Bubba buys a municipal bond at 102 and holds it ten years to maturity. For tax purposes, how is that premium treated?
Answer(s): C
amortized over the life of the bond resulting in no loss at maturity. For tax purposes, premiums are amortized over the life of the bond. Some amount is taken each year.
Bubba buys a ten-year municipal and at 102 and sells it five years later at 101. What is tax treatment?
no capital loss or income deduction is realized. The $20 premium is amortized over the ten-year life of the bond. After five years, half of the premium has been written down. The remaining premium is the same as the premium received upon selling the bond. The sale at 101 results in no loss or gain.
Which of the following municipal securities carries the full faith and credit of the US government for payment of interest and principal if the issuer’s funds are insufficient?
Answer(s): D
new housing authority bonds issued by a public housing authority. Only housing bonds are backed by the US government if municipalities are unable to meet the obligations for payment.
Bubba buys a municipal bond at a discount and holds it to maturity. Which of the following is true?
interest is tax exempt, but the capital gain is taxable. This happens because Bubba purchased the bond in the secondary market with a different price than the original issue face amount.
Prospective bidders for a municipal bond being issued should consult what document for relevant procedures?
Answer(s): B
the official notice of sale. All bid requirements are found in the official notice of sale.
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