Which statement about gilts is true?

Which statement about gilts is true?

• A. They are secured by real estate.
• B. The government is unlikely to default on payments.
• C. They are always callable.
• D. They pay fixed rate dividends.

Answer: (B)

Gilts are bonds issued by the UK government, so they carry the government’s full credit backing. This makes them very low risk compared with corporate bonds, because the government has the power to raise taxes and issue currency to meet its obligations. The payments you receive come as semi-annual coupons and the final repayment of the face value at maturity; these are coupons, not dividends, and the coupon structure is typically fixed for conventional gilts. While some gilts may have special features or inflation-linked variants, the common characteristic is not default risk, so the statement that the government is unlikely to default on payments is the most accurate. They are not secured by real estate, and being callable is not a defining feature of gilts.

Gilts are bonds issued by the UK government, so they carry the government’s full credit backing. This makes them very low risk compared with corporate bonds, because the government has the power to raise taxes and issue currency to meet its obligations. The payments you receive come as semi-annual coupons and the final repayment of the face value at maturity; these are coupons, not dividends, and the coupon structure is typically fixed for conventional gilts. While some gilts may have special features or inflation-linked variants, the common characteristic is not default risk, so the statement that the government is unlikely to default on payments is the most accurate. They are not secured by real estate, and being callable is not a defining feature of gilts.