Series 7 Exam Question 32: Answer and Explanation

Question: 32

Ayla K. is new to investing in municipal bonds, and she's primarily concerned about the safety of her principal and income. Which of the following bonds would be the best recommendation for Ayla?

• A. IDR bonds
• B. Revenue bonds
• C. PHA bonds
• D. General Obligation bonds

Correct Answer: C

Explanation:

C. Since Ayla is primarily interested in safety of her principal and interest, an agent should recommend PHA bonds. PHA (Public Housing Authority) bonds are generally considered the safest municipal bonds. PHAs are issued by a municipality but are backed by U.S. government subsidies. In the event that the issuer has difficulty paying off the debt, the U.S. government will make up any shortfalls.