Choose the one most appropriate answer for each.
-instruments that pay interest that is tax-free from federal income taxes
A)alienation clause
B)automated underwriting systems
C)computerized loan origination
D)disintermediation
E)due-on-sale clause
F)Fannie Mae
G)Farmer Mac
H)Fiat money
I)FIRREA
J)Freddie Mac
K)Ginnie Mae
L)mortgage broker
M)mortgage company
N)mortgage-backed securities
O)municipal bonds
P)participation certificates
Q)prepayment penalty
R)primary market
S)secondary mortgage market
T)usury

Question

Quizplus · Accepted Answer

Municipal bonds are issued by state and local governments and their interest income is exempt from federal income tax.

Answer: K
 Ginnie Mae is a government agency that provides a secondary market for mortgages, including those backed by the Federal Housing Administration or the Department of Veterans Affairs. Their securities offer tax-free interest income from federal income taxes.

Answer: P
 Participation certificates are securities that represent ownership in a pool of underlying assets, such as mortgages. They may offer tax-free interest income from federal income taxes.

Note: There may be other instruments that offer tax-free interest income, but these three options are the most commonly known in the finance industry.

Choose the One Most Appropriate Answer for Each