Federal Agency Bonds and Taxes. What types of tax incentives are offered by federal agency$$ bonds?

Part $2$

The interest income from federal agency bonds$$ is:$($Select the best answer$$ below.$)$

A$.$

exempt from state$$ taxes, however, investors must pay federal and local taxes on interest income.

B$.$

exempt from state and local$$ taxes, however, investors must pay federal taxes on interest income.

C$.$

exempt from federal$$ taxes, however, investors must pay state and local taxes on interest income.

D$.$

exempt from local$$ taxes, however, investors must pay federal and state taxes on interest income.