- CFA Exams
- CFA Level I Exam
- Topic 6. Fixed Income
- Learning Module 42. Fixed-Income Securities: Defining Elements
- Subject 3. Legal, Regulatory and Tax Considerations
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. Wording. |