Series 7 Exam Question 285: Answer and Explanation

Question: 285

One of your clients would like to add some municipal bonds to their portfolio. Since your client has enough cash to diversify, you should let them know that some of the ways they could diversify would be

I. geographically

II. par value of certificates

III. type of bonds

IV. ratings

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

Correct Answer: B

Explanation:

B. Ways to diversify in municipal bonds are geographically (buying bonds from different areas of the country), type of bonds (revenue, general obligation, notes, and so on), and ratings (AAA, AA, A, B, and so on). Buying bonds with different par values does not diversify a portfolio.