Question

1. What is a mortgage-backed security? Who issues these securities?

2. Which bond ratings can be considered investment grade? Junk bonds?

3. How does a mutual fund work?

4. What are ETFs?

Answer 1

1. Mortgage backed securities are securities which are backed by mortgages. These are asset backed securities which has investment as similar to that of bond which is comprised of a bundle of home loans bought from the bank which issued them.

These mortgage backed securities are issued by the banks even do Bank acts as a middleman between the investment bankers and the investors.

2. Investment grade bonds are bonds whose credit ratings are ranging between A to A plus while junk bond have credit rating of Lower than D.

3. Mutual funds take money from investors and invest them into the market. They charge fee for managing the fund and they return back the money to the investors after adjustment for the fees.

4. ETFs are exchange traded fund which can be traded over exchange and can be redeemed and have high liquidity. the exchange traded funds are mostly in the form of index funds.