Ch 6 Unit Test

A 27 year old client is in a low tax racket and wants an aggressive long-term growth investment. If his representative recommends a high rated municipal general obligation bond, the representative has? A. violated the suitability requirements of FINRA and MSRB B. recommended a suitable investment because GOs are good long term investments C. committed no violation because municipal bonds weather the ups and downs of the markets well D. committed no violation if the customer agrees to the transaction

A

A customer seeks additional steady income to supplement his other sources of retirement income and has a high-risk tolerance. Which of the following securities would be most suitable? A. Speculative bonds B. Treasury receipts C. Municipal GOs D. Money market instruments

A

Which of the following activities are a registered representative's responsibilities? I. Determining the suitability of various investments for individual customers II. Describing the characteristics and benefits of various securities products III. Offering tax advice and assisting customers in completing tax returns IV. Personally holding a customer's securities for a future transaction A. I and II B. I and III C. II and IV D. III and IV

A

Your 45 year old client is interested in obtaining the highest current income possible from his investment. He is willing to accept fluctuations in investment principal. Which of the following would best suit this client's investment objective? A. High yield bond fund B. Aggressive growth fund C. Tax-free money market fund D. Balanced fund

A

An investor who desires minimal credit risk and monthly interest income should consider an investment in which of the following? A. TIPS B. Ginnie Maes C. STRIPS D. AAA corporate bonds

B

Rank the following in order of risk of loss of principal from lowest to highest? I. US Treasury bond II. A rated debenture III. Common stock in a new company with strong prospects for growth IV. Money market mutual fund A. I,II,III,IV B. I,IV,II,III C. IV,I,II,III D.IV,I,III,II

B

The risk of not being able to convert an investment into cash at a time when cash is needed is known as which of the following types of risk? A. Legislative B. Liquidity C. Market D. Reinvestment

B

Your customer is a 71 year old retired widower. 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? A. Balanced fund B. Short-term US government bond fund C. Sector fund D. Gold fund

B

Your customer, age 45, is single and in search of maximum capital appreciation. She inherited a substantial amount of money a few years ago and has taken an active interest in managing her investments. Currently, her portfolio is diversified among common stocks, tax-exempt bonds, international investments, limited partnerships. She has long-term time frame and is not risk averse. Which of the following mutual funds is the most suitable for this customer? A. ABC Balanced Fund B. ATF Biotechnology Fund C. NavCo Cash Reserves Money Market Fund D. LMN Asset Allocation Fund

B

Your firm's market analyst believes the current bullish market in equities will continue. Which of the following mutual funds would be most suitable for a growth-oriented investor? A. Bond B. Blue-chip stock C. GNMA D. Preferred stock

B

A couple in their early 30s has been married for 4 years. Both work and have no children, so their disposable income is relatively high. They live in the suburbs and are planning to buy a condominium downtown. They need a safe place to invest the amount they have saved for their down payment for about 6 months. Which of the following mutual funds is the most suitable for these customers? A. ATF Capital Appreciation Fund B. ABC Growth & Income Fund C. LMN Cash Reserves Money Market Fund D. XYZ Investment-Grade Bond Fund

C

Your customer is 26 years old and earns $45,000 a year as an advertising executive. He has already accumulated $5,000 in his savings account and is seeking a secure place to invest the amount and begin a periodic investment plan. He knows his long-term time frame means he should be willing to take some risk, but he is uncomfortable with the taught of losing money. He would prefer moderate overall returns rather than high returns accompanied by high volatility. Which of the following mutual funds is the most suitable for this customer? A. ATF Capital Appreciation Fund B. ATF Biotechnology Fund C. ABC Balanced Fund D. ATF Overseas Opportunities Fund

C

A conservative customer is in the 28% federal income tax bracket. She notifies her representative that she has a high-grade corporate bond maturing in the near future and wishes to invest the proceeds in another bond as soon as possible to continue her income stream in the interest. After research, the representative discovers a municipal general obligation bond rated Moody's Baa, with a coupon rate of 5%. The representative has also researched a corporate bond paying a 6.5% coupon and carrying a rating of S&P BBB. Considering the client's situation, which bond should the representative recommend? A. The corporate bond because it pays higher interest rate and the investor wants regular income B. The municipal bond because it carries a higher rating from Moody's even though the income is lower C. The corporate bond because it provides the same income but has a higher rating D. The municipal bond because the tax-free equivalent yield is greater and its rating equals the corporate bond's

D

If a customer is concerned about interest rate risk, which of the following securities is least appropriate? A. Treasury bills B. 5 year corporate bonds C. 10 year corporate bonds D. 25 year municipal bonds

D

Your customer, age 29, makes $42,000 annually and has $10,000 to invest. Although he has never invested before, he wants to invest in something exciting. Which of the following should you suggest? A. An aggressive growth fund because the customer is young and has many investing years ahead B. A growth and income fund because the customer has never invested before C. A balanced fund because when the stock market is declining the bond market will perform well D. Your customer should provide more information before you can make a suitable recommendation

D