Series 7 Exam Question 107: Answer and Explanation

Question: 107

For an investor who is concerned about purchasing power risk, which TWO of the following would be the best recommendations?

I. Common stock

II. Long-term corporate bonds

III. Fixed annuties

IV. Variable annuties

• A. I and III
• B. I and IV
• C. II and III
• D. II and IV

Correct Answer: B

Explanation:

B. Purchasing power risk is also known as inflation risk. So, investors who are concerned about purchasing power risk are concerned that their investment won't keep up with the rate of inflation. Out of the choices given, common stock and variable annuties have a much better chance of keeping up with and hopefully beating the rate of inflation than long-term corporate bonds and fixed annuities.