Investing in Municipal Bonds to Avoid Paying Tax on Interest

question 90

Multiple Choice

Investing in municipal bonds to avoid paying tax on interest earned and to earn a higher after-tax yield is an example of:

• A) conversion
• B) tax evasion
• C) timing
• D) income shifting
• E) None of these

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Definitions:

Bankruptcy

A legal proceeding involving a person or business that is unable to repay outstanding debts, providing for the reorganization or liquidation of the debtor's assets to pay off creditors.

Constant Growth Model

A dividend discount model that assumes dividends will increase at a constant growth rate indefinitely, useful for valuing stocks.

Gordon Model

A dividend discount model that values a stock by considering future dividends that grow at a constant rate, also known as the Gordon Growth Model.

Investor Demand

The interest and willingness of investors to purchase securities and other investment products, influenced by economic conditions, market trends, and the performance of specific investments.