12 Suitability of Customer Recommendations

Question 1

Dale is your customer and his main concern is to keep his principal stable, as he runs a restaurant and needs to make frequent, unscheduled withdrawals during any seasonal slowdowns. Therefore, your best recommendation is that Dale invest most of his money in:

A. Money market mutual funds
B. Preferred Stock issued by highly rated blue chip companies
C. US Treasury Notes
D. US Treasury Bills

Answer 1

A. Money market mutual funds

Rationale:
Your SECOND BEST answer is “T- bills,” but they have a maturity date, and you really don’t want to have to sell them early. The money market mutual fund keeps the share price at $1 – STABLE VALUE FUNDS. Preferred stock is interest-rate sensitive. Now, you might think he can live off the dividend payment–but then you have to eliminate the perfect answer “money market mutual fund.” This is how suitability questions go-subjective stuff.

Question 2

The OCC’s ODD (Options Disclosure Document) suggests that most investors should probably keep their allocation to options to no more than:

A. 5% of their investment capital
B. Half the amount devoted to equity- type securities
C. No more than half the amount devoted to equity-type securities
D. 25% of their investment capital

Answer 2

A. 5% of their investment capital

Rationale:
This is not really a “memorization question.” FINRA would want to see if you can pick between a tiny % and 25% to devote to the losing-game known as “options trading for novices.”

Question 3

Your customer has $60,000 that she would like to invest for her son’s education. Her son is 9 and so far has shown little interest in academics. The customer wants tax-deferred growth but does not want her son to be able to use the money if he chooses not to go to college. Your customer should invest in or through a:

A. Mutual Fund account
B. 529 Plan
C. Coverdell Education Savings Account
D. UTMA Account

Answer 3

B. 529 Plan

Rationale:
She needs to control the account-so, it has to be the 529 Plan. In an UTMA or Coverdell (which is similar in some ways), the “kid” would control the assets upon the age of majority–21. Remember some of the decisions you made at age 21? Okay then.

Question 4

One of your customers is a 32- year-oldmarriedmanwithtwo children ages 5 and 3. Your customer earns $54,000 a year, and his mortgage payment equals 1/3 of that amount. His wife is attending law school at nights and does not work outside the home. Your customer has $2,000 of credit card debt. He should probably do which of the following last?

A. Purchase a term life insurance policy
B. Purchase a whole life insurance policy
C. Pay down the credit card debt
D. Purchase a deferred annuity

Answer 4

D. Purchase a deferred annuity

Rationale:
Do you see ANY facts that support buying a deferred annuity? Does he need tax deferral? Is retirement coming any time soon? I’m not sure if he should buy the term insurance or pay off the credit card debt-probably buy the insurance first-but I know that he should do either of those defensive moves before playing offense with investments.

Question 5

Which of the following investors is the best candidate for a recommendation to invest in common stock?

A. An investor with a 5-year time horizon
B. An investor with high net worth and income
C. An investor who can withstand wide price fluctuations
D. An investor looking for a more exciting alternative to fixed-income

Answer 5

C. An investor who can withstand wide price fluctuations

Rationale:
Some of the other answers might be tempting, but wide price fluctuations is really the main argument against investing in stocks.

Question 6

Mrs. Williams believes firmly in the strength of the American economy and feels she understands the companies whose common stock she holds in her portfolio. She seeks high dividend yield and is not willing to purchase stocks trading at high multiples to earnings or book value. The most appropriate mutual fund for Mrs. Williams is probably a/an:

A. ETF tracking the overall stock market
B. Growth & Income Fund
C. Large Cap Value Fund
D. Blue Chip Preferred Stock Fund

Answer 6

C. Large Cap Value Fund

Rationale:
The other choices are tempting, until you look closer. The “growth” part of “growth & income” doesn’t comply with the desire to buy stocks at lower multiples. The overall market is not necessarily known for high dividend yields. And the preferred stock investment is for steady income payments, which is not quite what she’s looking for.

Question 7

If an investor seeks a dependable stream of income and has low liquidity needs, you might recommend all of the following investments to her EXCEPT:

A. Non-callable preferred stock
B. Non-callable corporate debentures
C. 30-year United States Treasury Bond
D. Callable bonds trading at a premium

Answer 7

D. Callable bonds trading at a premium

Rationale:
If the bond is callable and already trading at a premium, it WILL be called, almost for sure, which means whatever nominal yield it offered will go away, and the investor will have to reinvest at a lower rate, probably. This doesn’t really jump out at you until you realize the other three possibilities meet the facts presented in the question

Question 8

If an investor seeks a growth & income investment she would likely consider all of the following EXCEPT:

A. Non-convertible preferred stock
B. Growth & income mutual funds
C. S&P 500 index fund
D. Convertible debentures

Answer 8

A. Non-convertible preferred stock

Rationale:
Which one provides only growth OR income, or neither? Preferred stock is an income investment, unless it’s convertible-and then there is growth potential suddenly. A convertible bond or preferred stock provides income AND potential growth. A non-convertible fixe-income product provides only income.

Question 9

If your customer’s main concern is receiving monthly income, you should NOT recommend:

A. Bond Mutual Funds
B. Treasury Bills
C. CMOs
D. GNMA pass-through certificates

Answer 9

B. Treasury Bills

Rationale:
Bond mutual funds might have looked tempting, but, first, they DO usually distribute income monthly and, second, T-Bills pay NO income. Go with the answer you can prove over the one that might sorta work.

Question 10

Your customer has just opened a 529 Plan with her 4-year-old daughter as the beneficiary. Which of the following mutual fund investments within the plan is probably LEAST suitable at this point?

A. S&P MidCap 400 Index Fund
B. Intermediate-Term Bond Fund
C. Conversative Growth Fund
D. Growth & Income Fund

Answer 10

B. Intermediate-Term Bond Fund

Rationale:
With college 14 years away, and with tuition rising faster than the overall inflation rate, this customer needs some form of GROWTH. The low yields and safetey of the “intermediate-term bond fund” should be saved for when the daughter is closer to, say, 16.

Question 11

If an investor would like to generate income on a portfolio comprised largely of blue chip equities, he would most likely be interested in:

A. Selling calls
B. Buying calls
C. Buying puts
D. Selling puts

Answer 11

A. Selling calls

Rationale:
To generate income, he has to SELL. If he already owns stock, he writes calls. Writing puts is suicidal if you already own the stock-you lose TWICE that way if the stock drops.

Question 12

If an investor seeks tax-deferral and safety, she would MOST likely consider investing in a:

A. Low-cost stock market index fund
B. Blue chip equity mutual fund
C. Deferred indexed annuity
D. Deferred variable annuity

Answer 12

C. Deferred indexed annuity

Rationale:
Only two choices offered deferral. The variable annuity is tied to the stock and bond markets (that doesn’t comply with the safety concern). Eliminate that choice, and you’re done.

Question 13

One of your investors is convinced he needs both “purchasing power protection” and “downside protection.” He should, therefore, invest in which of the following?

A. Blue chip equity portfolio against which covered calls are written
B. Highly-rated preferred stock issued by Fortune 500 companies
C. Highly-rated, long-term corporate bonds
D. Blue chip equity portfolio against which LEAPS puts are purchased

Answer 13

D. Blue chip equity portfolio against which LEAPS puts are purchased

Rationale:
Covered calls offer almost no downside protection–the only “protection” is the premium collected; after that, you simply own a stock that might drop to zero. Bonds and preferred stocks arent good for protecting against inflation.

Question 14

Diana has low liquidity needs, is a fairly sophisticated investor, and would like monthly income on an investment that addresses her uncertainty over the direction of interest rates. She should probably invest in which of the following?

A. 5-year US Treasury Notes
B. CMOs
C. US Treasury Bills
D. GNMA pass-through

Answer 14

B. CMOs

Rationale:
T-Bills dont pay income, let alone monthly income. T-Notes pay semiannual interest. GNMAs subject the investor to a drop (or even a spike) in interest rates, while the CMO can offer different tranches to protect against either prepayment or extension risk.

Question 15

With her son just entering high school, Mrs. Jenkins would MOST likely want to invest in which of the following for his college education?

A. Treasury Bonds
B. CMOs
C. Treasury Notes
D. Money Market Mutual Funds

Answer 15

C. Treasury Notes

Rationale:
She has about a 4-year time horizon. T-bonds are out. CMOs are funky and provide monthly income—don’t see how that matches her needs. Why does she need the ultra low yielding money market mutual fund here? She doesn’t.

Question 16

Mr. Meyer”s main objective is income. His secondary objective is inflation protection. Therefore, Mr. Meyer might want to invest in all of the following EXCEPT:

A. Equtiy income fund
B. Value fund
C. Small cap growth stock
D. Blue chip stock fund

Answer 16

C. Small cap growth stock

Rationale:
Small cap growth will provide almost no income, so in order to recommend that we just need to COMPLETELY IGNORE THE GUY’S MAIN OBJECTIVE.

Question 17

A younger investor who recently finished a finance degree at college has no faith in active management and is looking for a low-cost investment to provide long-term growth. He would most likely invest in a/an:

A. Mid-cap value fund
B. Conservative blue chip fund
C. Exchange-traded fund tracking the S&P500
D. Small cap growth fund

Answer 17

C. Exchange-traded fund tracking the S&P500

Rationale:
The unamanaged index fund with low expenses is the right choice here-ETF tracking the S&P500.

Question 18

One of your customers is very concerned about currency exchange risk. Which of the following would least expose him to this risk?

A. American Depository Receipt
B. Domestic equity fund
C. Global stock fund
D. International stock fund

Answer 18

B. Domestic equity fund

Rationale:
If the companies are all “domestic” there’s not much foreign currency being exchanged.

Question 19

If capital preservation is the primary goal of your investor, the most attractive investment below is:

A. Money Market Mutual Fund
B. Blue Chip Equity Fund
C. Small Cap Growth Fund
D. Treasury Note

Answer 19

D. Treasury Note

Rationale:
Money market mutual funds are not insured or guaranteed. If you picked either of the two stock funds-slow down, please.

Question 20

Which of the following recommendations most closely matches an investor’s needs for income, capital preservation, and, finally, purchasing power protection?

A. Callable preferred stock
B. Equity index fund
C. Asset allocation fund
D. Non-cumulative preferred stock

Answer 20

C. Asset allocation fund

Rationale:
Asset allocation funds-like balanced funds-are conservative. They keep a large % in fixed-income and a large percentage in a well- diversified stock portfolio, plus cash to help with the capital preservation. Is any other answer tempting?

Question 21

Which of the following types of mutual funds probably best matches an investor’s needs if she is seeking a high level of current income and, secondarily, capital appreciation?

A. Aggressive growth fund
B. Small cap growth fund
C. High-yield bond fund
D. Blue chip fund

Answer 21

C. High-yield bond fund

Rationale:
There is really no way to eliminate the choice “ high-yield bond fund,” even if “blue chip fund” seemed tempting. If the primary objective is “high level of current income,” even the typical corporate bond yields more than the yield on blue chip stocks as a group- when the question makes it HIGH- YIELD bond fund, we know the income will be higher than any dividends on blue chip stocks.

Question 22

One of your customers tells you she is seeking a high level of current tax-exempt income. Your best response would be to inform her that:

A. A growth-and-income fund maybe your best option, Ma’am
B. A high-yield municipal bond mutual fund may be suitable, Ma’am
C. Unfortunately, there are no high- yield or “junk” municipal bond funds, Ma’am
D. A tax-exempt money market mutual fund may be suitable, Ma’am

Answer 22

B. A high-yield municipal bond mutual fund may be suitable, Ma’am

Rationale:
A high-yield municipal bond mutual fund may be suitable, Ma’am

Question 23

Which of the following pairs of mutual fund portfolios are probably most similar?

A. Equity income funds, balanced funds
B. Equity funds, fixed-income funds
C. Growth funds, equity income funds
D. Actively managed funds, index funds

Answer 23

A. Equity income funds, balanced funds

Rationale:
Sorry-this question is too easy. Look at a few mutual fund prospectuses. You’ll see that both equity income and balanced funds have both stocks and bonds in the portfolio.

Question 24

To assist your investing customer in obtaining monthly income, you would LEAST likely recommend that she invest in:

A. Corporate bond mutual funds
B. Money market mutual funds
C. Mortgage-backed securities
D. Blue chip equity fund

Answer 24

D. Blue chip equity fund

Rationale:
Bonds pay interest only twice a year, but a mutual fund portfolio has so many different bonds in it, with different interest payment schedules, that it is easy and commonplace for the fund to make dividend distributions monthly. The blue chip equity fund mostly likely pays dividends quarterly-that factoid is not something to memorize. What you do here is remember that mortgage backed securities and money market mutual funds always pay monthly income.

Question 25

One of your customers owns a small business with 42 employees. A handful of these employees want to be sure their retirement savings are maximized, while most workers are not focused on retirement at this time. The 3 or 4 employees who care about retirement are highly compensated salespeople; therefore,

A. A SEP-IRAplan is probably most suitable for this company
B. A SIMPLE IRA is probably most suitable for this company
C. A SIMPLE IRA would not be available as the business has > 25 employees
D. A 401K plan is probably most suitable for this company

Answer 25

B. A SIMPLE IRA is probably most suitable for this company

Rationale:
Always look for problems with the answer choices: the 401K will lead to “top-heavy” problems; the SEP would force the customer to put the same % of ALL employees’ paychecks into their SEP-IRA accounts, while the SIMPLE allows the 3 or 4 gung-ho-retirement-planners to put their own money into their accounts, while the others can keep living for the moment. At age 55. The SIMPLE is available to a company with 100 or fewer employees and no other retirement plan in place.

Question 26

Jessica is a 41-year-old mother of two daughters, ages 11 and 13. Jessica just inherited $24,000 from her grandmother and wants to use all of it for her children’s education. The worst recommendation to make to Jessica would probably be to:

A. Open a 529 Plan
B. Invest in l-Bonds and plan to use the money tax-free for education purposes
C. Invest in US Treasury STRIPS
D. Purchase a deferred indexed annuity

Answer 26

D. Purchase a deferred indexed annuity

Rationale:
Can’t see any reason to put her money into a deferred annuity-she will not be even close to 59 1/2 when the kids start college, so . . . ? I-Bonds do allow the owner to use the money for college tax-free. STRIPS are often used for education when parents don’t want to keep reinvesting interest payments every six months.

Question 27

If Jocelyn purchased an ABC Jun 60 put, she could turn that into a bull spread by:

A. Purchasing an ABC Jun55 put
B. Selling an ABC Jun 55 put
C. Selling an ABC Jun 55 call
D. Selling an ABC Jun 65 put

Answer 27

D. Selling an ABC Jun 65 put

Rationale:
It has to be a put; it has to be sold; and it has to have a … higher strike price. Selling an ABC Jun 55 put would make this a bear spread. Buying puts and selling calls-way off the mark.

Question 28

An investor has sold 1,000 ABC short. He is an experienced short seller who would like to hedge this position and generate income. He should therefore:

A. Sell 10 ABC Puts
B. Buy 10 ABC Puts
C. Sell 10 ABC Calls
D. Sell 10 ABC Straddles

Answer 28

A. Sell 10 ABC Puts

Rationale:
A short seller buys calls for protection and writes puts for income/partial “protection”. The only “protection” involved here, though, would be the amount of the premium collected.

Question 29

If an investor describes himself as “patriotic” and wants to “invest in American companies,” the LEAST appropriate recommendation would be for him to invest in which of the
following equity mutual funds?

A. Balanced funds
B. Domestic funds
C. Global funds
D. International funds

Answer 29

D. International funds

Rationale:
Global funds = companies here AND elsewhere, international funds = elsewhere only.

Question 30

If an investor wants to invest in fixed-income securities without paying management fees, he might consider investing in:

A. Unit Investment Trusts
B. Neither choice listed
C. Corporate bond mutual funds
D. Either choice listed

Answer 30

A. Unit Investment Trusts

Rationale:
UlTs are “supervised but unmanaged portfolios.” There are trustee fees, but no management fees, as the securities are not traded.

Question 31

Although the tax implications are not always favorable, these securities do address an investor’s concern about re- investment risk. The question describes which of the
following?

A. Collateralized Mortgage Obligations
B. Ginnie Mae securities
C. Short-term US Treasury Notes
D. US Treasury STRIPS

Answer 31

D. US Treasury STRIPS

Rationale:
The main advantage of a zero coupon bond, e.g., a STRIP, is that it allows an investor to lock in a yield over the long haul without have to REINVEST interest payments at varying yields.

Question 32

One of your customers wants to purchase fixed-income securities that are relatively safe, denominated in US dollars, and issued by governments in Latin America and other emerging markets. Your customer most likely wants to invest in:

A. Mortgage bonds
B. Brady bonds
C. Companion bonds/tranche
D. Eurobonds

Answer 32

B. Brady bonds

Rationale:
Brady bonds are often collateralized by US Treasuries, making them relatively safe for emerging/developing market bonds. Eurobonds are issued outside the US and payable in a foreign currency.

Question 33

One of your investing customers is 68 years old and ready to retire. His father, still living, is 93, and his grandfather lived to age 105. If the customer wants purchasing power protection as well as protection against outliving his retirement savings, he should consider investing into a/an:

A. Deferred variable annuity
B. Immediate variable annuity
C. Immediate fixed annuity
D. Immediate deferred indexed annuity

Answer 33

B. Immediate variable annuity

Rationale:
He needs an IMMEDIATE annuity, and the fixed version wont protect purchasing power the way the variable- with the equity subaccounts-can.

Question 34

Mrs. Williams wants a dependable income stream that could rise in the future. The best recommendation for her is to invest in:

A. American Depository Receipts
B. Long-term investment-grade bonds
C. Cumulative preferred stock
D. Participating preferred stock

Answer 34

D. Participating preferred stock

Rationale:
If the issuer raises the dividend paid to common stock, they also raise the dividend paid to participating preferred shareholders. Other types of preferred stock are fixed as to the maximum amount paid this type is “fixed as to the
minimum.”

Question 35

This investor’s primary concern is interest-rate risk. Therefore, she should consider investing in:

A. US Treasury Bonds
B. Straight preferred stock
C. Long-term investment-grade bonds
D. US Treasury Bills

Answer 35

D. US Treasury Bills

Rationale:
The question just wants you to name the debt security with the shortest term—T-bills

Question 36

According to FINRA suitability rules, an agent has suitability requirements in all of the following cases EXCEPT:

A. He tells a customer that opening a margin account could provide higher returns through the strategic use of leverage
B. He refrains from telling a customer to sell a stock that he himself recommended two years earlier
C. He tells a customer to hang onto all large-cap growth stocks
D. He recommends a mortgage- based derivative product that the firm’s product committee has fully vetted and recommended

Answer 36

B. He refrains from telling a customer to sell a stock that he himself recommended two years earlier

Rationale:
A “hold” recommendation has to be explicit-not that it has to mention a particular stock. But, the fact that you didn’t tell the customer to sell is NOT = to telling her to hold, even if you DID recommend the stock to her. Recommending a strategy or a securities vehicle, is, of course, a recommendation… and that’s where suitability requirements kick in.

Question 37

Which of the following represents an agent’s recommendation to “hold” a security or securities?

A. An agent fails to recommend that customers sell securities which a previous broker-dealer recommended they buy several months earlier
B. An agent fails to recommend that customers sell securities which another agent at the firm recommended they buy several months earlier
C. An agent sends an email to 34 customers reminding them of the importance of holding quality large-cap stocks through the recession
D. An agent fails to recommend that customers sell securities which he recommended they buy several months earlier

Answer 37

C. An agent sends an email to 34 customers reminding them of the importance of holding quality large-cap stocks through the recession

Rational:
Telling someone NOT to sell a security is a hold recommendation. NOT telling them to sell is NOT a hold recommendation. Right?

Question 38

Under new FINRA suitability rules, suitability requirements of agents and broker-dealers include all of the following EXCEPT:

A. A reasonable basis to believe a recommended security or strategy is suitable for the particular customer
B. Requirement to avoid excessive transactions which may be suitable individually but not when taking together as a whole
C. A reasonable basis to believe a recommended security will be profitable for most investors
D. A reasonable basis to believe a recommended security or strategy is suitable for at least some investors

Answer 38

C. A reasonable basis to believe a recommended security will be profitable for most investors

Rationale:
Agents and broker-dealers can not be required to produce
profits for their customers-they just have to go out of their way to be sure the recommendations are suitable. And why not? The agent and broker-dealer get paid the same either way; least they could do is do their due diligence.

Question 39

Which of the following would NOT be considered a “recommendation” subject to FINRA suitability rules?

A. A recommendation to purchase broad-based index ETFs for capital appreciation
B. A seminar for a select group of high-risk, high-net-worth customers showing the benefits of margin trading
C. A letter to a select group of customers advising them to avoid panicking on their mid-cap growth stocks during the current market correction
D. A brochure explaining the characteristics and risks of margin account trading

Answer 39

D. A brochure explaining the characteristics and risks of margin account trading

Rationale:
If the document only explains how something works, and
carefully avoids implying someone ought to consider doing what’s being explained, it is not a recommendation.

Question 40

If a new customer provides most of the information requested of her broker-dealer, but not all of it, the broker-dealer and her agent should do which of the following?

A. Refrain from opening the account
B. Use their best judgment as to whether they have enough information to make suitable
C. Open the account and accept unsolicited orders only
D. Open the account but refrain from making any recommendations or executing any purchase orders

Answer 40

B. Use their best judgment as to whether they have enough information to make suitable

Rationale:
If the client gave you everything except her age, you could probably still make a recommendation, depending on what your supervisor/principal thinks is appropriate here.

Question 41

Michelle Moyers purchased 625 shares of ABC two years ago at an average cost basis of $15.15. With the stock now trading at $24, Michelle is convinced it will trade sideways over the next few months. If she would like to increase her overall return on these shares without taking on excessive risk, Michelle should do which of the following?

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

Answer 41

B. II, IV

Rationale:
Michelle should write COVERED calls-she can write 6 covered calls. If she writes 8 calls, two of them are naked, which is excessively risky. Buy puts for protection, but to “increase overall return,” the investor has to sell an option. Don’t sell puts if you own the stock-you’re just doubling your downside risk that way.

Question 42

The General Partner of a real estate limited partnership plans to either purchase a rental property over the next two years or return the capital to the Limited Partners. Where is the most suitable place for the GP to invest the money at this time?

A. US Treasury Bonds
B. Real Estate Investment Trusts
C. US Treasury Notes
D. Unit Investment Trusts

Answer 42

C. US Treasury Notes

Rationale:
The question is really just asking if you know the maturities for T- Notes and T-Bonds. T-notes are offered with 2-year and up to 10- year maturities. T-Bonds are typically 30-year maturities. Never buy bonds with longer maturities than the investors time horizon. And, stay out of REITs and UITs both which could drop significantly in value over the short-term.

Question 43

Which of the following investment vehicles is most closely associated with retail investors?

A. CMO
B. Preferred stock
C. Mutual funds
D. Equity options

Answer 43

C. Mutual funds

Rationale:
The average investor loves mutual funds. Few play with options or CMOs (both derivatives), and preferred stock is usually held by corporations and other institutions. Or-again-throug mutual funds.

Question 44

For an investor with a moderate-to-high risk tolerance seeking high dividend yields, you would most likely recommend that he or she invest in which of the following?

A. Real Estate Investment Trusts
B. Convertible preferred stock
C. CMOs
D. United States Treasury Notes

Answer 44

A. Real Estate Investment Trusts

Rationale:
If a test question tries to get too tricky, you can sometimes use that against it-CMOs and Treasury Notes do not PAY dividends. Both are eliminated. Convertible preferred stock pays the lowest dividend of all, while REITs are associated with high dividend yields (or should be after this question).

Question 45

Investors seeking monthly income should avoid which TWO of the following?

I. GNMA pass-through securities
II. Preferred stock
III. Bond mutual funds
IV. Long options

A. Ill, IV
B. II, III
C. II, IV
D. I, II

Answer 45

C. II, IV

Rationale:
Mortgage-based securities pay income monthly, just as the folks cutting the checks to the lender do so monthly. But preferred stock is not paying monthly dividends, and options that are BOUGHT can’t provide income. So eliminate preferred stock and long options here. For the bond mutual fund, monthly dividends are very common and completely up to the board of directors.

Question 46

Investors seeking monthly income should invest in which TWO of the following?

I. GNMA pass-through securities
II. Preferred stock
III. Bond mutual funds
IV. Long options

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

Answer 46

D. I, III

Rationale:
GNMA pays monthly interest and principal to the investor. Bond mutual funds pay income as determined by the board of directors-usually monthly.

Question 47

Your fixed-income investor seeks capital preservation first, and income second. If she has a long time horizon, she should probably invest most of her money in which of the following?

A. US Treasury Notes
B. US Treasury Bonds
C. US Treasury Bills
D. CMOs

Answer 47

B. US Treasury Bonds

Rationale:
If she has a long time horizon, she gets the highest yield on the long-term T-Bonds. Since all three US Treasuries are equally good at preserving capital, we should recommend T-Bonds.