Series 7 Quiz: Compare Debt Securities

What this quiz covers

This quiz focuses on Compare Debt Securities, giving you a quick way to practice the rules, question types, and explanations that matter most for Series 7.

How to use this quiz

Try each quiz question before looking at the correct answer. Use the explanations to review missed ideas, then come back to similar questions until the pattern feels familiar.

Question 1

1. U.S. Treasury bond, FNMA bond, AAA-rated corporate bond (correct answer)
2. AAA-rated corporate bond, U.S. Treasury bond, FNMA bond
3. FNMA bond, U.S. Treasury bond, AAA-rated corporate bond
4. U.S. Treasury bond, AAA-rated corporate bond, FNMA bond

Question 2

1. U.S. Treasury STRIPS
2. A debenture issued by a non-investment grade corporation (correct answer)
3. A general obligation bond issued by the State of California
4. A pass-through certificate issued by the Government National Mortgage Association (GNMA)

Question 3

1. They generally have high credit quality and active secondary markets. (correct answer)
2. They are issued only by municipalities to fund public projects.
3. They have interest exempt from federal, state, and local taxes.
4. They are secured by specific corporate assets and first liens.

Question 4

1. 4.50%
2. 3.24%
3. 6.25% (correct answer)
4. 5.77%

Question 5

1. Based on a 30-day month and a 360-day year
2. Based on the actual number of days in each month and a 365-day year
3. Based on the actual number of days in the month and the actual number of days in the year (correct answer)
4. No accrued interest is calculated as it is included in the quoted price

Question 6

1. An A-rated convertible corporate bond
2. A U.S. Treasury note (correct answer)
3. A zero-coupon corporate bond
4. A Treasury STRIP

Question 7

1. Credit risk and interest rate risk
2. Prepayment risk and extension risk (correct answer)
3. Reinvestment risk and purchasing power risk
4. Liquidity risk and political risk

Question 8

1. callable corporate bonds trading at a premium.
2. non-callable U.S. Treasury bonds. (correct answer)
3. mortgage-backed securities.
4. variable-rate demand notes.

Question 9

1. Mortgage bonds
2. Equipment trust certificates
3. Senior debentures
4. Subordinated debentures (correct answer)

Question 10

1. has a higher degree of reinvestment risk.
2. pays semi-annual interest that is exempt from federal tax.
3. eliminates reinvestment risk but generates phantom income. (correct answer)
4. has a higher degree of credit risk than a coupon-bearing Treasury.

Question 11

1. FNMA securities are directly backed by the full faith and credit of the U.S. government, while GNMA securities are not.
2. Both are directly backed by the U.S. Treasury and are considered risk-free.
3. GNMA securities are directly backed by the full faith and credit of the U.S. government, while FNMA securities are not. (correct answer)
4. Both are backed exclusively by the mortgage payments from the underlying pool of loans, with no government support.

Question 12

1. less price volatility in response to changes in market interest rates.
2. a lower duration.
3. no reinvestment risk. (correct answer)
4. a higher credit rating.

Question 13

1. T-Bills are issued at a discount to par value and mature in one year or less, while T-Bonds pay semi-annual coupons and have maturities over 10 years. (correct answer)
2. T-Bonds are quoted on a discounted yield basis, while T-Bills are quoted in 32nds of a point.
3. Both are sold through competitive auctions, but interest from T-Bills is exempt from federal income tax.
4. T-Bills have significant interest-rate risk, while T-Bonds have minimal interest-rate risk.

Question 14

1. the GO bond is backed by the issuer's taxing power, while the IDR bond is backed by lease payments from a corporation. (correct answer)
2. interest from the GO bond is always tax-exempt, while interest from the IDR bond is always taxable.
3. GO bonds are issued by states, while IDR bonds are issued by corporations.
4. the safety of a GO bond is determined by a feasibility study, while the safety of an IDR bond is based on the issuer's debt limit.

Question 15

1. A corporate bond yielding 7.0%
2. A U.S. Treasury bond yielding 6.0%
3. A municipal bond yielding 5.0% (correct answer)
4. A GNMA pass-through certificate yielding 6.5%

Question 16

1. $5.00
2. $1.60
3. $0.00 (correct answer)
4. $1.50

Question 17

1. A convertible debenture
2. A mortgage bond (correct answer)
3. Cumulative preferred stock
4. An income bond

Question 18

1. higher coupon rate and a higher yield.
2. lower coupon rate and the potential for capital appreciation. (correct answer)
3. higher coupon rate and the potential for capital appreciation.
4. lower coupon rate and a higher degree of credit risk.

Question 19

1. They are always backed by the full faith and credit of the U.S. government
2. They are issued by federal agencies or GSEs, with credit support varying by issuer (correct answer)
3. They are unsecured corporate obligations issued to fund general business operations
4. They are exempt from federal income tax like most municipal securities

Question 20

1. They allocate principal by tranche rules tied to collateral cash flows. (correct answer)
2. They allocate principal only at maturity like a standard debenture.
3. They allocate principal only through issuer stock dividends.
4. They allocate principal through federal insurance rather than payments.