Question

A client lists their primary investment objective as liquidity. An RR believes that investments in municipal securities are best suited for this client. With the primary investment objective of the client in mind, which of the following would be the MOST attractive feature in relation to recommendations of municipal securities by the RR to this client? (A) The market price of a particular municipal security exceeds the par value of the security by a sizeable amount. (B) The market price of a particular municipal security is well below the par value of the security. (C) The security has a maturity that takes place within the next year. (D) The security has a call premium that currently exceeds the market price.

Answer 1

Answer:

(C) The security has a maturity that takes place within the next year.

Explanation:

A liquid investment is an investment that can be easily and swiftly converted into cash. Cash is the most liquid asset, but it also yields virtually no returns. Generally, the more liquid an investment, the lower returns it tends to yield.

In this particular case, the investor is worried about the liquidity of the investment, so the RR must look for securities that mature in a short period of time. Only option C makes any reference to maturity time, and since these municipal bonds mature within the next year, they are short term investments.