Final answer:
Jeremy is using a tax planning strategy by investing in City of Arlington municipal bonds, which are often tax-exempt, reducing his tax liability and potentially increasing net returns.
Step-by-step explanation:
Jeremy decided to liquidate his investment in Plaka Corporation bonds and reinvested the proceeds in City of Arlington municipal bonds. This tax planning strategy may be taking advantage of the fact that in the United States, state or local government bonds, such as those issued by the City of Arlington, are often exempt from federal income taxes. This is a benefit because the government taxes gains from private investment. However, municipal bonds can offer tax-free interest income, making them an attractive option for investors looking to minimize their tax liability and increase net returns on investments. Additionally, during inflationary periods, the state government benefits by repaying loans with less valuable dollars, and tax revenues might increase due to the inflation-affected growing economy. Therefore, by reinvesting in municipal bonds, Jeremy is likely utilizing a strategy that helps to protect his investment gains from taxes and could potentially benefit from the economic conditions.