A65-year old retired teacher living on a pension has $200,000 invested in 2 year certificates of deposit that are yielding 4%. $20,000 of the cds are maturing and the customer wants to diversify into an investment that gives a higher return and a moderate level of risk. the best recommendation would be:

a. high yield corporate bonds
b. treasury strips
c. equity reits
d. income bonds

The BEST recommendation would be:

C. Equity REITs

Explanation:

Equity REITs are Real Estate Investment Trusts that allow investors to purchase real estate without necessarily going out and buying the property themselves. They act as middlemen between the investors and the property sellers. The equity REITs invest and own property. The REITs in this way act as a type of security where the property can be traded in the market exchange like stocks and bonds. In this way, investments from large and small investors can purchase a piece of the real estate depending on the amount invested. The investors then own what is called, a share of the real estate.

To be a REIT, one needs to meet certain standards and regulations, for example; the REIT has to have more than 100 shareholders, the REIT has to be managed by a board of directors and the dividend payments have to be at least 90 percent of the REIT's taxable income per year. Equity REIT typically invest in the real estate sector like; industrial estates, residential estates and resorts. The y gain revenue from the rental income from the real estate holdings. This option would be best for the retired teacher since Equity REITs pay high dividends and the risk level is moderate since the real estate investments is diverse.

High yield corporate bonds have a higher return but the risk level is also considerable high. Treasury strips have low returns even though the risk is also very low. Income bonds have a high return only if the investor also has a high net income.

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