Series 7 practice questionmediumDebt Securities — US Government — Agency Securities Tax Treatment
Interest on GNMA, FNMA, and FHLMC securities is:
- ASubject to federal, state, and local income taxes✓ Correct answer
- BExempt from all federal, state, and local taxes
- CSubject to federal income tax but exempt from state and local taxes like Treasuries
- DSubject to state and local taxes but exempt from federal income tax
Explanation
Why A — Subject to federal, state, and local income taxes
Unlike direct US Treasury obligations, interest on agency securities (GNMA, FNMA, FHLMC) is fully taxable at the federal, state, and local levels. The state and local tax exemption applies only to direct obligations of the US government (T-bills, T-notes, T-bonds, TIPS, and savings bonds). Agency securities, even those with a government guarantee like GNMA, do not receive this preferential state tax treatment.
Turn it into reps
Reading one answer is not the same as being ready
Lucky the Banker is a free practice app with 755+ Series 7 questions, weak-area tracking, and timed mock exams. No credit card, no paywall.
Related Investment Information & Recommendations questions
- When purchasing a bond in the secondary market between coupon payment dates, the buyer must pay the seller:
- Which type of municipal bond interest may be subject to the Alternative Minimum Tax (AMT)?
- A sinking fund provision in a bond indenture requires the issuer to:
- An investor holds a convertible bond ($1,000 par, 4% coupon) convertible into 20 shares of stock. The stock is trading…