Series 7 Suitability UPDATED ACTUAL
Exam Questions and CORRECT Answers
common stock - CORRECT ANSWER - suitable for investors seeking long-term growth
(capital appreciation) and the opportunity to outpace inflation
preferred stock - CORRECT ANSWER - suitable for investors seeking stable dividend
income with returns that are comparable to long-term bonds
growth stock - CORRECT ANSWER - suitable for investors seeking long-term growth
and retirement savings; good hedge against inflation
utility stock - CORRECT ANSWER - suitable for investors seeking stable dividend
income (i.e., older or retired investors)
american depositary receipt (ADR) - CORRECT ANSWER - suitable for investors seeking
to invest in foreign companies (similar to U.S. common stock)
bond - CORRECT ANSWER - suitable for older and/or more conservative investors who
want consistent income
corporate bond - CORRECT ANSWER - suitable for investors seeking current income for
a specific period
convertible bond - CORRECT ANSWER - suitable for investors seeking income with the
potential for long-term growth (the relative safety of a bond, with the growth potential of the
underlying stock)
zero-coupon bond - CORRECT ANSWER - suitable for investors seeking an investment
that is less risky than equities and provides predictable growth (use for retirement planning or
college funding)
, high-yield bond (junk bond) - CORRECT ANSWER - suitable for high-risk, speculative
investors
money market instruments - CORRECT ANSWER - suitable for investors seeking
conservative investments for short-term needs; used to hold funds safely until needed or invested
for a longer term
municipal bond - CORRECT ANSWER - suitable for investors who are in high tax
brackets and are seeking tax-exempt interest income
private activity/industrial development bond - CORRECT ANSWER - suitable for
investors seeking a higher yielding municipal bond and are not subject to the alternative
minimum tax (AMT)
variable rate demand obligation (VRDO) - CORRECT ANSWER - suitable for
conservative investors seeking income
treasury note and treasury bond - CORRECT ANSWER - suitable for investors seeking
fixed income and safety of principal
treasury bill - CORRECT ANSWER - suitable for investors seeking absolute safety of
principal who are willing to accept a very low return
treasury inflation protected security (TIPS) - CORRECT ANSWER - suitable for investors
seeking a hedge against inflation
treasury STRIPS - CORRECT ANSWER - suitable for investors seeking to receive a fixed
sum of money to satisfy a future expense (for long-term saving, planning for retirement, or
college funding)
Exam Questions and CORRECT Answers
common stock - CORRECT ANSWER - suitable for investors seeking long-term growth
(capital appreciation) and the opportunity to outpace inflation
preferred stock - CORRECT ANSWER - suitable for investors seeking stable dividend
income with returns that are comparable to long-term bonds
growth stock - CORRECT ANSWER - suitable for investors seeking long-term growth
and retirement savings; good hedge against inflation
utility stock - CORRECT ANSWER - suitable for investors seeking stable dividend
income (i.e., older or retired investors)
american depositary receipt (ADR) - CORRECT ANSWER - suitable for investors seeking
to invest in foreign companies (similar to U.S. common stock)
bond - CORRECT ANSWER - suitable for older and/or more conservative investors who
want consistent income
corporate bond - CORRECT ANSWER - suitable for investors seeking current income for
a specific period
convertible bond - CORRECT ANSWER - suitable for investors seeking income with the
potential for long-term growth (the relative safety of a bond, with the growth potential of the
underlying stock)
zero-coupon bond - CORRECT ANSWER - suitable for investors seeking an investment
that is less risky than equities and provides predictable growth (use for retirement planning or
college funding)
, high-yield bond (junk bond) - CORRECT ANSWER - suitable for high-risk, speculative
investors
money market instruments - CORRECT ANSWER - suitable for investors seeking
conservative investments for short-term needs; used to hold funds safely until needed or invested
for a longer term
municipal bond - CORRECT ANSWER - suitable for investors who are in high tax
brackets and are seeking tax-exempt interest income
private activity/industrial development bond - CORRECT ANSWER - suitable for
investors seeking a higher yielding municipal bond and are not subject to the alternative
minimum tax (AMT)
variable rate demand obligation (VRDO) - CORRECT ANSWER - suitable for
conservative investors seeking income
treasury note and treasury bond - CORRECT ANSWER - suitable for investors seeking
fixed income and safety of principal
treasury bill - CORRECT ANSWER - suitable for investors seeking absolute safety of
principal who are willing to accept a very low return
treasury inflation protected security (TIPS) - CORRECT ANSWER - suitable for investors
seeking a hedge against inflation
treasury STRIPS - CORRECT ANSWER - suitable for investors seeking to receive a fixed
sum of money to satisfy a future expense (for long-term saving, planning for retirement, or
college funding)
