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Official Practice ProblemFINRA Series 7 Blueprint: Function 2
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Question #s7-prep2-series7-ch7-002Function 2Fundamental

Variable Annuities

Income and losses from a DPP investment are classified as:

Correct Choice: C

Because limited partners do not actively participate in the business, all DPP income and losses are classified as passive. Passive losses can only offset passive income.

Complete Analysis & Legal Rationale

Because limited partners do not actively participate in the business, all DPP income and losses are classified as passive. Passive losses can only offset passive income.

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 concept in the explanation.

Choice BIncorrect
Concept Trap

Does not match the governing concept in the explanation.

Choice CCorrect
None

Matches the verified teaching point in the explanation.

Choice DIncorrect
Concept Trap

Does not match the governing concept in the explanation.

Authorities & References:

Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.

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-prep2-series7-ch7-002 (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 pending rule-specific upgrade. Verify against current FINRA Series 7 outline.

Read FINRA Official Rule

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