SIE Debt Securities and Fixed Income 3

Question 1

Which agency's bonds carry an implicit (not explicit) government guarantee?

Accepted Answer

Fannie Mae (FNMA)

Answer

Government-sponsored enterprises (GSEs) like Fannie Mae carry an implied but not legally guaranteed government backing.

Question 2

A general obligation (GO) municipal bond is backed by:

Accepted Answer

The issuing government's taxing power

Answer

GO bonds are backed by the full taxing authority of the issuing municipality, making them generally less risky than revenue bonds.

Question 3

What risk do bond investors face when interest rates fall and they must reinvest coupon payments at lower rates?

Accepted Answer

Reinvestment risk

Answer

Reinvestment risk is the risk that future coupon payments will be reinvested at lower interest rates than originally expected.

Question 4

Which bond rating is considered 'investment grade' by Moody's?

Accepted Answer

Baa3

Answer

Moody's ratings of Baa3 and above are considered investment grade, indicating adequate creditworthiness.

Question 5

What is accrued interest in bond trading?

Accepted Answer

Interest earned since the last coupon payment, owed to the seller

Answer

Accrued interest is the interest earned by the bond seller from the last coupon date to the settlement date, paid by the buyer.

SIE - Securities Industry Essentials Practice Test