Municipal bonds have default risk, yet their interest rates are lower

Municipal bonds have default risk, yet their interest rates are lower than the rates on default-free Treasury bonds. This suggests that

A) the benefit from the tax-exempt status of municipal bonds is less than their default risk.
B) the benefit from the tax-exempt status of municipal bonds equals their default risk.
C) the benefit from the tax-exempt status of municipal bonds exceeds their default risk.
D) Treasury bonds are not default-free.

ANSWER

C