STC Series 7 Progress Exam 2A 2025
With 100% Correct Answers
A municipality may issue a Direct Pay Build America Bond to finance all of the following
activities, EXCEPT to:
A. Refund a mass transportation bond
B. Raise capital to expand its school system
C. Make a primary offering to establish a public sewer system
D. Raise additional capital for a government housing project - CORRECT ANSWER✔✔A. Refund a
mass transportation bond
A Direct Pay Build America Bond may be used to raise capital for the same purposes as regular
tax-exempt municipal debt, except for refundings, working capital, and private activity bonds.
Which of the following statements is TRUE concerning bonds issued by FNMA (Fannie Mae)?
A. They have yields that are lower than comparable Treasury securities
B. They are a direct obligation of the U.S. government
C. The value of these securities is highly dependent on current interest rates
D. They are generally not considered suitable for investors seeking income - CORRECT
ANSWER✔✔C. The value of these securities is highly dependent on current interest rates
Government-Sponsored Enterprise (GSE) bonds, such as those issued by FNMA (Fannie Mae) or
FHLMC (Freddie Mac) are not direct obligations of the U.S. government. They are able to
borrow funds from the government, which makes their yield slightly higher than Treasury
securities with the same maturities. As with most fixed-income securities, their value is highly
dependent on current interest rates, and they are suitable for investors seeking income
A reverse convertible security would be MOST suitable for an investor who:
A. Is anticipating a dramatic decrease in the value of the underlying asset
, B. Is willing to accept a lower yield in return for potential appreciation in the value of the
underlying asset
C. Desires higher yield and is anticipating the value of the underlying asset will remain stable
D. Is anticipating an increase in the value of the issuer's common stock - CORRECT
ANSWER✔✔C. Desires higher yield and is anticipating the value of the underlying asset will
remain stable
Reverse convertible securities are short-term notes issued by banks and broker-dealers that
usually pay a coupon rate above prevailing market rates. They are considered structured
products because, in addition to the coupon rate, the investor may be required to purchase
shares of an underlying asset at a fixed price. The underlying asset may be an equity security
unrelated to the issuer, or a basket of stock, or an index. The issuer agrees to pay this higher
coupon rate since it has an option to sell a security to the investor if the price of the security
falls below a specified value known as the knock-in level. If the price of the underlying asset
stays above the knock-in level, the investor will receive the high coupon and the full return of
his principal. If the underlying asset falls below the knock-in level, the investor will be obligated
to purchase shares of the underlying asset at a fixed price. The price of this asset may have
depreciated below the knock-in level and the investor may receive substantially less than the
original principal. The investor is anticipating a stable price for the underlying asset and is not
able to participate in any increase in the value of the underlying asset.
If the investor was anticipating an increase in the value of the underlying asset, buying this asset
would be more suitable. Anticipating an increase in the value of the issuer's common stock is
incorrect since any change in the value of the issuer's common stock would have little impact on
the value of a reverse convertible security.
If a bond has a basis of 6.35 and a coupon rate of 6.15%, the bond is selling at:
A. A discount
B. Par value
C. A premium
D. A price that cannot be determined from the information given - CORRECT ANSWER✔✔A. A
discount
Bonds may be quoted based on their yield-to-maturity, which in this example is 6.35 (basis and
YTM are synonymous). Since the bonds has a nominal yield (coupon rate) of 6.15%, which is
lower than the 6.35% YTM, the bond is selling at a price that is below the par value of $1,000
With 100% Correct Answers
A municipality may issue a Direct Pay Build America Bond to finance all of the following
activities, EXCEPT to:
A. Refund a mass transportation bond
B. Raise capital to expand its school system
C. Make a primary offering to establish a public sewer system
D. Raise additional capital for a government housing project - CORRECT ANSWER✔✔A. Refund a
mass transportation bond
A Direct Pay Build America Bond may be used to raise capital for the same purposes as regular
tax-exempt municipal debt, except for refundings, working capital, and private activity bonds.
Which of the following statements is TRUE concerning bonds issued by FNMA (Fannie Mae)?
A. They have yields that are lower than comparable Treasury securities
B. They are a direct obligation of the U.S. government
C. The value of these securities is highly dependent on current interest rates
D. They are generally not considered suitable for investors seeking income - CORRECT
ANSWER✔✔C. The value of these securities is highly dependent on current interest rates
Government-Sponsored Enterprise (GSE) bonds, such as those issued by FNMA (Fannie Mae) or
FHLMC (Freddie Mac) are not direct obligations of the U.S. government. They are able to
borrow funds from the government, which makes their yield slightly higher than Treasury
securities with the same maturities. As with most fixed-income securities, their value is highly
dependent on current interest rates, and they are suitable for investors seeking income
A reverse convertible security would be MOST suitable for an investor who:
A. Is anticipating a dramatic decrease in the value of the underlying asset
, B. Is willing to accept a lower yield in return for potential appreciation in the value of the
underlying asset
C. Desires higher yield and is anticipating the value of the underlying asset will remain stable
D. Is anticipating an increase in the value of the issuer's common stock - CORRECT
ANSWER✔✔C. Desires higher yield and is anticipating the value of the underlying asset will
remain stable
Reverse convertible securities are short-term notes issued by banks and broker-dealers that
usually pay a coupon rate above prevailing market rates. They are considered structured
products because, in addition to the coupon rate, the investor may be required to purchase
shares of an underlying asset at a fixed price. The underlying asset may be an equity security
unrelated to the issuer, or a basket of stock, or an index. The issuer agrees to pay this higher
coupon rate since it has an option to sell a security to the investor if the price of the security
falls below a specified value known as the knock-in level. If the price of the underlying asset
stays above the knock-in level, the investor will receive the high coupon and the full return of
his principal. If the underlying asset falls below the knock-in level, the investor will be obligated
to purchase shares of the underlying asset at a fixed price. The price of this asset may have
depreciated below the knock-in level and the investor may receive substantially less than the
original principal. The investor is anticipating a stable price for the underlying asset and is not
able to participate in any increase in the value of the underlying asset.
If the investor was anticipating an increase in the value of the underlying asset, buying this asset
would be more suitable. Anticipating an increase in the value of the issuer's common stock is
incorrect since any change in the value of the issuer's common stock would have little impact on
the value of a reverse convertible security.
If a bond has a basis of 6.35 and a coupon rate of 6.15%, the bond is selling at:
A. A discount
B. Par value
C. A premium
D. A price that cannot be determined from the information given - CORRECT ANSWER✔✔A. A
discount
Bonds may be quoted based on their yield-to-maturity, which in this example is 6.35 (basis and
YTM are synonymous). Since the bonds has a nominal yield (coupon rate) of 6.15%, which is
lower than the 6.35% YTM, the bond is selling at a price that is below the par value of $1,000
