Series 7 practice questioneasyDebt Securities — Agency Bonds — FHLMC
Which of the following is TRUE about Federal Home Loan Mortgage Corporation (Freddie Mac) securities?
- AThey are backed by the full faith and credit of the US government
- BTheir interest is exempt from federal income tax
- CThey are only available to institutional investors
- DThey are considered agency securities with an implied government guarantee✓ Correct answer
Explanation
Why D — They are considered agency securities with an implied government guarantee
Freddie Mac (FHLMC) is a government-sponsored enterprise whose securities carry an implied, but not explicit, guarantee from the US government. Like Fannie Mae, Freddie Mac purchases mortgages from lenders and securitizes them. The interest on FHLMC securities is subject to both federal and state income taxes, unlike direct Treasury obligations which are exempt from state taxes.
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