Series 7 Exam Question 365: Answer and Explanation

Question: 365

Your client, Dana Griffin, is about to retire and she wants predictable income. Which of the following would NOT be a good investment for Dana?

I. AA rated IDB

II. U.S. Treasury note

III. AA rated debenture

IV. Income bonds

• A. II only
• B. I and III
• C. II and IV
• D. IV only

Correct Answer: D

Explanation:

D. Of the answer choices given, Choice (D) is the least preferable and, therefore, the correct answer. AA rated bonds, U.S. Treasury notes, and AA rated debentures can yield predictable income. By contrast, income bonds are issued when a corporation is coming out of bankruptcy and trying to reorganize. Therefore, income bonds only pay interest if the corporation can meet the interest payment and normally trade without accrued interest. Income bonds are not suitable for Dana because she's seeking predictable income.