Most investors believed that Congress would never allow Fannie Mae and Freddie Mac to fail,which enabled Fannie and Freddie to sell bonds with
A) high interest rates because investors saw the bonds as having very low default risk.
B) low interest rates because investors saw the bonds as having very low default risk.
C) high interest rates because investors saw the bonds as having zero default risk.
D) low interest rates because investors saw the bonds as having very high default risk.

Question

Quizplus · Accepted Answer

Investors believed that Fannie Mae and Freddie Mac had very low default risk because they assumed that Congress would not allow them to fail. This belief enabled Fannie and Freddie to sell bonds with low interest rates. This belief turned out to be incorrect, as the government did not bail out the companies during the 2008 financial crisis.

Most Investors Believed That Congress Would Never Allow Fannie Mae