You hold bonds issued by the city of Sacramento, California. The interest you earn each year on these bonds:
a. Is subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.
b. Is not subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government.
c. Is not subject to federal income tax and so these bonds pay a lower interest rate than otherwise comparable bonds issued by the U.S. government.
d. Is subject to federal income tax and so these bonds pay a higher interest rate than otherwise comparable bonds issued by the U.S. government.