Which kind of bond pays interest which is exempt from tax?

a. Treasury Bonds

b. Junk Bonds

c. Municipal Bonds

d. Corporate Bonds

The answer to the question is C. Municipal Bonds.

The interest income received by the holders of the municipal bonds or sometimes called as local authority bonds which is issued by local government or territory, depending on the applicable income tax laws they may be exempt from state income tax and and is often excludable from gross income for federal tax income purposes.