General Securities Representative (Series 7) Practice Exam

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Prepare for the General Securities Representative (Series 7) Exam. Utilize flashcards and multiple choice questions with detailed explanations. Ace your test!

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What is the primary objective of a variable-rate bond?

To maximize interest income
To protect the principal
To secure fixed payments
To provide liquidity

The correct answer is: To protect the principal

The primary objective of a variable-rate bond is to protect the principal against fluctuating interest rates, making the correct answer B. Variable-rate bonds, also known as floating-rate bonds, have interest payments that adjust based on prevailing market rates. This adjustment mechanism helps mitigate the risk of interest rate hikes, which could otherwise reduce the bond's market value. By having a variable rate, these bonds offer a safeguard against inflation and changing economic conditions, allowing investors to maintain the purchasing power of their interest income over time. While each of the other options represents objectives that some types of bonds may address, they do not capture the essence of the variable-rate bond's structure aimed at ensuring the stability of principal in response to market changes.