Financial Industry Regulatory Authority (FINRA) Practice Exam

Which of the following security types provides investors with a stated maturity date and a floating interest rate?

1. Equity put option

2. Perpetual preferred stock

3. Variable rate demand note

4. Tax-deferred variable annuity

The correct answer is: Variable rate demand note

The correct choice is a security type that provides investors both a stated maturity date and a floating interest rate, which is characteristic of variable rate demand notes. These instruments are designed to provide liquidity and interest payments that can change based on current market rates. As they typically have a set maturity date, investors can anticipate when they will receive their principal investment back. Variable rate demand notes often have interest rates that are adjusted periodically, allowing the rates to reflect current market conditions. This makes them appealing for investors looking for both a relatively secure investment with a definite end date and the potential for returns that can rise alongside prevailing interest rates. In contrast, the other options do not align with the combination of features described in the question. Equity put options are not securities with a maturity date in the traditional sense, as their value is derived from the underlying asset rather than offering maturity and interest payments. Perpetual preferred stock does not have a maturity date, as it is intended to pay dividends indefinitely. Tax-deferred variable annuities have a different structure focused on providing retirement income rather than a defined maturity or adjustable interest rates.