Income Beginner: Taxes in Bond Investing

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1.
If you know your tax bracket, you already know the taxable equivalent yield on your municipal bond.
Choose wisely. There is only one correct answer.
False. You will need to know the yield on the municipal bond in question.
2.
You don't have to pay state income taxes on interest earned from Treasury inflation-adjusted securities.
Choose wisely. There is only one correct answer.
True. You are exempt from state income taxes on interest earned from Treasury inflation-adjusted securities.
3.
Of the following tax brackets, which one will leave you with the highest yield on a municipal bond compared to a taxable bond?
Choose wisely. There is only one correct answer.
35 percent. The higher the tax bracket, the more you earn when the bond is compared to a taxable bond.
4.
The tax advantages of Series EE and Series I bonds include all of the following except _______.
Choose wisely. There is only one correct answer.
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.
5.
The original price you pay for a discount or premium bond is called its basis.
Choose wisely. There is only one correct answer.
True. This has important implications when it comes time to pay taxes.
6.
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?
Choose wisely. There is only one correct answer.
8.46 percent.