SIE Exam Question 100: Answer and Explanation

Question: 100

Which of the following investments would be most suitable for an investor in a high tax bracket who wants to avoid paying any taxes on his investments?

• A. Corporate bond
• B. Municipal bond
• C. Mutual fund
• D. Preferred stock

Correct Answer: B

Explanation:

A municipal bond would be the most suitable investment for an investor in a high tax bracket who wants to avoid paying any taxes on his investments. Municipal bonds are tax-exempt, so investors do not have to pay taxes on the interest from the bonds. By contrast, investors do have to pay taxes on the interest from corporate bonds, mutual funds, and preferred stocks.