Series 7 Exam Question 170: Answer and Explanation

Question: 170

One of your clients is new to investing and has limited resources. Which of the following investments would you least likely recommend to this investor?

• A. Growth funds
• B. T-bills
• C. Blue-chip stock
• D. Collateralized debt obligations

Correct Answer: D

Explanation:

D. Collateralized debt obligations (CDOs) are asset-backed securities backed by a pool of bonds, loans, or other debt instruments. CDOs are broken down into tranches (slices) of differing amounts of risks and/or maturities. Because of the complexity of these investments, they're not suitable for new or smaller investors; they're more suitable for institutional or sophisticated investors.