Unit 4

Which of the following would not be listed as an asset on a company's balance sheet?

Issued bonds

A debt fund manager, extremely sensitive to interest rate risk, has taken the opinion that interest rates will begin to come down and perhaps stay at low rates for the foreseeable future. With that opinion in mind, and wanting to take a conservative approach, which of the following would be a suitable recommendation for the portfolio?

Noncallable corporate bonds

A married couple comes to a small branch office looking to open a securities account. They are recent immigrants to the United States. They refuse to give any information about accounts held at another firm. What would you do?

Open the account but take unsolicited orders only.

Strategic asset allocation is considered what style of portfolio management?

Passive management

One of the most important functions of a registered representative is to do which of the following?

Select investments to meet the customer's needs

Your customer is a retired widower, age 71. He is seeking a mutual fund to provide a moderate level of income in addition to his Social Security and pension. He is extremely conservative when investing and wishes to preserve capital. Which of the following funds is most suitable?

Short-term U.S. government bond fund

A customer would like to know which of the following mutual funds has the highest potential for capital growth. Which would you choose?

Small-cap technology stock fund

You are recommending to your client a fund whose portfolio manager purchases stocks with a high price-to-earnings ratio. Which of the following best describes your customer?

Young couple with reasonable income needing long-term growth

If an elderly widower wants his investments to provide high current income, the representative should recommend

a mutual fund that matches the investor's stated objective.

If you heard a portfolio manager bragging that the portfolio generated excess returns, it means that there was

a positive alpha

All of the following appear on a corporation's balance sheet as fixed assets except

inventory.

A customer wishes to open a new account but refuses to provide suitability information. Under FINRA rules, the member

may open the account but may not make any recommendations.

A retired man has $100,000 to invest for growth. He also owes a $10,000 note due in six months, a $20,000 note due in one year, and a $25,000 note due in two years. How much of the $100,000 should he allocate to growth investments?

$45,000

Liquefying home equity to generate funds for investment purposes

requires communication by the broker-dealer of the unique risks associated with this investment strategy.

Which investment is exposed to the greatest price sensitivity when interest rates increase?

20-year bond with a 4% coupon

Which of the following statements is true?

A measure of a stock or portfolio's volatility is beta, and a measure of its performance is alpha.

Seabird Airlines stock has a beta coefficient of 0.8. Last year the stock declined 2% while the overall market declined 5%. What is Seabird's stock's alpha?

Alpha is calculated by first finding the expected return by multiplying the index return by the security's beta (-5% × 0.8 = -4%). Then subtract the expected return from the actual return (-2 - -4 = 2).

A young, recently married couple, would like to purchase a home within five years. They have $2,000 in savings and $400 a month to invest. In addition, they owe $35,000 on student loans to be repaid over the next 10 years. What type of mutual fund investment would likely be the best recommendation?

Build up cash reserves and then save for a down payment on the new home. Investing must wait.

Your client, a wealthy business owner, owns 40,000 shares of a stock that was amassed over many years. With this single holding equaling close to 5% of the client's investment portfolio, the risks have been identified, discussed and ultimately acknowledged and accepted by the client. Suddenly, adverse unexpected news regarding the safety of a key product sold by the company sends the stock tumbling, losing over 10% of its value in a single day. Regarding suitability, while a number of risks could have been discussed, which risk would have been the most important to discuss with the client?

Business risk

If a retired individual seeking income has $200,000 to invest, which of the following mutual funds would be the most suitable? A) High-grade bond fund B) Large-cap stock fund C) Small-cap stock fund D) Banking sector fund

High-grade bond fund

Diversification helps protect against which of the following types of risk? 1. Nonsystematic 2. Systematic 3. Market 4. Business

I and IV

Your customer seeks capital growth but is concerned about execution costs. Which of the following funds would be most suitable for him?

Index fund