SUITABILITY: PORTFOLIO + IN-DEPTH
A customer is in the highest tax bracket and will possibly be subject to the AMT. Which of the following is the BEST investment recommendation? A. 5.40% Municipal bond that is not subject to the AMT B. 5.60% Municipal bond that is subject to the AMT C. 6.00% Treasury bond with a long expiration D. 6.00% Corporate bond mutual fund
A. 5.40% Municipal bond that is not subject to the AMT
Which bond recommendation would be the MOST safe for an individual who seeks income that is free from federal income tax? A. AA-rated revenue bond that is escrowed to maturity B. AAA-rated general obligation bond C. AA rated certificate of participation D. Double-barreled bond
A. AA-rated revenue bond that is escrowed to maturity
Which of the following investment portfolios is LEAST liquid? A. An aggressive growth fund B. A U.S. Government securities fund C. A money market fund D. An income fund
A. An aggressive growth fund (highest risk, highest return, and limited liquidity)
ABC stock is currently trading at an all-time high price of $150 per share. Your client contacts you about the stock, stating that he believes that the stock is ripe for a sell off after its next quarterly news announcement. He has $10,000 to use for a trade, but does not want to lose more than this amount. The BEST recommendation to the client is to: A. Buy ABC Puts B. Short ABC stock C. Short an ETF that consists of stocks similar to ABC D. Sell ABC Calls
A. Buy ABC Puts
A customer in a low tax bracket has just inherited $10,000 and is looking for an investment that will provide current income and liquidity. The BEST recommendation is a: A. Corporate Bond ETF B. Variable Rate Bond C. Municipal Bond Fund D. Treasury STRIPS
A. Corporate Bond ET
A customer has $20,000 to invest, but needs immediate access to the funds to pay a variety of bills that will arrive over the next 3 months. The BEST recommendation is for the customer to deposit the funds to a: A. Money market checking account B. Money market mutual fund C. Money market instrument D. Treasury Direct account
A. Money market checking account
A customer in the highest tax bracket has $500,000 to invest. The customer is subject to the AMT. The BEST recommendation would be an investment grade: A. Municipal bond yielding 2.50% that is not subject to the AMT B. Municipal bond yielding 2.70% that is subject to the AMT C. Treasury bond yielding 3.50% D. Corporate bond yielding 3.75%
A. Municipal bond yielding 2.50% that is not subject to the AMT
The portfolio management technique that uses a market index as a performance benchmark that the asset manager must meet is called: A. Passive asset management B. Active asset management C. Strategic asset management D. Tactical asset management
A. Passive asset management
Which bond recommendation is most suitable for a customer who wishes to avoid credit risk? A. Pre-refunded bond B. G.O. bond C. Revenue bond D. AAA corporate bond
A. Pre-refunded bond
Establishing the structure of a portfolio to meet specific financial goals is called: A. Strategic allocation B. Tactical allocation C. Rebalancing D. Risk adjustment
A. Strategic allocation
The setting of specific goals for an investment plan to be created for a customer is known as: A. Strategic asset management B. Tactical asset management C. Dollar cost averaging D. Portfolio rebalancing
A. Strategic asset management
A customer has just received a $100,000 inheritance and wants to know what to do with the money until he decides how to use it. He thinks that he will make his decisions on what to do with the funds within 3 months. The BEST recommendation is for the customer to buy: A. Treasury Bills B. Treasury Notes C. Investment Grade Preferred Stock D. Long Term Certificates of Deposit
A. Treasury Bills
Institutional portfolio managers have been allocating an increasing percentage of their funds to common stock positions. This is an indication that their market sentiment is: A. bullish B. neutral C. bearish D. cautious
A. bullish
Currently, the yield curve is inverted. A customer believes that the Federal Reserve will start to loosen credit by lowering short-term interest rates; and also believes that long term yields will move upwards from current levels because of weak demand for long-term Treasury obligations by pension funds. To profit from this, the best recommendation would be to: A. buy short term T-Bills and sell long term T-Bonds B. sell short term T-Bills and buy long term T-Bonds C. buy short term T-Bills and buy long term T-Bonds D. sell short term T-Bills and sell long term T-Bonds
A. buy short term T-Bills and sell long term T-Bonds
The use of index funds as investment vehicles for asset classes increases: A. diversification B. expected rate of return C. standard deviation of return D. market risk
A. diversification
A 60-year old customer has a 401(k) account with your firm that has $280,000, mainly invested in growth mutual funds. The customer has an elderly widowed aunt who has died, and her estate attorney has contacted him, notifying him that he has been left $100,000 as an inheritance. The customer is single and has an annual income of $100,000 per year. He wants to use the inheritance to buy a retirement home, which he expects to do in 7 years. Over this investment time horizon, the general expectation is that interest rates will rise. The best recommendation to the customer is to invest the $100,000 in: A. money market instruments B. 7-year Treasury Bonds C. 7-year Treasury STRIPS D. 30-year Treasury Bonds
A. money market instruments
The portfolio management technique that uses a performance benchmark such as a market index that any investments must match is called: A. passive management B. active management C. fundamental management D. technical management
A. passive management
An elderly investor has a short-term investment time horizon, is very concerned about loss of liquidity and is very risk averse. Your main concern when making a recommendation to this client is: A. preservation of capital B. safety of principal C. growth of principal D. tax benefit
A. preservation of capital
The parents of a high school student are planning to send the child to college in one year. The registered representative should recommend a portfolio that: A. tiers Treasury notes over a 5-year time frame B. emphasizes municipal bonds of the state where the customer resides C. emphasizes investment grade preferred stocks paying a high dividend rate D. allocates funds among aggressive growth stocks and large capitalization stocks
A. tiers Treasury notes over a 5-year time frame
A couple wants to invest for the college education of their 2 children, currently ages 1 and 3. They estimate they will need to start using the funds to pay for college in 15 years. The BEST recommendation is to invest in: A. Treasury Bills B. 10-Year Treasury Notes C. 20-Year Treasury Bonds D. 30-Year Treasury Bonds
B. 10-Year Treasury Notes
What portfolio construction is most appropriate for a retired school teacher who is age 60? A. 100% common stocks B. 40% common stock / 60% bonds C. 60% common stock / 40% bonds D. 100% bonds
B. 40% common stock / 60% bonds
An individual who is 25 years from retirement has $500,000 to invest today. He is risk tolerant and is looking to withdraw $80,000 per year once he retires. Which asset allocation is BEST for this client? A. 25% Stocks / 25% Bonds / 25% REITs / 25% Money Markets B. 50% Stocks / 40% Bonds/ 10% Cash C. 100% Bonds D. 100% Stocks
B. 50% Stocks / 40% Bonds/ 10% Cash
A customer, age 60, is ready to retire, and has an investment objective of preservation of capital and current income. The BEST asset allocation mix to recommend to this customer is: A. 100% common stocks B. 50% common stocks; 50% bonds C. 10% common stocks; 90% bonds D. 100% bonds
B. 50% common stocks; 50% bonds
A high P/E stock would be a suitable investment for which of the following investors? A. A recent college graduate who is currently renting an apartment and who wishes to buy a house in 5 to 10 years B. A recently retired client who has a comfortable level of income from her pension, does not need additional income and is looking for aggressive investing C. A young married couple with 3 children ages 10, 12, and 14, who have minimal savings but wish to start putting away money to pay for their kids' college education D. A middle-aged single man who was just diagnosed with a disabling medical condition that will likely require him to need nursing care for his remaining lifespan that is not covered by his medical insurance
B. A recently retired client who has a comfortable level of income from her pension, does not need additional income and is looking for aggressive investing
A customer holds a large portfolio of corporate bonds. The customer is worried about capital risk. Which diversification strategy would be least effective to minimize capital risk for this customer? A. Diversification among differing issuers in differing states B. Diversification among differing denominations C. Diversification among differing industries D. Diversification among differing maturities
B. Diversification among differing denominations
A young couple in a low tax bracket have 2 young children and they want to start saving for the kids' college education. The BEST recommendation would be: A. T-Bills B. Growth funds C. Municipal bond funds D. 20 year maturity municipal bonds
B. Growth funds
An elderly female client has income from her pension plan and social security that meets her needs. She has extra money available that she would like to use to help fund her favorite 8-year old grandson's college education. Which investment would be the best recommendation? A. 10 year Treasury notes B. Growth stocks C. S&P 500 Index fund D. Income bonds
B. Growth stocks
A customer has a $1,000,000 portfolio that is invested in the following: $250,000 Large Cap Growth Stocks $250,000 Large Cap Defensive Stocks $250,000 U.S. Government Bonds $250,000 Investment Grade Corporate Bonds During a period of economic expansion, the securities which will enjoy the greatest price appreciation are likely to be the: I Large Cap Growth Stocks II Large Cap Defensive Stocks III U.S. Government Bonds IV Investment Grade Corporate Bonds A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
A customer has the following investment mix: 25%Growth Stocks 25%Defensive Stocks 25%High Quality Corporate Bonds 25%Speculative Stocks During a period of economic expansion, the best performing asset classes are likely to be: I Growth Stocks II Defensive Stocks III High Quality Corporate Bonds IV Speculative Stocks A. I and III B. I and IV C. II and III D. II and IV
B. I and IV
A 60-year old widow is looking for an investment that will provide safety of principal and a moderate level of income. All of the following recommendations are suitable EXCEPT a(n): A. Income mutual fund B. Income bond C. U.S. Government bond D. U.S. Government bond fund
B. Income bond
A customer in the highest tax bracket has $500,000 to invest. The customer is not subject to the AMT. The BEST recommendation would be an investment grade: A. Municipal bond yielding 2.50% that is not subject to the AMT B. Municipal bond yielding 2.70% that is subject to the AMT C. Treasury bond yielding 3.50% D. Corporate bond yielding 4.00%
B. Municipal bond yielding 2.70% that is subject to the AMT
A 30-year old customer who has two young children wishes to make an investment that will provide for their college tuition. Which would be the BEST recommendation? A. Make yearly payments into a variable annuity separate account with a growth objective B. Purchase Treasury STRIPS yearly in custodian accounts for the children C. Purchase income bonds yearly in custodian accounts for the children D. Establish IRA accounts for the children and purchase zero-coupon obligations yearly
B. Purchase Treasury STRIPS yearly in custodian accounts for the children
Timing is the important factor in which portfolio management strategy? A. Strategic allocation B. Tactical allocation C. Rebalancing D. Indexing
B. Tactical allocation
A 60-year old customer desires an investment that will provide for retirement income when she reaches age 65. The customer is able to invest $1,000 per month over that time period. Which of the following recommendations is most suitable? A. The purchase of income bonds B. The purchase of a variable annuity contract C. The purchase of government bonds in an IRA account D. The purchase of high yield bonds
B. The purchase of a variable annuity contract
A 60-year old man is looking to create a portfolio that will provide current income and preservation of capital. Which of the following portfolios would be the BEST recommendation to the client? A. Long term corporate bonds rated AA or better, high yield corporate bonds and blue chip stocks B. Treasury bills, a money market mutual fund and bank certificates of deposit C. Treasury STRIPS, corporate income bonds and PO tranches D. Growth stocks, defensive stocks and foreign stocks
B. Treasury bills, a money market mutual fund and bank certificates of deposit
A potential client is 81 years old and has asked his representative for recommendations of speculative "Dot Com" stocks. The customer has a broadly diversified bond and high dividend paying stock portfolio that provides retirement income, in addition to the customer receiving social security. The customer is concerned that his purchasing power is decreasing and wishes to allocate an increased portion of his portfolio to aggressive growth stocks. The BEST recommendation for this customer is to: A. not allocate any of his portfolio to "Dot Com" stocks because they give no current income, which this customer needs B. allocate a portion of the customer's portfolio to "Dot Com" stocks that will not reduce the customer's retirement income below the amount needed for comfortable living C. allocate a portion of the customer's portfolio to "Dot Com" stocks as dictated by the customer, since he is making the investment decision D. tell the customer that aggressive growth stocks are not suitable for a person who is at such a late stage of life
B. allocate a portion of the customer's portfolio to "Dot Com" stocks that will not reduce the customer's retirement income below the amount needed for comfortable living
A registered representative has a client who is an exceptionally intelligent doctor of medicine. The doctor does most of his own investment research and makes many of his own investment decisions. The doctor is married, but his wife is not involved in the investment planning or decision-making process. When constructing a portfolio for this client, the registered representative should: A. choose the investments in the portfolio based solely on the research conducted by the doctor B. balance the portfolio in a manner that addresses the doctor's investment strategy and that customizes the strategy to meet the needs of the spouse C. charge fees on the assets held in the portfolio that were chosen by the representative without using the doctor's research D. disregard the doctor's research because the doctor is not properly licensed to act as a representative
B. balance the portfolio in a manner that addresses the doctor's investment strategy and that customizes the strategy to meet the needs of the spouse
A 70-year old client wants to invest in U.S. Treasury securities. When performing the suitability determination, the client informs the registered representative that he is looking for after-tax income, liquidity, and to avoid market risk. The registered representative should be LEAST concerned with the: A. client's tax bracket B. client's age C. coupon of recommended Treasury securities D. maturity of recommended Treasury securities
B. client's age
A 50-year old customer is in a very low tax bracket. She lives in a state that has one of the highest income tax rates. The customer is seeking income and preservation of capital. She has a 10 year investment time horizon? The best recommendation would be a 10 year maturity: A. Treasury Bond B. investment grade corporate bond C. investment grade municipal bond D. Treasury STRIPS
B. investment grade corporate bond
Municipal bonds are NOT a suitable recommendation for a(n): A. customer in a high federal tax bracket B. investment in a qualified retirement plan C. customer with substantial income who is moving to a state with a high income tax rate D. investment in a custodian account
B. investment in a qualified retirement plan
A retired married customer, age 73, has a portfolio that is invested in Blue Chip stocks and Treasury bonds that provides current income. The customer is concerned that he is paying a very high Federal and State combined income tax rate. An appropriate recommendation for this customer would be to diversify part of his portfolio into an investment in: A. tax-qualified annuities B. municipal bonds C. securities held in offshore accounts D. short-term promissory notes
B. municipal bonds
A customer has a $1,000,000 portfolio that is invested in the following: $200,000 Blue Chip Stocks $200,000 Technology Stocks $200,000 Long Term Investment Grade Bonds $200,000 High Yield Bonds $200,000 REITs The portfolio is LEAST susceptible to: A. interest rate risk B. political risk C. market risk D. default risk
B. political risk
If one asset class greatly underperforms another class in an asset allocation plan, the portfolio must be: A. renegotiated B. rebalanced C. repositioned D. realigned
B. rebalanced
A constant dollar investment plan requires: A. that the same dollar amount be invested periodically in new equities purchases B. that the same aggregate dollar amount be kept invested in equities C. the constant reinvestment of all dividends and interest received in the same securities D. that a constant dollar amount be invested in U.S. securities
B. that the same aggregate dollar amount be kept invested in equitie
The investment strategy that involves paying a lower price for a security based on the expectation that the market is mispricing the issue is: A. growth investing B. value investing C. passive investing D. active investing
B. value investing
Customer Name:Joey Jones Age:30 Marital Status:Single Dependents:None Occupation:VP - Marketing - ACCO Corp. Household Income:$250,000 Net Worth:$60,000 (excluding residence) Own Home:No - Rents Investment Objectives: Aggressive Growth / Early Retirement at Age 50 Investment Time Horizon:20 years Investment Experience:0 years Current Portfolio Composition: 401(k): $30,000 Cash in Bank: $30,000 When reviewing this customer's profile sheet, the most immediate question that should be considered is: A. "Does the customer intend to buy a home?" B. "Does the customer intend to get married?" C. "Since the customer earns $250,000 per year, how come he only has $60,000 in his portfolio?" D. "Since this customer is age 30, why does he want to retire by age 50?"
C. "Since the customer earns $250,000 per year, how come he only has $60,000 in his portfolio?"
What portfolio construction is most appropriate for a retired married couple, ages 60 and 70, for the wife and husband respectively? A. 100% common stocks B. 70% common stock/30% bonds C. 35% common stock/65% bonds D. 100% bonds
C. 35% common stock/65% bonds 100-AGE 100 - 65 (BETWEEN 60 AND 70) = 35
Which of the diversification factors below will not reduce the non-systematic (credit) risk of a bond portfolio? A. Maturity B. Industry in which issuer operates C. Coupon rate D. Geographic location of issuer
C. Coupon rate
A Registered Investment Adviser has a retired client who wishes to put aside funds for the purchase of a car 5 years from now. Preservation of capital is important to this client. The RIA should recommend investments in: I Money market funds II Bank certificates of deposit III 5 Year Treasury Bonds IV 30 Year Treasury STRIPS A. I and II only B. III and IV only C. I, II, III D. I, II, III, IV
C. I, II, III
A customer has a $1,000,000 portfolio that is invested in the following: $250,000 Large Cap Growth Stocks $250,000 Large Cap Defensive Stocks $250,000 U.S. Government Bonds $250,000 Investment Grade Corporate Bonds During a period of economic recession, the securities which will depreciate the least are likely to be the: I Large Cap Growth Stocks II Large Cap Defensive Stocks III U.S. Government Bonds IV Investment Grade Corporate Bonds A. I and III B. I and IV C. II and III D. II and IV
C. II and III
A customer has the following investment mix: 25%Growth Stocks 25%U.S. Government Bonds 25%Investment Grade Corporate Bonds 25%Speculative Stocks Which asset classes are MOST susceptible to interest rate risk? I Growth Stocks II U.S. Government Bonds III Investment Grade Corporate Bonds IV Speculative Stocks A. I and III B. I and IV C. II and III D. II and IV
C. II and III
A customer has the following investment mix: 25%Growth Stocks 25%U.S. Government Bonds 25%Investment Grade Corporate Bonds 25%Speculative Stocks Which asset classes have the greatest reinvestment risk? I Growth Stocks II U.S. Government Bonds III Investment Grade Corporate Bonds IV Speculative Stocks A. I and III B. I and IV C. II and III D. II and IV
C. II and III
A couple wants to invest for the college education of their 4 children. The children are 1, 5, 10, and 16 years old. What is the biggest suitability concern when making an investment recommendation? A. Tax deferral B. Investment growth C. Investment time horizon D. Liquidity
C. Investment time horizon
An investor believes that interest rates will be rising in the future. The MOST appropriate investment is: A. Long term U.S. Government Bonds B. Real Estate C. Money Market Instruments D. Blue Chip Stocks
C. Money Market Instruments
Which of the following is NOT a suitable investment for Individual Retirement Accounts? A. U.S. Government bonds B. Corporate bonds C. Municipal bonds D. Zero coupon bonds
C. Municipal bonds
A 68-year old new customer has investment objectives of preservation of capital and income in retirement. The customer has a low risk tolerance and is in the 35% marginal federal tax bracket and is the 10% state tax bracket. Which investment recommendation would be most suitable for this client? A. Investment grade corporate bonds with long maturities B. Preferred stocks of blue chip companies C. Pre-refunded general obligation bonds D. General obligation bonds that have been escrowed to maturity
C. Pre-refunded general obligation bonds Pre-refunded municipal bonds have been escrowed by the issuer with Treasury or Agency securities to be retired at the near-term call date. These are the safest municipal bonds (AAA rated) and also the shortest maturity of the choices offered. This meets the customer's 2 objectives - income and safety or principal, because the bond's life has been shortened to the nearest call date.
A customer with additional funds to invest seeks income, but thinks his portfolio is too heavily weighted in debt securities. The BEST recommendation to the customer is: A. Treasury securities B. Municipal securities C. Preferred stocks D. Industrial development bonds
C. Preferred stocks
A smaller business with variable cash flow is looking to establish a pension plan for its 50 employees. It wants a plan that allows it to contribute the largest possible amount for its employees, but wants the flexibility to reduce contributions in lean years. The BEST recommendation is a: A. 401(k) plan B. 403(b) plan C. SEP IRA D. SIMPLE IRA
C. SEP IRA
A young couple in a low tax bracket wishes to invest long term for their infant child's college education. They are looking for a safe investment that requires little involvement on their part until the child reaches college age. The BEST recommendation would be: A. T-Bills B. T-Notes C. T-Strips D. T-Bonds
C. T-Strips
Client A's portfolio consists of the following: Equities:85% Fixed Income:10% Cash:5% The breakdown of these holdings is: Equities 35%DEFF Total Market Index Fund 30% 2,100 shares of ABCD 25% 3,100 shares of XYZZ 10% PDQQ International Small Cap Growth Fund Fixed Income: 75% Investment Grade 25% Speculative Cash: 100% Money Market Fund Client A is 55 years old, single with no children. He is beginning to think about retirement and wishes to modify his portfolio so that he can start receiving an assured income stream starting at age 65. Which recommendation would be the BEST choice to meet the customer's changed investment objective? A. The ABCD and XYZZ stock holdings should be liquidated in full immediately, with the proceeds invested in 10 year income bonds of companies in special situations B. The DEFF Total Market Index Fund holding should be liquidated in full immediately, with the proceeds invested in 10-30 year Treasury bonds C. The customer should set minimum and maximum threshold prices at which the ABCD and XYZZ stock positions are to be liquidated; and if this occurs, the proceeds should be invested in 10-30 year maturity Treasuries D. The customer should liquidate the ABCD and XYZZ stock holding to purchase 10, 15 and 20 years STRIPs that will mature in even installments
C. The customer should set minimum and maximum threshold prices at which the ABCD and XYZZ stock positions are to be liquidated; and if this occurs, the proceeds should be invested in 10-30 year maturity Treasuries
The time horizon to be used when constructing a portfolio for a person who will retire in a few years is the: A. time remaining until retirement B. expected time till the person cannot care for him or herself C. expected lifetime of that person D. expected lifetime of that person's beneficiaries
C. expected lifetime of that person
Customer Name:John Doe Age:41 Marital Status:Married Dependents:1 Child, Age 13 Occupation:Engineer Household Income:$140,000 Net Worth:$240,000 (excluding residence) Own Home:Yes Investment Objectives: Total Return / Tax Advantaged Investment Experience:12 years Current Portfolio Composition: 8% Common Stocks 62% Corporate Bonds 30% Money Market Fund This client has just been informed that he has been promoted and will be earning $190,000 per year instead of $140,000 per year. The customer intends to use this extra income to fund his 13-year old child's college education. Based on the customer's existing asset mix, the best recommendation would be for the customer to invest the extra $50,000 per year into a(n): A. money market fund B. income fund C. growth fund D. inflation protected fund
C. growth fund
Customer Jane Jennings' suitability information is presented below: Age:39 Marital Status:Single Dependents:1 Child - Age 10 Annual Income:$80,000 Tax Bracket:28% Net Worth:$510,000 excluding home Home:$350,000 fully paid Investment Portfolio:$422,000 (60% equities; 20% long bonds; 20% money market) The customer wants to start a college fund for her child. The anticipated tuition, starting 8 years from now, is $50,000 per year ($200,000 total tuition). Which of the following recommendations is most appropriate for this customer? A. liquidate $200,000 of common stock in the client's portfolio and invest the entire proceeds in 8-year Treasury Notes B. take out a second mortgage on the customer's residence in the amount of $200,000 and invest the proceeds in a tax-deferred annuity funded by an income separate account C. liquidate $160,000 of the common stock and invest the proceeds in laddered Treasury Notes and Bonds of $40,000 amounts maturing 8, 9, 10 and 11 years from now D. liquidate $100,000 of the bonds in the customer's portfolio and $100,000 of common stock in the customer's portfolio and invest the entire proceeds in 8-year Adjustment Bonds
C. liquidate $160,000 of the common stock and invest the proceeds in laddered Treasury Notes and Bonds of $40,000 amounts maturing 8, 9, 10 and 11 years from now
An 85-year old retired client has living expenses of $15,000 per year. His portfolio is currently allocated: 50% Money Market Fund 40% Treasuries Yielding 1.20% 10% Equities The customer is complaining that he is not earning enough from his portfolio to meet monthly living expenses. The BEST recommendation to the customer is to: A. do nothing B. wait until interest rates rise before making any changes C. liquidate half of the money market fund and invest it in 5 year corporate debentures yielding 2.70% D. liquidate half of the money market fund and invest it in commodity futures
C. liquidate half of the money market fund and invest it in 5 year corporate debentures yielding 2.70%
When making a recommendation of a 10 year Treasury Note to a customer, the MOST important risk consideration is: A. liquidity risk B. credit risk C. market risk D. call risk
C. market risk
Customer Z is a single 26-year-old man who earns $125,000 annually. He informs you that he is getting married and that his new wife's income of $75,000 per year will put them into the highest federal tax bracket. The couple will have investable income of $25,000 per year. The couple wishes to buy a house in 5 years that will be substantially more expensive than the condominium in which they currently reside. To meet the customer's needs for the large cash down payment in 5 years and to reduce taxable income, the BEST recommendation is to: A. open a margin account and invest in income bonds B. open an Individual Retirement Account and invest in tax-deferred variable annuities C. open a cash account and invest in mutual funds holding high yielding common and preferred stocks D. open a trust account and invest in Treasury STRIPs
C. open a cash account and invest in mutual funds holding high yielding common and preferred stocks
A customer owns 1,000 shares of XYZZ stock, purchased at $40 per share. The stock is now at $45, and the customer has become extremely bearish on the company. The client asks her representative for an "aggressive recommendation." The client should be told to: A. sell 10 XYZZ 45 Call Contracts B. buy 10 XYZZ 45 Put Contracts C. sell 1,000 shares of XYZZ and buy 10 XYZZ Put Contracts D. sell 10 XYZZ 45 Put Contracts
C. sell 1,000 shares of XYZZ and buy 10 XYZZ Put Contracts
The target allocation for a specific asset class has been set at 20% of total assets under an asset allocation scheme. The manager is permitted to reduce this percentage to 15%; and can increase it to 25%; as he or she sees fit. If this action is taken by the manager, this is termed: A. portfolio rebalancing B. strategic asset management C. tactical asset management D. active asset management
C. tactical asset management
A married couple, the husband is age 27 and the wife is 25, have 2 young children, no retirement plan and no investments. Based on this information, an agent should: A. tell the clients to establish a Roth IRA B. tell the clients to establish 529 plans for their children C. talk to the clients about their financial goals D. determine that the clients have cash available for investment
C. talk to the clients about their financial goals
A new client with no other investment assets has just come into an inheritance of $500,000 of ABCD stock, a blue chip company listed on the NYSE. As the adviser to this customer, your IMMEDIATE concern should be: A. whether the company is a candidate for delisting B. the possibility that the value of ABCD stock may decline sharply C. the lack of diversification of the customer's investment D. whether the customer paid any estate tax liability due
C. the lack of diversification of the customer's investment
A customer, age 40, is concerned that the inflation rate is ready to explode, and wishes to invest funds to protect against the consequences of such an event. The BEST asset allocation mix to recommend to this customer is: A. 100% common stocks B. 100% bonds C. 50% common stocks; 50% bonds D. 100% money market instruments
D. 100% money market instruments
The time horizon to be used when constructing a portfolio to pay for college expenses for a person who is expected to start college in 10 years and finish college in 15 years is: A. 5 years B. 10 years C. 12.5 years D. 15 years
D. 15 years
All of the following are bond portfolio construction methods designed to reduce interest rate risk EXCEPT: A. Ladder B. Bullet C. Barbell D. Balloon
D. Balloon
A married couple has a teenage child who has expressed interest in going to a vocational school. They both work, have a moderate level of income and would like to save a modest amount each year for this purpose without the concern of paying taxes on annual account earnings. The best recommendation to this couple is to make an annual contribution to a(n): A. 529 Plan B. UTMA Account C. HSA D. Coverdell ESA
D. Coverdell ESA
When making a recommendation of corporate commercial paper to a customer, which risk is the MOST important consideration? A. Inflation (purchasing power) risk B. Call risk C. Market risk D. Credit risk
D. Credit risk
A customer who earns $80,000 per year is 35 years old, married to a non-working spouse, has a 5-year-old child, has no retirement savings and does not have a will. This customer receives $250,000 in a single stock as an inheritance from her deceased aunt. What is the first thing that the customer should do? A. Set up an IRA account to begin to fund her retirement B. Establish a will C. Pay any capital gains tax due on the stock position, if this cannot be avoided D. Diversify the stock position, because it should not be in a single stock holding
D. Diversify the stock position, because it should not be in a single stock holding
Which bond recommendation would be the LEAST safe for an individual who seeks income that is free from federal income tax? A. AA-rated revenue bond that is escrowed to maturity B. AAA-rated general obligation bond C. PHA bond D. Double-barreled bond
D. Double-barreled bond
Which of the following are appropriate investment strategies for a client with a 20-year time horizon? I Holding less cash II Holding more stock III Holding less bonds A. I only B. II only C. I and III D. I, II, III
D. I, II, III
Customer Name:Jane Doe Age:41 Marital Status:Married Dependents:1 Child, Age 13 Occupation:Homemaker Household Income:$140,000 Net Worth:$240,000 (excluding residence) Own Home:Yes Investment Objectives:Total Return / Tax Advantaged Investment Experience:12 years Current Portfolio Composition: 8% Common Stocks 62% Corporate Bonds 30% Money Market Fund In order to make an appropriate recommendation to this customer, the registered representative should be concerned about the customer's: I investment time horizon, with specific emphasis on whether the 13 year old child will go to college and how this expense will be funded II strategic asset allocation needs with specific emphasis on the fact that the customer's portfolio mix might be overly conservative for a person that is only 41 years old III retirement needs, with specific emphasis on whether the customer's spouse is covered by a pension plan or if the customer must fund her retirement on her own IV life insurance coverage, with specific emphasis on the fact that this non-working wife and child must be supported if the husband dies A. I and III only B. II and IV only C. I, II, III D. I, II, III, IV
D. I, II, III, IV
A customer has a $4,000,000 portfolio that is invested in the following: $1,000,000 Blue Chip Stocks $1,000,000 Technology Stocks $1,000,000 Long Term Investment Grade Bonds $1,000,000 High Yield Bonds If the economy enters into a recession, the securities which will suffer the greatest price decline are likely to be the: I Blue Chip Stocks II Technology Stocks III Investment Grade Bonds IV High Yield Bonds A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
An elderly customer seeking extra income who has $100,000 to invest could be recommended which of the following? I The $100,000 purchase of a variable annuity II The $100,000 purchase of dividend paying blue chip stocks in a cash account against which calls are sold III The $200,000 purchase of dividend paying blue chip stocks at 50% margin in a margin account IV The $100,000 purchase of Treasury bonds A. I and III B. I and IV C. II and III D. II and IV
D. II and IV
A 67-year old woman has heavily invested her portfolio in growth securities. She realizes that as she approaches retirement, she needs to reallocate her portfolio for more income. However, she does not want to give up the growth objective. What would be the best investment recommendation for the funds that she will reallocate away from growth securities in her portfolio? A. Income stocks and emerging markets stocks B. Income stocks and cyclical stocks C. Cyclical stocks and emerging markets stocks D. Income stocks and blue-chip stocks
D. Income stocks and blue-chip stocks
An older female customer, in the lowest tax bracket, wants an investment that will provide asset growth for retirement. The best recommendation would be: A. Emerging markets fund B. Single stock C. Municipal bond D. Index fund
D. Index fund
A self-employed client has an annual income of $200,000 and is in a high tax bracket. He is not covered by a retirement plan and would like to make the maximum contribution to one to reduce his taxable income. He believes that he will be in a lower tax bracket once he retires. The BEST recommendation is to contribute to a: A. Traditional IRA B. Roth IRA C. 401(k) D. SEP IRA
D. SEP IRA A SEP (Simplified Employee Pension) IRA is designed for self-employed individuals and small employers. It is easy to set up and administrate and it allows for maximum contribution equal to 20% of income (25% statutory rate), capped at $56,000 in 2019. It would allow this self-employed individual to make a 20% x $200,000 = $40,000 deductible contribution.
A client has a portfolio of $2,000,000 that consists of $600,000 of an Energy ETF; $600,000 of a Gold/Precious Metals ETF; $600,000 of a Uranium/Oil ETF and $200,000 of short term Treasury securities. This customer's investment objective is: A. preservation of capital B. income C. safety of principal D. growth
D. growth
The customer profile for Jack E. Chan is presented below: Age:60 Marital Status:Married - Spouse is age 55 Dependents:2 Children - Ages 21 and 23, both graduated from college, still living at home Annual Income:$75,000 per year Investment Objective:Safety of Principal and Retirement Income Risk Tolerance:Low Investment Experience: New Client - No Pre-existing Brokerage Accounts Net Spendable Income Available For Investment: $10,000 Federal Tax Bracket:28% State Tax Bracket:5% Client Balance Sheet: Assets Cash on Hand:$60,000 Marketable Securities:0 Auto:$24,000 Residence Owned:$250,000 Liabilities Bills Payable:$10,000 Auto Loan Payable:$14,000 1st Mortgage: $52,000 (6% interest rate 5 years left - monthly payment of $900) Equity:$258,000 The customer is covered by a company defined benefit plan that will pay about $40,000 per year upon retirement at age 70. This customer wishes to maintain his current living standard upon retirement and intends on living in his current house. The customer will receive annual social security payments of about $8,000 per year. To meet the customer's goal of retiring in 10 years with an annual income of $72,000 per year, the best recommendation is to: A. take out a second mortgage of $100,000 at 8% and invest the proceeds in a tax deferred annuity yielding 5% B. invest $10,000 per year for the next 5 years in emerging markets growth stocks; and increase the annual investment in years 6-10 by another $10,800 per year since there are no more mortgage payments to be made C. pay off the current mortgage from the cash on hand; take out a new $100,000 mortgage at 7% and invest the proceeds in income bonds D. invest $10,000 per year for the next 5 years in Treasury Bonds and increase the annual investment in years 6-10 by another $10,800 per year since there are no more mortgage payments to be made
D. invest $10,000 per year for the next 5 years in Treasury Bonds and increase the annual investment in years 6-10 by another $10,800 per year since there are no more mortgage payments to be made
Growth investors: A. seek to find investments that are undervalued by the market B. determine the value of a security through fundamental analysis C. invest in securities included in growth funds D. make their investment decision based upon the market performance of the security
D. make their investment decision based upon the market performance of the security
Active portfolio management is: A. buying and holding the investments chosen by the Registered Representative B. determining the securities to be bought or sold based on investment research performed by the Registered Representative C. managing a portfolio to meet the performance of a benchmark portfolio D. managing a portfolio to exceed the performance of a benchmark portfolio
D. managing a portfolio to exceed the performance of a benchmark portfolio
An assessment of an existing client's financial status shows the following: Name:Jack/Jill Miller Ages:57 and 59 Marital Status:Married - 3 Adult Children Income:$80,000 per year Retirement Plan:Yes - Vested Defined Benefit Plan Life Insurance:Yes Risk Tolerance:Low Home Ownership: Yes Client Balance Sheet: Assets -Cash on Hand:$22,000 -Marketable Securities: $96,000 ($15,000 in Money Market Fund; $25,000 in Treasury Notes; $56,000 in Blue Chips) -Retirement Plans:$458,000 (Defined Benefit Plan Valuation) Auto:$39,000 Home Ownership:$404,000 Liabilities Credit Cards Payable:$14,000 Mortgage Payable:$104,000 Net Worth: $901,000 The couple plans to retire in the next year, sell their home and move to a retirement community where a new home will cost $190,000. They wish to supplement their retirement income, which will be approximately $40,000 from their retirement plan and $8,000 from Social Security. The best recommendation to the couple is to take the $300,000 net proceeds from the sale of the home after paying off its mortgage and: A. put a $50,000 down payment on the new home, finance the balance of the purchase with a $140,000 mortgage, and invest the remaining cash proceeds of $250,000 in growth common stocks B. put a $50,000 down payment on the new home, finance the balance of the purchase with a $140,000 mortgage, and invest the remaining cash proceeds of $250,000 in Treasury STRIPs C. pay for the $190,000 new home in full and invest the extra $110,000 in high yield bonds to provide retirement income D. pay for the $190,000 new home in full and invest the extra $110,000 in high yielding blue chip preferred stocks to provide retirement income
D. pay for the $190,000 new home in full and invest the extra $110,000 in high yielding blue chip preferred stocks to provide retirement income
A wealthy, sophisticated investor with a high risk tolerance has just turned extremely bullish on the market. To profit from this, the BEST recommendation to the client would be to: A. sell index calls B. sell index puts C. sell inverse floaters D. sell leveraged inverse ETFs
D. sell leveraged inverse ETFs
