Series 6 - chapter 6

Which of the following would be considered non financial investment considerations on customer portfolio?

- Atitude toward risk - Tax bracket

Which of the following activities are a registered representative's responsibilities?

- Determining the suitability of various investments for individual customers - Describing the characteristics and benefits of various securities products

Which of the following would be considered financial considerations on customer portfolio?

- Total gross income from all sources - Market value of municipal bonds held

Rank the following in order of risk of loss of principal from lowest to highest

- US Treasury bond - Money market mutual fund - A rated debenture - Common stock in a new company with strong prospects for growth

If a customer is concerned about interest rate risk, which of the following securities is least appropriate?

25-year municipal bonds

Your customer is 26 years old and earns $45,000 a year as an advertising executive. He has already accumulated $5,000 in savings and is seeking a secure place to invest the amount and begin a periodic investment plan. He know his long-term time frame he is uncomfortable with the thought of losing money. He would prefer moderate overall returns rather than high returns accompanied by high volatility. Which of the following mutual os the most suitable for this customer?

ABC Balance fund

Your customer, age 45, is dingle 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 stock, tax-exempt bonds, international investments, and limited partnerships. She has a long-term time frame and is not risk averse. Which of the following mutual funds is the most suitable for this customer?

ATF Biotechnology Fund

Your firm's market analyst believes the curet bullish market in equities will continue. Which of the following mutual funds would be most suitable for growth-oriented investor?

Blue-chip stock

Default risk, or the risk that principal may be lost due to issuer failure

Credit risk

Internest rate risk is generally associated with equity investments

False (Bonds are most affected by interest rate risk).

Liquidity risk is also known as systematic risk

False (Market risk and systematic risk are synonymous terms terms that describe the risk of investors losing money due to market price volatility in overall market).

Reinvestment risk is highest when interest rates are rising

False (When interest rates are rising, there is little reinvestment risk for debt investors).

Which of the following securities generates the greatest current income with moderate risk?

Fixed-income security

Which of the following investments is most suitable for an investor seeking monthly income?

GNMA mutual fund

As investor who desires minimal credit risk and monthly interest income should consider an investment in which of the following?

Ginnie Maes

Your 45-yea-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?

High yield bond fund

Which of the following characteristics best define (s) the term growth?

Increase in the value of an investment over time

A couple in their early 30s has been married for 4 years. Both work and have no children. They live in the suburbs and are planning to buy a condominium downtown. They need a safe place to invest the money they have saved for down payment for about 6 months. Which of the following mutual funds is the most suitable for these customers?

LMN Cash Reserves Money Market fund

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?

Liquidity

Systematic risk, or the risk that principal may be lost due to price volatility of the market

Market risk

Liquidity risk, or the risk that a security canon be sold quickly at a fair market price

Marketability risk

Which of the following investments is LEAST appropriate for a client who is primarily concerned with liquidity?

Penny stock

Inflation risk, or the risk of continually rising prices on investments

Purchasing power risk

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?

Short-term US government bond fund

A customer seeks additional steady income to supplement his other sources of retirement income and has a high0risk tolerance. Which of the following securities would be most suitable?

Speculative bonds

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 from the interest. After researching 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 Standard & Poor's BBB. Considering the client's situation, which bond should the representative recommend?

The municipal bond because it provides the tax-free equivalent yield is greater and its rating equals the corporate bond's

Bonds backed by the federal government tend to have low credit risk

True

Default risk is risk of losing invested principal due to the issuer's financial failure

True

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?

Your customer should provide more information before you can make a suitable recommendation

A 27-year-old client is in a low tax bracket and wants an aggressive long-term growth investment. If his representative recommended a high-rated municipal general obligation bond, the representative has

violated the suitability requirements of FINRA and the MSRB