Which of the following statements is true?

1)

Because coupon payments on tax-exempt are exempt from federal income tax, the expected after-tax

return on them will be lower for individuals in higher income tax brackets.

2)

Interest rates on tax-exempt bonds will be higher than comparable bonds without the tax exemption.

3)

Because coupon payments on tax-exempt bonds are exempt from federal income tax, the expected

after-tax return on them will be higher for individuals in higher income tax brackets.

4)

An increase in tax rates will decrease the demand for tax-exempt bonds, lowering their interest rates.