Chartered Financial Analyst Level 2

Explanation

Correct Answer: C - A real estate operating company

Analysis:

• Real Estate Operating Company (REOC): These are publicly traded companies that develop and sell real estate properties as their primary business activity. They focus on property development and sales rather than long-term rental income generation.

• REIT (Real Estate Investment Trust): REITs primarily generate income through rental properties and must distribute at least 90% of their taxable income to shareholders. They are focused on owning and operating income-producing real estate, not property development for sale.

• MBS (Mortgage-Backed Security): These are securities backed by pools of mortgages, representing debt obligations rather than equity ownership in real estate development companies.

Key Distinction:

• REOCs are development-focused companies that build and sell properties
• REITs are income-focused entities that own and operate properties for rental income
• MBS are debt instruments related to mortgage financing

Since the investor specifically wants exposure to companies that develop real estate properties for sale, a real estate operating company is the most appropriate vehicle.