Canadian Securities Course (CSC) Level 2 Practice Exam

What type of assets are typically associated with Real Estate Investment Trusts (REITs)?

1. Assets that react to interest rates and offer stable potential gains.

2. Pool of assets that are passed through to investors with various risks.

3. Real estate put into a portfolio with income going to investors.

4. Commercial paper backed by specific assets for added security.

The correct answer is: Real estate put into a portfolio with income going to investors.

The correct choice highlights that Real Estate Investment Trusts (REITs) typically consist of a diversified portfolio of real estate assets. The income derived from these properties, often in the form of rental income, is distributed to investors. This structure allows investors to participate in the real estate market without the need to directly own or manage properties. REITs provide an accessible way for individuals to invest in real estate and receive income, which is often seen as relatively stable due to the nature of real estate investments. This makes them appealing in terms of earning potential, particularly in terms of income through dividends. The other options, while relevant to various investment strategies or financial instruments, do not accurately capture the fundamental essence of REITs as a collective investment focused on real estate. Assets reacting to interest rates and offering stable gains pertain more to fixed-income securities, and the notion of commercial paper relates to short-term debt instruments, which are not directly tied to real estate. Additionally, the idea of a pool of assets passed through investors with various risks is broader and lacks the specific connection to real estate that REITs maintain.