SIE Exam Dumps : Securities Industry Essentials Exam (SIE)

The annual interest on a bond is calculated based on thecoupon rateand the bond’s par value.

Coupon rate = 4.0%.

Annual interest = $10,000 (par value) × 4.0% =$400.

A is correctbecause the coupon rate determines the annual interest.

B,C, andDare incorrect because they reflect incorrect calculations. The current yield, YTM, and tax-equivalent yield do not affect the bond’s fixed coupon payments.

CMOs are divided into tranches, which are portions of the pool of mortgage-backed securities. Each tranche has its own characteristics, including coupon rate, maturity date, and credit rating, tailored to meet the needs of different investors.

C is correctbecause tranches represent slices of the investment with specific terms.

Ais incorrect because the yield depends on prepayment rates and interest rate changes.

Bis incorrect as average life is an estimate, not a defining characteristic of a tranche.

Dis incorrect because underwriting is unrelated to the definition of a tranche.

High-income bond mutual funds typically invest in lower-rated (junk) bonds that offer higher yields. These bonds are exposed to significant credit risk, as issuers may default on their payments.

A is correctbecause credit risk is the primary concern with high-yield bonds.

Bis incorrect as political risk is more relevant for international investments.

Cis incorrect because taxability risk is not specific to bond mutual funds.

Dis incorrect because purchasing power risk is more relevant for fixed-income investments during inflationary periods but is not the primary risk here.