General Securities Representative (Series 7) Practice Exam

How are Sallie Mae bonds secured?

1. By a specific project fund

2. By the full faith and credit of the SLMA

3. By collateralized assets

4. By state government guarantees

The correct answer is: By the full faith and credit of the SLMA

Sallie Mae bonds are primarily secured by the full faith and credit of the Student Loan Marketing Association (SLMA). This means that the bonds are backed by the financial strength and the creditworthiness of Sallie Mae itself, which is a significant aspect of the bond's appeal to investors. When a bond is secured in this manner, it invokes a commitment from the issuer, suggesting that they will meet their debt obligations, often backed by various income streams that the organization generates. Sallie Mae as a federal agency has the ability to leverage its status to ensure bondholders are paid, and this assurance is critical for investors looking for a safer investment option. Consequently, this use of full faith and credit offers a level of security because it implies government support or involvement, ultimately enhancing the confidence of investors in those bonds. Other options involve different forms of security typically used in the bond market, such as project-specific funds or collateralized assets, which may apply to other types of municipal or corporate bonds but do not apply to Sallie Mae bonds in this context. The idea of state government guarantees also pertains to various bonds but isn’t pertinent to the specific structure of Sallie Mae bonds. This reveals important distinctions in how different securities are backed and the implications for