A Repo Is a Loan

Rule 14 of 32 in this unit2.1.2

2.1.2 Debt Instruments

SIE outline 2.1.2

A sale with an agreement to repurchase. The security is collateral. It never becomes the lender's property. NOT a transfer of ownership.

The trick

Common trap: Two different products. Correct: One transaction seen from each side. Ask which side you were given.

The method for this kind of question

The debt run ends here

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

Two bonds from the same issuer, same maturity: one is secured by a first mortgage, the other is an unsecured debenture. Which pays the higher yield?

A. The debenture B. The mortgage bond C. Both pay identical yields, since the issuer is the same D. Neither; yield depends only on maturity, never on security

How sure are you?

Sure Fairly sure Guessing

Correct: A. Secured bonds yield less than comparable unsecured bonds; safety costs coupon.

B. The mortgage bond's added security is exactly what lets the issuer pay it less, not more.

C. The security pledge itself changes the yield, even with an identical issuer and maturity.

D. This contradicts the stated rule that greater security costs yield.

Unit: SIE outline 2.1.2

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