CHT 9
A registered representative is meeting with a young client who has just graduated college. The client has large outstanding college loans and has recently started a new job making $75,000 annually. After reviewing a client's monthly personal income statement, the representative has determined this individual has very little discretionary income. The representative should recommend:
The client should not make any investments
What can a portfolio constructed based on modern portfolio theory do for an investor?
The goal is to avoid severe losses in a portfolio at any one time
What does market analysis measure?
The market risk involved when investing in a particular security
What does the Income Statement show the analyst about the corporation?
The profitability of the corporation, PROFIT TO LOSS STATEMENT
A client has $100,000 to invest and is looking for recommendations. The client has recently moved into a nursing home which is covered under a long-term care insurance policy. This client has current income which includes Social Security and pension income that covers a majority of the client's monthly expenses. This client wishes to supplement their monthly income with the least amount of risk. Which of the following is the most suitable recommendation for this situation?
U.S. Treasury fund
Under what circumstances may a broker-dealer charge both a markup and commission?
Under no circumstances may a broker-dealer charge both in the same trade
Which of the following is an active strategy of portfolio managing? -Income reinvestment -Using technical analysis to time purchases -Rebalancing
Using technical analysis to time purchases
____ is the frequency /size of fluctuations in a security's value compared to changes in the overall market
Volatility
Technical analysis is used to determine which of the following? -When to invest/market timing -Market volatility
When to invest/market timing
Your client decides to gift securities valued at $25,000 to his daughter. Who would be subject to gift taxes?
Your client as the donor would be subject to gift taxes on the value of the securities above the annual exclusion
IN BALANCE SHEET: Assets are separated into 3 categories:
current, fixed, and intangible assets.
ABC Corporation had an increase in profit this year of 20% over last year, however ABC Corporation stock price has declined in the past several months. This risk is known as:
decline is known as Market Risk
Total income - expenses = ________ income
discretionary
Balance Sheet & Income statements are used by what type of analysts?
fundamental analysts
Market analysis, or technical analysis, is a method of analyzing the value of securities by studying ____, ____, and the _____ of a specific security
historical prices, price movement, and the trading volume
What does fundamental analysis measure?
the financial strength of a corporation and the business risks of investing in a particular security
A client has inherited shares of XYZ fund from her grandmother. The grandmother paid $15 per share in 2015. At the time of the grandmother's death in 2019, the shares were valued at $25 each. The client redeems the shares 6 months later for $27 per share. What is the tax consequence of the redemption?
$2 per share, long-term capital gain, The holding period is always considered long-term for the beneficiary.
An investor has left each of his grandchildren shares of ABC fund in his will. The investor purchased the shares 15 years ago for $10 per share. At the time of the investor's death, they are worth $38 per share. If the grandchildren redeem their shares for $40 per share, what is their cost basis per share?
$38
An investor purchased 100 shares of LMN mutual fund on March 1 of this year at $20 per share. On July 15 of this year, the shares were selling for $22 per share, at which time the investor gave 50 shares to his son. On November 14 of this year, the son sold his shares for $25 per share. What will be the tax consequences for the son?
$5 gain per share
If a household's personal income from salaries is $100,000 and the tax rate is 30%, the disposable income is _____.
$70,000
To be classified as a current asset, a corporation must intend to convert the asset to cash within:
1 year
Based on portfolio turnover alone, which one of the following is most likely a passively managed fund? -97% -50% -2%
2%
If an investor sells securities at a loss, and within ____ days before or after the sale, the investor acquires the same or substantially similar securities, then the investor has a "wash" sale and cannot deduct any losses.
30
All of the following are components of an income statement except: -Net sales -Account receivables -Returns -Gross sales
Account receivables
All the following are considered assets on a balance sheet, except: -Inventory -Equipment -Accounts payable -Marketable securities
Accounts payable
High-Risk Tolerance=_____ Investor
Aggresive
If your client is worried about interest rate risk, which security would you NOT recommend as an investment?
BONDS
All the following are included in a corporation's assets on a balance sheet, except: -Bank loans -Intangible assets -Inventory -Cash
Bank loans
All of the following are included in operating expenses except: -Bond interest -Rent -Advertising -Depreciation
Bond interest- Bond interest EXPENSE
_____investments DONT protect customers against inflation, ______ securities may preserve a customer's purchasing power
Bond, Equity
An investor purchases 1,000 shares of XYZ stock. What risk does this investor face?
Business Risk
Joe gifts a stock to Mark. Joe's original cost basis is $10 per share. On the date of the gift the market value of the stock is $15 per share. What is Mark's cost basis?
CB of $10
The ____ is used to determine the required rate of return (RRR) of an asset or portfolio, factoring in any risk taken above the risk-free rate
Capital Asset Pricing Model
If an investor's primary goal is to prevent loss on their security, the investor's objective is:
Capital preservation
All of the following are relevant personal and financial information necessary for a registered representative to make a suitable recommendation, except: -Dependents -Age -College degree earned -Employment status
College degree earned
All the following are exempt from the FINRA 5% Markup Policy, except: -Commissions charged on OTC transactions -Underwriting spreads charged on IPOs -Mutual fund sales charges -Markups charged on principal transactions of municipal bonds
Commissions charged on OTC transactions
Larry owns 200 shares of three different stocks which he believes are fundamentally sound for the future. He is, however, convinced that his holdings will lose value because in the near term, he sees general weakness in the S&P 500. What risk is Larry concerned with?
Concerned with Market risk
Low-Risk Tolerance=_____ Investor
Conservative
Which one of the following is not used by a technical analyst when analyzing the value of a security? -Historical prices -Credit rating -Trading volume -Price movement
Credit rating
The possibility that an issuer will be unable to pay back the interest and/or principal due to its creditors is known as what type of risk?
Credit risk
The risk that the value of foreign currencies will fluctuate against the U.S. dollar
Currency/Exchange-Rate Risk
What is the investor's objective if the portfolio consists of a large percentage of fixed income securities, blue chip and preferred stocks?
Current income
Where can you look in a company's financial statements to determine whether a company has any lease agreements that might affect their financial results?
Footnotes
Archie is 32 years old, recently married, and has a six-month old son. He is looking to begin saving for his retirement, which he hopes will occur at age 60. He is planning on making the maximum contribution to a Roth IRA for himself and his non-working spouse for this year and each year in the foreseeable future. What objectives should the investment vehicles have that will be in Archie's Roth IRA?
Growth
When an investor seeks CONSERVATIVE long term capital appreciation ALONG WITH a consistent current yield, the investor would want a(n):
Growth and income fund
A young couple has saved for 5 years to come up with a down payment of $30,000 on a new house that they plan to purchase in 6 months. An IAR would recommend: I 6-month CD II Money Market Fund III Preferred Stock IV Commercial Paper
I and II
Which portfolio manager had the best portfolio for their client based on modern portfolio theory given the choices below? I. Highest return II. Lowest return III. Highest risk IV. Lowest risk
I and IV
Which of the following are considered current assets? I. Cash II. Accounts receivable III. Inventory IV. Equipment
I, II and III
What is considered inappropriate conduct for a FINRA member? I Random phone solicitations for penny stocks II Excessive trading in a customer's account III Short-term trading of mutual fund shares for a customer IV Recommending new financial products to a customer
I, II, and III
When evaluating your client's investment limitations, you must: I Evaluate their need for liquidity II Evaluate their ability to maintain investment over a long period of time III Evaluate the benefits of diversification and dollar cost averaging IV Evaluate your client's ability to handle emotionally and financially the fluctuations in his investment value
I, II, and IV
A customer wishes to increase the current cash flow on her investments. Which of the following objectives will best meet her goal?
INCOME
The risk that fixed income will buy less in the future than it does now
Inflation/Purchasing Power Risk
The risk that an investment's value will change inversely to changes in the general economy's interest rates
Interest-Rate Risk
Which of the following statements about diversification is true? -It prevents portfolio losses -It addresses systematic risk -It guarantees portfolio profits -It cannot guarantee a profit or prevent a loss
It cannot guarantee a profit or prevent a loss
What is Alpha?
It is a measure of return performance against a specific benchmark
Prior to making any suitable customer recommendations, a registered representative should: -Complete all required continuing education -Find out the college or university they graduated from -Be well schooled in selling techniques -Know their customer
Know their customer
The risk that new laws will result in the decline in the value of a security is known as:
Legislative risk
What type of risk cannot be diversified away?
MARKET RISK
The possibility that the value of an investment will fall due to a decline in the market and is unrelated to any adverse conditions of an issuer
Market/Systematic Risk
The Capital Asset Pricing Model (CAPM) is used in:
Modern portfolio theory
An investor with a very short-term investment time horizon should invest in: -Money market funds -High-grade corporate bond funds -Government securities funds -High dividend paying preferred stocks
Money market funds
Which of the following investments would be suitable for an investor that is seeking federally tax-exempt income?
Municipal bonds
Assets - Liabilities = _____________
Net Worth
Income earned on bank accounts or investment accounts is called:
Non-operating income
Fear of a revolution in a foreign country is an example of:
POLITICAL RISK
While a single recommendation may be suitable for a customer, a large number of similar recommendations might not be depending on the customer's objectives, needs, and ability to pay for the recommended transactions. This is known as: -Quantitative suitability -Customer specific suitability
Quantitative suitability
FINRA RULE 2111-The 3 main suitability obligations include:
Reasonable Basis, Customer Specific, N Quantitative Suitability
The risk that future proceeds will have to be reinvested at a lower potential interest rate
Reinvestment Risk
If an elderly investor wants to make sure that they are going to leave a legacy after they die, which of the following should they not do? -Spend down all of their assets while alive -Have current wills and trusts -Update beneficiary designations -Engage in charitable planning and giving
Spend down all of their assets while alive
Over long term, ____ securities have been shown to be protection against inflation.
Stock
In the long-term, which of the following investments is most likely to protect an investor's portfolio against the effects of inflation? -Corporate bonds -Emerging market debt securities -Stocks -Government securities
Stocks
Bonnie Francis, an RR, has a client that is preparing to buy his first home in about two years. According to his client profile, his main investment goal is aggressive growth. Which of the following investments would be suitable for the majority of the client's savings?
T-bills
Which of the following investments will typically have the lowest default risk? -Income bonds -TIPS -Equipment trust certificates -High-yield corporate bonds
TIPS
On an income statement, non-operating income plus operating income equals:
TOTAL income, or earnings before interest and taxes (EBIT).
Which of the following factors does NOT affect a client's risk tolerance? -Income level changes -Tax status -Attitudes toward risk -Inflation or deflation
Tax status
When technical analysts are looking to make longer term predictions on price movements they use:
The 200-Day Moving Average
