Suitability

From the point of view of a corporate issuer, the most conservative means of raising capital would be the issuance of: A) common stock. B) preferred stock. C) convertible preferred stock. D) convertible bonds.

A) common stock. Common stock issues add to the capital of a corporation and do not saddle it with additional cash flow demands. This approach is the most conservative. Because of the desire of bondholders and preferred stockholders to receive their interest and dividends, respectively, the issuance of preferred stock or bonds creates additional and ongoing demands on a corporation's cash flow.

An investor anticipating a rise in interest rates would likely purchase: A) variable rate demand obligations (VRDOs) or reset bonds B) corporate bonds C) bonds issued by the US Treasury D) callable bonds

A) variable rate demand obligations (VRDOs) or reset bonds Variable rate or reset bonds have coupons that are adjusted based on the movements of other specified interest rates. A callable bond works to the issuer's advantage when interest rates fall but offers no added benefit to an investor when interest rates rise. Generic corporate or government issued bonds offer no advantage for an investor anticipating a rise in interest rates.

A couple in their early 30s has been married for 4 years, their disposable income is relatively high, and they are planning to buy a condominium. If they need a safe place to invest their down payment for about 6 months, which of the following mutual funds is the most suitable for these customers?

A.) LMN Cash Reserves Money Market Fund B.) ATF Capital Appreciation Fund. C) XYZ Investment-Grade Bond Fund. D) ABC Growth & Income Fund.

Which of the following organizations determines which OTC securities are eligible for purchase on margin? A) FINRA. B) SEC. C) FRB. D) MSRB.

C) FRB. The Federal Reserve Board determines whether any security is marginable.

Which of the following would have the least market risk? A) Fannie Maes. B) AAA corporate debentures. C) Corporate or municipal bonds with long-term maturities. D) Revenue anticipation notes.

D) Revenue anticipation notes. Anticipation notes are the shortest term, which gives them the least market risk (the risk that price will fluctuate during the time left to maturity).

Your customer wishes to lock in a long-term yield with minimal risk and is not interested in regular income. Which of the following securities should you recommend? A) Corporate A-rated zero coupon bond. B) Treasury Bond. C) Treasury Bill. D) Treasury STRIPS.

D) Treasury STRIPS The Treasury STRIPS is long-term, no-interim income, and has a locked-in yield since it is purchased at a discount from par. The T-bill is short term, the T-bond provides semiannual interest, and the corporate zero is riskier than the STRIPS.

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