Income Beginner: Taxes in Bond Investing

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1.
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.
2.
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.
3.
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.
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.
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.
6.
What does taxable equivalent yield tell you?
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How much you'd have to earn on a taxable bond to equal what you are earning on a municipal bond. You can use the formula to figure out whether to buy a municipal or a taxable bond.