Final answer:
The answer to whether interest earned on Treasury notes and bonds is taxable is True. Interest from these securities is subject to federal income tax, despite the fact that they are lower-risk compared to corporate bonds, which offer higher rates to compensate for greater risk.
Step-by-step explanation:
The question regarding whether interest earned on Treasury notes and bonds is taxable can be answered as True. This is because the interest received from holding U.S. Treasury notes (often referred to simply as 'notes') and bonds is indeed subject to federal income tax. Treasury notes are medium-term securities that the U.S. government issues with maturities ranging from 2 to 10 years, while Treasury bonds are long-term securities with maturities from more than 10 years up to 30 years. Despite the comparative safety and lower risk of default associated with these government securities, the interest they generate remains taxable at the federal level.
Corporate bonds generally offer higher interest rates than Treasury securities because they entail greater risk, including the risk of default. Both corporate and Treasury securities yields tend to move in tandem based on broader financial market conditions, though corporate bonds, due to their higher risk, compensate investors with higher yields compared to Treasury notes and bonds.