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Treasury Inflation-Protected Securities (TIPS) adjust their principal value semiannually based on changes in the Consumer Price Index. As inflation rises, the principal amount increases, which in turn raises the interest payment since the coupon rate is applied to the adjusted principal. This mechanism provides a direct hedge against inflation. Zero-coupon bonds (B) offer fixed payments at maturity with no inflation adjustment, so they are highly exposed to inflation risk. Preferred stock (C) provides fixed dividends, which lose purchasing power when inflation rises. CDs (D) are fixed-income deposits with no inflation protection. For Series 7, candidates must distinguish various risks (inflation, interest rate, credit, liquidity, market) and match products to customer objectives. TIPS are considered low credit risk since they are U.S. government obligations and are especially suitable for conservative investors focused on preserving real purchasing power. Advisors must disclose tax implications, as both coupon interest and inflation adjustments to principal are taxable annually for federal purposes, though exempt from state/local tax.