Advanced Diploma of Financial Planning (ADFP) Practice Test

Which of the following statements regarding fixed-income securities is NOT correct?

1. They typically have variable payment schedules.

2. They represent an issuer's contractual obligation.

3. They are primarily owned by individual investors.

4. They include long-term debt instruments.

The correct answer is: They typically have variable payment schedules.

Fixed-income securities generally offer predictable payment schedules, which usually consist of fixed periodic interest payments and the return of principal at maturity. While the term "variable payment schedules" might be applicable in certain contexts, such as with floating-rate bonds, the majority of fixed-income instruments, particularly traditional bonds, feature fixed interest rates. Therefore, stating that they typically have variable payment schedules is incorrect. The other statements are accurate. Fixed-income securities represent an issuer's contractual obligation to repay borrowed funds with specified interest, indicating a clear contractual agreement. They encompass a wide range of debt instruments, from short to long-term, effectively making statement D true. Moreover, while institutional investors play a significant role in the fixed-income market, many individual investors also partake, indicating that statement C can be discussed in the context of market dynamics but still holds some truth, especially in certain types of fixed-income investments.