Series 7 Exam Question 306: Answer and Explanation

Question: 306

Which of the following investments are suitable for a 21-year-old investor who has limited resources but would like to start investing on a regular basis?

I. Growth funds

II. Collateralized debt obligations (CDOs)

III. Call options

IV. Hedge funds

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

Correct Answer: A

Explanation:

A. The clues in this question are that the investor is 21 years old, has limited resources, and would like to start investing on a regular basis. This investor is screaming out to be put in a mutual fund. Typically, investors of mutual funds are in it for the long haul; they're not in and out like they may be with other investments. Ideally, this investor should probably be set up on a dollar cost averaging plan whereby they invest x amount of dollars every so often (for instance, once a month). Because this investor is young, they can take a little more risk, so a growth fund would be ideal. CDOs, buying call options, and hedge funds are too risky, require too much money, and/or require a certain degree of sophistication.