Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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True or False: Interest paid on GNMA, FNMA, FHLMC, and SLMA agency bonds is fully taxable to investors.

True
False
Only partially taxable
Tax exempt

The correct answer is: True

The statement is true because interest paid on agency bonds such as GNMA (Government National Mortgage Association), FNMA (Federal National Mortgage Association), FHLMC (Federal Home Loan Mortgage Corporation), and SLMA (Student Loan Marketing Association) is subject to federal taxation. These bonds are typically backed by the U.S. government or government-sponsored enterprises, which means they are generally considered low-risk investments. However, this does not exempt the interest income from being taxable. Investors must report the interest earnings as taxable income on their federal tax returns. Understanding how the taxation of these bonds operates is crucial for investors when considering their overall tax liabilities and investment strategies.