Series 7 Exam Question 229: Answer and Explanation

Question: 229

Which of the following is NOT an advantage for a customer adding REITs to their portfolio?

• A. Having a professionally managed portfolio of real estate assets
• B. Preferential dividend treatment
• C. Being able to use an REIT as a potential hedge against a negative price movement in other equity securities
• D. Liquidity

Correct Answer: B

Explanation:

B. As with most other investment company products, REITs have a professionally managed portfolio. Many investors use REITs as a potential hedge against a downturn in the market because often, there is an inverse relationship between the real estate market and stock prices. In addition, REITs typically have a high degree of liquidity. However, there is no preferential dividend treatment for REITs.