, how much would you need to earn on a taxable bond to equal what you would earn on the municipal bond?
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7.96 percentt. According to the formula, tax-free yield/1-federal tax rate = 7/0.88 = 7.96 percent.
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.
Assume that you are in the 12 percent federal tax bracket and you pay a 6 percent state tax. What will be your taxable equivalent yield on a municipal bond earning 7 percent?
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8.46 percent.
4.
The amount of one's original issue discount interest can be found on Form 1099-OID.
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True. Form 1099-OID exists just for this purpose.
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.
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.