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Official Practice ProblemFINRA Series 7 Blueprint: Function 3
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Question #s7-prep-series7-ch5-015Function 3Moderate

Mutual Funds

An investor purchases shares of a municipal bond fund. Which of the following distributions would be TAXABLE?

Correct Choice: B

While interest income from municipal bond funds is generally federally tax-exempt, capital gains distributions are always taxable.

Complete Analysis & Legal Rationale

While interest income from municipal bond funds is generally federally tax-exempt, capital gains distributions are always taxable.

Distractor Autopsy (Why Other Options Are Traps)

FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:

Choice AIncorrect
Concept Trap

Does not match the governing securities rule described in the explanation.

Choice BCorrect
None

Matches the verified teaching point in the explanation.

Choice CIncorrect
Concept Trap

Does not match the governing securities rule described in the explanation.

Choice DIncorrect
Concept Trap

Does not match the governing securities rule described in the explanation.

Authorities & References:

Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.

Official SourceFINRA FINRA Series 7 Content Outline — General Securities Representative Examination (Series 7) Content Outline
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Regulatory Authority & Citations: Primary Legal Sources

Verified citations governing Question #s7-prep-series7-ch5-015 (FINRA Series 7 Content Outline)

To pass the FINRA Series 7, candidates must understand not just the calculation formulas, but the exact federal securities acts, SRO rulebooks, and statutory frameworks that enforce them. Review the primary authority records below:

FINRAFINRA Series 7 Content Outline— General Securities Representative Examination (Series 7) Content Outline

Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.

Read FINRA Official Rule

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