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Tax-Exempt Security

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Tax-exempt security
An obligation whose interest is tax-exempt, often called a municipal bond, offered by a country, state, town, or any political district.

Triple Tax-Exempt
Describing a municipal bond that is exempt from federal, state, and local taxes. The United States Constitution forbids the federal government from taxing any state and local bonds. Most states and municipalities offer tax exemptions for residents who invest in their bonds; thus, to be eligible for triple-tax-free status, a bondholder must be resident in the municipality and/or state issuing the bond. Triple-tax exempt bonds almost always offer low returns, exposing bondholders to inflation risk. See also: After-Tax Basis.


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TEY is the rate earned on a taxable investment that would put the bank in the same after-tax position as the rate being earned on the tax-exempt security.
 
 
 
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