California Real Estate Practice Exam

If a broker agrees to manage a client's investment portfolio ($85,000) of 1st trust deeds and guarantees a return of 11% on the investments, he:

1. must provide a bond.

2. must obtain a loan broker's license.

3. would be violating "Regulation Z."

4. would be violating usury laws.

The correct answer is: must provide a bond.

The correct answer highlights the fact that a broker managing an investment portfolio on behalf of a client, particularly one that involves providing a guaranteed return, is usually required to provide a bond. This is primarily to ensure that the broker has the financial responsibility to protect the client's interests, offering a measure of security against potential mismanagement or malpractice. The bond acts as a safeguard for the client, ensuring that there are remedies in place should the broker fail to adhere to the agreed-upon terms. While other answers might imply certain regulatory requirements or legal issues, they do not adequately address the immediate need for a bond in this scenario. For instance, obtaining a loan broker's license pertains to a different aspect of real estate practice and doesn't directly relate to managing an investment portfolio. Regulation Z deals with disclosure requirements for consumer credit transactions and wouldn't be applicable in this context. Lastly, usury laws refer to the legality of charging excessive interest rates on loans, which does not correlate with the broker simply managing the investment and promising a defined return as described in the question.