SIE practice questionmediumDPPs — Illiquidity
A major disadvantage of investing in a Direct Participation Program (DPP) is:
- ADPPs guarantee losses for investors
- BDPPs are extremely liquid and can be sold on any stock exchange
- CDPPs are illiquid — there is no established secondary market and interests are difficult to sell✓ Correct answer
- DDPPs provide no tax benefits
Explanation
Why C — DPPs are illiquid — there is no established secondary market and interests are difficult to sell
DPP interests (limited partnership units) are highly ILLIQUID. There is no established secondary market for these securities, making them very difficult to sell before the program terminates. Investors should be prepared for long holding periods (often 7-12 years). This illiquidity is a major risk factor. DPPs DO offer tax benefits (A is wrong) and are NOT exchange-traded (B is wrong).
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