Series 7 practice questioneasyProduct Knowledge and Suitability Foundation 1
Which factor is most relevant before recommending a callable bond to an income investor?
- AReinvestment risk if rates fall✓ Correct answer
- BThe issuer’s transfer restrictions
- CWhether the bond votes in director elections
- DWhether it qualifies for SIPC coverage
Explanation
Why A — Reinvestment risk if rates fall
Callable bonds may be redeemed early when rates decline, forcing investors to reinvest at lower rates. That reinvestment risk is especially important for income-oriented customers.
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