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Exam Series 6 All Questions

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Exam Series 6 topic 1 question 220 discussion

Actual exam question from FINRA's Series 6
Question #: 220
Topic #: 1
[All Series 6 Questions]

Which of the following would offer an investor the most protection against purchasing power risk?

  • A. a stock mutual fund
  • B. a government bond fund
  • C. a high-yield bond fund
  • D. a money market fund
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Suggested Answer: A 🗳️
A stock mutual fund would offer an investor the most protection against purchasing power risk. Purchasing power risk is the risk that the money received from the investment wont buy as much because of inflation. Stock funds offer higher returns that have historically exceeded the annual rate of inflation, on average. The majority of the return from bond funds is from the fixed interest payment, which does not change regardless of the inflation rate, so the return earned by the investor may end up being less than the inflation rate in any given year. Likewise, money market funds offer very low returns that, in some years, are less than the rate of inflation.
by lolojepu at April 6, 2025, 1:26 a.m.

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