General Securities Representative (Series 7) Practice Exam

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Prepare for the Series 7 Exam for General Securities Representatives. Study with comprehensive multiple-choice questions, each with detailed explanations to ensure you understand key concepts. Excel in your exam with confidence!

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If a bond is called in installments, what is it referred to as?

Callable bond
Convertible bond
Sinking fund call
Interest-only bond

The correct answer is: Sinking fund call

When a bond is called in installments, it is specifically referred to as a sinking fund call. This term refers to the mechanism by which an issuer sets aside funds regularly to repay or redeem the bondholders. A sinking fund provision enables the issuer to redeem a portion of the outstanding bonds at specific intervals, rather than requiring the payment of the entire principal amount at maturity. This can help mitigate the risk for investors, as they can receive their principal back incrementally, and it can also help the issuer manage their debt more effectively over time. In contrast, a callable bond allows the issuer to redeem the entire bond before its maturity at specific times and under certain conditions, which doesn't necessarily imply installments. A convertible bond gives the bondholder the option to convert the bond into a predetermined number of shares of the issuing company’s stock, which is unrelated to calling procedures. An interest-only bond is one where the bond pays only interest during the life of the bond and does not pay back the principal until maturity, which also differs from the concept of a sinking fund call.