Series 6 Unit 4
Rank the following from least to most capital risk. I GNMA II Treasury bill III Adjustable preferred stock IV Zero-coupon bond A) II, I, IV, III B) III, IV, I, II C) II, I, III, IV D) I, II, IV, III
A) II, I, IV, III
Seabird Airlines owes JetA Fuel Corporation $250,000 for fuel delivered at the Seattle-Tacoma airport. Where would this figure be included on JetA's balance sheet? A) Current assets B) Long term liabilities C) Current liabilities D) Intangibles
A) Current assets
Your customer, age 32, makes $48,000 annually and has $15,000 to invest. Although he has never invested before, he wants to invest in something exciting, with investment returns in the 20%+ range. Which of the following should you suggest? A) More information from the customer before you can make a suitable recommendation B) A bio-tech fund that returned 25% last year and would be a good fit for this investor C) An aggressive growth fund because the customer is young and has many investing years ahead D) A high-yield bond fund because you anticipate interest rates to fall and the price of bonds to skyrocket
A) More information from the customer before you can make a suitable recommendation
Which of the following mutual funds is likely to carry the greatest credit risk in its portfolio? A) The Keppel High-Yield Bond Fund B) The Smith and Jackson Small-Cap Growth Fund C) The KPF Government Bond Fund D) The Gamma Corporate Investment-Grade Bond Fund
A) The Keppel High-Yield Bond Fund
Which of the following would be found on a customer's income statement? A) The customer's debt service B) The value of the customer's primary residence C) The customer's risk tolerance D) The customer's 401(k) balance
A) The customer's debt service
Your new client is interested in purchasing corporate bonds. When speaking about the different risks associated with this investment, you explain that reinvestment risk is the risk that, between now and when the bond matures or is called, interest rates will A) fall. B) stay the same. C) rise. D) adjust upward for inflation.
A) fall.
All of the following appear on a corporation's balance sheet as fixed assets except A) inventory. B) computer equipment. C) real estate. D) furniture.
A) inventory.
A customer wishes to open a new account but refuses to provide suitability information. Under FINRA rules, the member A) may open the account but may not make any recommendations. B) must not open the account. C) may open the account but must limit recommendations to U.S. government securities. D) may open the account but must limit recommendations to investment-grade securities.
A) may open the account but may not make any recommendations.
Which investment is exposed to the greatest price sensitivity when interest rates increase? A) 20-year bond with a 6% coupon B) 20-year bond with a 4% coupon C) 10-year bond with a 6% coupon D) 10-year bond with a 4% coupon
B) 20-year bond with a 4% coupon
Recommendations to a customer must A) include assurances or guarantees regarding investment performance. B) reflect the facts disclosed by the customer regarding other holdings and financial situations. C) be approved in advance by a principal. D) never involve recommending a speculative security.
B) reflect the facts disclosed by the customer regarding other holdings and financial situations.
Which of the following would not be listed as an asset on a company's balance sheet? A) Intangibles B) Issued bonds C) Current assets D) Fixed assets
B) Issued bonds
Which of the following investments will require a specific disclosure regarding liquidation? A) Listed common stock B) Limited partnership C) Class A mutual fund D) Exchange traded fund
B) Limited partnership
Spinner Music Company owns the rights to a large collection of music by several popular artists from the 1970s. The value of these rights would be found on what part of a Spinner's balance sheet? A) Current assets B) Other assets C) Current liabilities D) Fixed assets
B) Other assets
Strategic asset allocation is considered what style of portfolio management? A) Post-modern management B) Passive management C) Aggressive management D) Active management
B) Passive management
Which of the following would be found on a customer's balance sheet? A) The customer's income B) The value of a customer's comic book collection C) The customer's alma mater D) The customer's monthly debt service
B) The value of a customer's comic book collection
Liquefying home equity to generate funds for investment purposes A) is suitable for all investors. B) requires communication by the broker-dealer of the unique risks associated with this investment strategy. C) is suitable during times of increasing home prices only. D) can never be a recommended investment strategy.
B) requires communication by the broker-dealer of the unique risks associated with this investment strategy.
Which of the following would be appropriate recommendations for a customer looking for income? A) Long call option B) Income bond C) Utility fund D) Warrant
C) Utility fund
An investor purchased the stock of a very well-performing technology company, expecting to receive substantial growth in the future. Shortly after he purchased the stock, the company was sued for patent infringement and lost. This reduced its product line and made serious inroads into its working capital, so that the stock declined greatly in value. This is an example of what kind of risk? A) Liquidity risk B) Reinvestment risk C) Business risk D) Legislative risk
C) Business risk
A customer would like to know which of the following mutual funds has the highest potential for capital growth. Which would you choose? A) Blue-chip growth stock fund B) Long-term bond fund C) Small-cap technology stock fund D) Blue-chip preferred stock fund
C) Small-cap technology stock fund
While prospecting for clients, you discover a potential investor who is 88 years old, retired, living on his savings, has never invested, and has very high medical expenses. As a registered representative, you would recommend A) opening an account and, with the client's consent, give yourself discretionary authority because of the investor's age. B) having the account preapproved by a registered options principal. C) that no investment account be opened due to his financial situation. D) high-yielding bonds to supplement his retirement income.
C) that no investment account be opened due to his financial situation.
A 78-year-old retiree had a $100,000 CD maturing and was dissatisfied with current yields on new CDs. Aside from Social Security and a small monthly pension, the $100,000 is his total potential source of income. The registered representative recommended investing the funds in a single premium immediate variable annuity, allocating funds to the separate account as follows: $10,000 Medical Technology, $40,000 High-Yield Corporate Bond, and $50,000 Growth & Income. The registered representative's recommendation is A) unsuitable because of the lack of diversification of the portfolio choices. B) suitable provided the customer agrees with the recommendation. C) unsuitable because of the aggressive nature of the portfolio choices. D) suitable because the portfolio mix seems likely to offer increased income to the customer.
C) unsuitable because of the aggressive nature of the portfolio choices.
Windsor owns a portfolio that consists of three different auto industry stocks. Windsor prefers to invest in stocks and has a long term growth objective. How might Windsor reduce the non-systematic risk in this portfolio? A) Sell the two weakest positions and reinvest in the strongest company B) Purchase put options on the three companies in the portfolio C) Purchase bonds from major auto manufacturers D) Diversify the portfolio into different industries
D) Diversify the portfolio into different industries
An investment representative recommended a variable annuity to a client who declined the investment. The same client called a year later and wanted to buy the annuity and invest all the funds in the aggressive growth portfolio, which had had a remarkable three-year performance streak. The client is one year away from retirement. Which of the following statements are true? I. The client's profile must be updated to ensure suitability before selling him the variable annuity. II. Because suitability was established a year ago, there is no need to update the client's information. III. The aggressive growth portfolio selection is suitable because the client does not need income until he retires in a year. IV. The aggressive growth portfolio is not suitable because the client will retire in a year.
I. The client's profile must be updated to ensure suitability before selling him the variable annuity. IV. The aggressive growth portfolio is not suitable because the client will retire in a year.
