Series 7 Exam Question 247: Answer and Explanation

Question: 247

A client owns a large amount of Treasury bonds and long-term investment grade corporate bonds. Their main risk concern should be

• A. credit risk
• B. inflationary risk
• C. systematic risk
• D. timing risk

Correct Answer: B

Explanation:

B. All long-term bonds have inflationary (purchasing power) risk. Inflationary risk is the risk that the return on the investment does not keep pace with inflation. To limit inflationary risk, investors should purchase stocks. Over the long haul, stocks have more than kept pace with inflation.