Objectives in this domain

Analyse the characteristics, rights, and tax treatment of equity securities, including common and preferred stock, rights and warrants, ADRs, and the calculation of cost basis and capital gains.
Section 3.1hard
Analyse debt and municipal securities, including yield calculations, the price-yield relationship, call features, and the federal and state tax treatment of corporate, government, and municipal bonds.
Section 3.2hard
Apply listed options characteristics and strategies - protective puts, covered calls, spreads, and straddles - and compute maximum gain, maximum loss, and break-even for option positions.
Section 3.3hard
Compare packaged products - mutual funds, ETFs, UITs, variable annuities, REITs, and DPPs - and apply fundamental and technical analysis to inform recommendations and required disclosures.
Section 3.4medium

Sample question from this domain

Free sampleProvides Customers with Information About Investments, Makes Recommendations, Transfers Assets and Maintains Appropriate Recordshard

How does a general obligation (GO) bond differ from a revenue bond in the source used to service the debt?

AA GO bond is serviced from the taxing power and general credit of the issuing municipality, whereas a revenue bond is serviced only from the earnings of a specific project or facility. Correct
BA GO bond is serviced from the earnings of a single toll facility, whereas a revenue bond is serviced from ad valorem property taxes levied by the issuer.
CA GO bond is serviced by the federal government under a moral obligation pledge, whereas a revenue bond is serviced by the state legislature each year.
DA GO bond and a revenue bond are both serviced from the same debt service reserve fund held by the trustee, differing only in maturity length.

Distinguish a GO bond, backed by taxing power, from a revenue bond, backed only by project earnings. The defining line between the two municipal structures is the pledged repayment source: a GO bond rests on the issuer's taxing power and general credit, so it typically needs voter approval, whereas a revenue bond is self-supporting and repaid only from the facility's revenues.

Why A is correct: Correct. A GO bond is backed by the issuer's full faith, credit, and taxing power, while a revenue bond depends solely on the net or gross revenues produced by the financed facility.

Why B is wrong: Tempting because it names real repayment sources, but it reverses them: facility earnings back revenue bonds and ad valorem taxes back GO bonds, so the pairing is exactly backwards.

Why C is wrong: Wrong because GO bonds carry no federal guarantee; a moral obligation pledge is a limited legislative undertaking on certain revenue issues, not the defining feature of a GO bond.

Why D is wrong: Wrong because the two are distinguished by their repayment source, not maturity; a shared reserve fund does not exist across the two structures and maturity is not the defining difference.

Other domains in this exam

See also the Series-7 cert hub, the study guide, and the cheat sheet.