Which combination of elements describes a security according to the standard definition?

• A. Investment of money in a common enterprise with an expectation of profit to be derived from the efforts of others
• B. Investment of money with fixed interest in a business venture controlled by the investor
• C. Ownership of real estate with rental income independent of others
• D. Donation to a charitable organization with no profit expectation

Answer: (A)

The key idea being tested is how a security is defined under the Howey framework: there must be an investment of money in a common enterprise with an expectation of profits to be derived from the efforts of others. The described scenario fits all four parts. Money is being invested, the investment is in a common enterprise, there is an expectation of profit, and that profit is to come from the efforts of others, not from the investor’s own active work. Because all four elements are present, it meets the standard definition of a security.

The other descriptions don’t satisfy all four elements. If profits depend on the investor’s own actions rather than on others’ efforts, the “efforts of others” element is missing. Real estate with rental income that’s independent of others likewise lacks reliance on others for profits. A charitable donation has no investment of money with an expectation of profit at all.