Tax-Exempt Bonds

question 26

Multiple Choice

Tax-exempt bonds:

• A) Generate higher returns for the bondholder when purchased through a tax-exempt retirement account
• B) Are not affected by changes in yields on taxable bonds
• C) Are most beneficial to those who pay higher income tax rates
• D) Include U.S. Treasury securities because the Internal Revenue Service does not charge income tax on interest earned from these bonds

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Definitions:

Tax Benefits

Refers to reductions in tax liability granted to taxpayers by the government, typically for certain activities or investments such as education expenses, retirement savings, or home ownership.

Single Life Annuity Contract

A Single Life Annuity Contract is an annuity that pays out a fixed or variable income stream to an individual for their lifetime, with payments ceasing upon their death.

Expected Return

The forecasted amount of profit or loss from an investment over a specific period.

Nondeductible Contributions

are contributions made to certain retirement accounts or plans that cannot be deducted from the taxpayer's income.