Final answer:
Municipal bond interest is exempt from federal tax, providing tax advantages to investors and municipalities.
Explanation:
C Municipal bond interest is exempt from federal tax.
Investors in municipal bonds benefit from tax exemptions which allow the interest on municipal bonds to be tax-free at the federal level. This exemption enables municipalities to offer lower interest rates on their bonds compared to other taxable investments.
When buying state bonds, it's important to inquire if a particular bond issue is exempt from federal and/or state income taxes to fully understand the tax implications.
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