1. The interest income on bonds issued by tax-exempt organizations is often exempt from federal taxation in the United States. In comparing savings vehicles, why is it inappropriate to view these...

1. The interest income on bonds issued by tax-exempt organizations is often exempt from federal taxation in the United States. In comparing savings vehicles, why is it inappropriate to view these bonds as perfect substitutes for such savings accounts as tax-exempt life insurance contracts?

2. Identify three tax characteristics that differ among alternative savings vehicles.

3. Under what circumstances is an investment that is taxed each period at capital gains rates preferred to an SPDA contract (taxed at ordinary rates on investment income but only at the point of liquidation)? When is Savings Vehicle IV (income deferred and taxed at capital gains rates at the point of liquidation) preferred to an SPDA?