Series 65 Unit 19 Checkpoint Exam

Which of the following will be the most likely risk that you will face during the first year after purchasing a corporate AA bond that matures in 15 years? A) Market B) Interest rate C) Liquidity D) Credit

B. Interest rate

If your client is primarily concerned about the rising cost of living but wishes to limit his exposure to business risk, which of the following securities is most appropriate? A) AAA intermediate-term corporate bond fund B) Tax-free municipal bond fund C) S&P 500 Index fund D) Small-cap stock fund

C. S&P 500 Index fund

In 1986, a sweeping change was made to the U.S. Tax Code. This change had a severe effect upon those who had been investing in certain limited partnership tax shelters. This is an example of A) business risk. B) market risk. C) legislative risk. D) regulatory risk.

C. legislative risk.

The business school of a local university is conducting a symposium on investment risk. An investment adviser representative (IAR) attending the session dealing with systematic risk would expect to learn about A) regulatory risk. B) financial risk. C) market risk. D) business risk.

C. market risk.

The MNO Manufacturing Company, headquartered in Springfield, has just filed for bankruptcy. Under federal bankruptcy law, holders of which of the following would have highest priority with the bankruptcy trustee? A) First lien, senior preferred stock B) Class A common stock C) Guaranteed bonds D) Mortgage bonds

D. Mortgage bonds

A conservative investor decides to invest in high-quality corporate bonds paying 5% instead of investing in lower-quality bonds paying 9%. The additional 4% return the investor could have potentially earned on the lower-quality bonds represents A) purchasing power costs. B) opportunity cost. C) liquidity costs. D) marketability costs.

B. opportunity cost.

Liquidity risk would be greatest for an investor whose portfolio was primarily composed of A) municipal bonds. B) Nasdaq stocks. C) municipal bond UITs. D) ADRs listed on the NYSE.

A. municipal bonds. Explanation Any stock listed on the NYSE or traded on Nasdaq has high liquidity. Municipal bonds tend to be thinly traded, thereby exposing their holders to a higher degree of liquidity risk. Unit investment trusts (UITs), regardless of their portfolio, stand ready to redeem their units, so liquidity is not a problem for the investor. LO 19.b

Which of the following portfolios would most likely be exposed to the most inflation risk? A) 50% U.S. Treasury bonds, average maturity 20 years; 30% U.S. Treasury notes, average maturity five years; 20% 90-day Treasury bills B) 100% employer's company stock C) 75% S&P 500 Index ETF; 25% municipal bond UIT D) 34% diversified common stocks; 33% long-term convertible debentures; 33% noncumulative preferred stock

A. 50% U.S. Treasury bonds, average maturity 20 years; 30% U.S. Treasury notes, average maturity five years; 20% 90-day Treasury bills

From first to last, in what order would claimants receive payment in the event of bankruptcy? A) Preferred stockholders, secured debt, general creditors, subordinated debentures B) Subordinated debentures, preferred stockholders, general creditors, secured debt C) Secured debt, subordinated debentures, general creditors, preferred stockholders D) Secured debt, general creditors, subordinated debentures, preferred stockholders

D. Secured debt, general creditors, subordinated debentures, preferred stockholders