Western Governors University (WGU) FINC6000 C214 Financial Management Practice Exam

Treasury bonds are long-term securities issued by the U.S. federal government to finance government spending. Although they are subject to federal income tax, they are exempt from state and local taxes, which makes them attractive to investors looking to minimize tax liabilities at those levels. The primary purpose of Treasury bonds is to provide a safe investment option, backed by the full faith and credit of the U.S. government.

In contrast, municipal bonds, often referred to as muni bonds, are issued by states or municipalities and typically offer tax-free interest at both federal and state levels for residents of the issuing area. Corporate bonds are issued by companies and are fully taxable at both the federal and state levels. Government agency bonds, which are issued by government-sponsored entities, may have specific tax implications but often carry state tax exemptions, making them similar to municipal bonds.

Therefore, Treasury bonds are the only securities listed that are issued by the federal government and are taxable at the federal level while maintaining their unique benefits regarding state tax exemptions.