Income Beginner: Taxes in Bond Investing

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1.
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.
2.
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.
3.
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.
4.
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.
5.
If you invested in a series EE bond in 1998, you can keep your initial investment earning interest in a tax-sheltered bond until _______.
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2028. Your series EE bond will earn interest for 30 years.
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.