Products & RisksQuestion 25 of 125
A fixed annuity exposes the contract holder primarily to which risk?
a.Purchasing power (inflation) risk, because payments are fixed in dollar terms
b.Market risk from equity subaccounts
c.Currency exchange risk
d.Liquidity risk equivalent to owning common stock
Explanation
A fixed annuity guarantees a set payment, so its main drawback is purchasing power risk: over time inflation erodes the real value of level payments. Variable annuities aim to counter inflation risk by investing in securities, but they introduce market risk instead.
Practice all 125 questions free — no signup required.
Related questions on this topic
- An exchange-traded fund (ETF) differs from a traditional open-end mutual fund primarily because an ETF:
- A unit investment trust (UIT) is characterized by:
- A variable annuity's separate account value during the accumulation phase depends on:
- A real estate investment trust (REIT) that qualifies for favorable tax treatment must generally:
- A key characteristic of a direct participation program (DPP), such as a limited partnership, is that:
- An investor buys 1 XYZ call option with a strike price of 50 for a premium of 3. What is the maximum loss on this long call position?
Last reviewed: · editorial process
PrepPass Editorial Team · Verified against FINRA Series 7 General Securities Representative Exam · How we review