SIE Understanding Products and Their Risks Question 61: Answer and Explanation

Question: 61

Which of the following is correct regarding trading in Direct Participation Programs (DPPs)?

• A. The ability to sell ownership units of DPP products is like selling a stock on a registered exchange.
• B. The issuer of a DPP redeems the ownership units within two years of issue, or earlier, if an earlier date is specified when the units are issued.
• C. DPP products are traded the NYSE and on over-the-counter markets.
• D. Though DPP products are not traded on national exchanges, in some cases another purchaser may be found.

Correct Answer: D

Explanation:

D: Choice D is correct because another buyer may be found, even though DPPs are not traded on national exchanges. Choice A is incorrect because selling DPP products is not like selling a stock on a registered exchange, and DPP products are sometimes quite illiquid. Choice B is incorrect because the issuer of a DPP generally does not redeem the ownership units during the time frame of the undertaking, which could be lengthy. Choice C is incorrect because ownership units of DPPs are not traded on national exchanges, and some DPPs may not be traded on over-the-counter markets.