Series 7 Exam Question 250: Answer and Explanation

Question: 250

An investor owns the following investments:

I. 50 New York 5 percent general obligation bonds maturing in 2030 and rated AA

II. 50 Florida University 6.25 percent revenue bonds maturing in 2031 and rated AA

III. 50 Nevada Turnpike 5.75 percent revenue bonds maturing in 2030 and rated AA

IV. What type of diversification does this represent?

• A. Maturity
• B. Quality
• C. Quantity
• D. Geographical

Correct Answer: D

Explanation:

D. Because the investor bought 50 of each bond, they were all rated AA, and they mature around the same time, you can rule out maturity, quality, and quantity as your answers. The investor's funds are an example of geographic diversification because the bonds are from a variety of issuers around the United States.