CFA Practice Question

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CFA Practice Question

Municipal securities ______
A. are always exempt from federal, state and local taxes.
B. may be exempt from federal taxes.
C. do not have any credit risk.
Explanation: "Tax-exempt" means that interest income is exempt from federal income taxation. Capital gains are still subject to federal income taxation.

User Contributed Comments 10

User Comment
chenyx why not alway?
is it considering capital gains?
lemec Only the interests are tax-exempt with both tax exempt and taxable interest munis. Both kinds would be subjected to capital gains tax
mogwai There are municipal issues sold by municipalities which are in fact, taxable at the federal level. Therefore, muni's MAY be exempt but do not have to be.
whoi bloody american questions... how's interested in US tax-law????
kevinf12 AMT would also make even interest taxable if indeed you are required to pay AMT.
surob There are taxable and tax exempt municipal bonds. Thus, it reads "may"
aakash1108 Munis in the past were always tax exempt securities; however, lately munis that are not tax exempt have been issued; therefore, the "MAY".

Also, even if a Muni is not tax exempt, they are still called "TAX EXEMPT SECURITIES"
magicchip beware of the word always. tax laws may be changed.
gill15 Magic - Does not have to do with "Always"

It's the municipal bonds dividends are exempt from federal income taxation and capital appreciation is NOT exempt.
Shaan23 THat is tricky. I've done schweser question and they are not nearly as tricky.

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