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NEW QUESTION: 1
The state of Massachusetts has issued a general obligation (G.O.) bond that pays 3% interest. As an
agent selling this bond, you can legitimately tell the investor that
A. all of the above statements are true.
B. all state general obligation bonds are also guaranteed by the federal government.
C. the interest income the investor receives from the bond will be free from federal taxation.
D. the bond is guaranteed by the state of Massachusetts and is, therefore, a risk-free investment.
Answer: C
Explanation:
An agent selling a Massachusetts general obligation bond can legitimately tell the investor
that the interest income he receives from the bond will be free from federal taxation. It is not, however, a
risk-free investment. States may default on their bond issues, and bonds issued by states are not
guaranteed by the federal government.

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