Which characteristic applies to notes that are exempt from federal income taxes?

Notes that are exempt from federal income taxes are specifically designed to provide tax advantages to investors. Tax-exempt notes, often issued by municipalities, allow the issuer to borrow money at lower interest rates because the interest earned by investors is not subject to federal income tax. This feature is particularly appealing to investors in higher tax brackets, as they can achieve comparable after-tax returns with lower nominal interest rates compared to taxable bonds.

In contrast, long-term bonds, revenue bonds, and secured loans do not inherently possess the characteristic of being exempt from federal income taxes. Long-term bonds can be either taxable or tax-exempt depending on how they are structured, while revenue bonds are typically issued to finance specific projects, and their tax status is not universally exempt. Secured loans are a form of borrowing that involves collateral and do not relate to tax-exemption status in the same way as municipal notes do. Thus, the unique characteristic of tax-exempt notes clearly distinguishes them from the other options listed.