One Line, Two Names

Rule 9 of 32 in this unit2.1.2

2.1.2 Debt Instruments

SIE outline 2.1.2

Baa or better is investment grade. BBB or better on the other scale. Below the line is high yield. NOT about the coupon.

The method for this kind of question

Section 2 is the heaviest block

Now answer

1 question on this screen, from this outline item's own pool, so some will test a rule you met earlier in the unit. Pick an answer, say how sure you are, then reveal. Being sure and wrong is the most useful thing that can happen here, and the coach treats it that way.

Question 1Exam level

Are agency mortgage-backed securities exempt from SEC registration, and does that exemption mean they carry no risk?

A. Exempt from registration, yes; risk-free, no B. Exempt from registration, yes; and risk-free, yes, because of the exemption C. Not exempt from registration; and not risk-free D. Exempt from registration only for Ginnie Mae, not for Fannie Mae or Freddie Mac

How sure are you?

Sure Fairly sure Guessing

Correct: A. Agency securities are exempt from SEC registration, but the exemption does not mean guaranteed or riskless; the prepayment option remains a real risk.

B. The registration exemption says nothing about credit or prepayment risk; the two are separate.

C. Agency securities are in fact exempt from SEC registration.

D. The registration exemption applies to federally related institutions and government-sponsored paper alike, not to Ginnie Mae alone.

Unit: SIE outline 2.1.2

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