Series 7 Exam Question 26: Answer and Explanation

Question: 26

Ayla is new to investing in bonds and she is very concerned about receiving timely payments of interest and principal. Which of the following types of bonds would be the LEAST suitable for Ayla?

• A. Debentures
• B. Equipment trusts
• C. Collateral trusts
• D. Income bonds

Correct Answer: D

Explanation:

D. Income (Adjustment) bonds are the least suitable because they are issued by companies in financial trouble. These bonds are extremely risky so they're often issued at a deep discount from par value. The issuer is not required to make interest payments unless they can afford it.