65 - Unit 19
Which of the following would be the most appropriate portfolio mix for an aggressive investor?
10% cash equivalents, 20% bonds, and 70% stocks
A couple, ages 63 and 66, are long-time clients of your firm and are in good health. They plan to retire from gainful employment in 4 years and wish to discuss decumulation strategies. One of the important factors to consider is the time horizon for this couple. Which of the following would be the best estimate to use?
25 years
Several investors open an account in joint tenancy. Financial information is required on which of the following investors?
All the investors
An investment adviser representative's client lost her father to lung cancer. Among the assets bequeathed to her were 2,000 shares of a tobacco stock. Which of the following is NOT a consideration when recommending to her what to do with the stock?
Her father's years of investment experience
An elderly widow with no independent income wishes to invest the proceeds from her recently deceased husband's life insurance. Which of the following would be the most suitable recommendation?
High-grade corporate bond mutual fund
Investment advisers must recognize the difference between their client's goals and objectives and investment constraints. Which of the following would be considered an objective rather than a constraint?
Income in retirement
It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients?
Life stage Retirement savings
A married couple in their early 50s saving for retirement would most likely have which of the following objectives?
Moderate risk, moderate safety, low liquidity
Construction of an investment policy statement (IPS) requires identifying the client's objectives and constraints. Which of the following would not be in the list of constraints?
Risk tolerance
Which of the following should be considered by an investment adviser in determining whether a specific investment is suitable for an individual investor?
The investor's anticipated time horizon The level of the investor's acceptance of risk and volatility
What is among the most important nonfinancial considerations in determining the suitability of investments for a client?
Tolerance for risk
The study of why people often make decisions using rules of thumb rather than rational analysis, basing those decisions on factors economists traditionally don't consider, such as fairness, past events, and aversion to loss, is known as
behavioral finance
A client who states that she wants to avoid petroleum company stocks is expressing a
non-financial consideration
An adviser always inquires into her clients' investment objectives, financial situations, and needs. The investment adviser is
obtaining the information required to fulfill her professional obligation regarding suitability
A client of an investment adviser excitedly calls the adviser with the news that he is now going to handle his own investments. "I just read some great investment books, and now I know what to do." Based on the study of behavioral finance, it would appear that this individual is
overconfident.
Included in the list of subjective considerations would be
risk tolerance
It would be CORRECT to state that when an investor has a shorter time horizon,
the need for liquidity is more important
Subjective considerations are
the nonfinancial ones
One of your clients excitedly calls to inform you that his daughter has just been accepted for the coming year into the engineering program at one of the most respected universities in the country. She has been given a generous scholarship but that will leave the family short by about $100,000 for the 4-year program. You check the client's account and see that the current value is $25,000. The client offers to add another $25,000 and asks you if you think the account performance over the next 4 years can provide the necessary funds. You would probably reply
the short time horizon is an investment constraint that will make reaching this goal highly unlikely
All decisions are
ultimately up to the client, but there is nothing wrong with the IAR attempting to educate the client, especially when it could lead to greater investment success.
A customer within 1 year of retirement informs his agent that he wants to use the equity in his house to make enough money within the year to fully fund his retirement. According to the Uniform Securities Act, the agent should
urge the customer to reconsider his investment strategy