Unit 19
As part of your annual review for clients, you perform a net worth computation. You have computed a specific client's net worth at $500,000. This client calls you and asks what his net worth will be after withdrawing $4,000 from his savings account to pay off credit cards, taking another $6,000 to deposit to his IRA and buying a $25,000 home theater system using store credit. You would respond that the client's net worth is now A) $500,000 B) $475,000 C) $466,000 D) $491,000
A
Gathering information about a prospective advisory client would probably not be done by A) using a third party interviewer B) personal interview C) chat over a lunch D) use of a questionnaire
A
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? A) Income in retirement B) Time horizon C) Tax concerns D) Changes to laws and regulations
A
A 45-year-old investor wants the greatest possible monthly income with the preservation and stability of capital as secondary objectives. Which of the following investments would you recommend? A) Money market mutual fund B) Long-term bond fund C) Growth and income fund D) Growth mutual fund
B
All of the following are reasons why broker-dealers and investment advisers gather information about their customers EXCEPT A) to maintain accurate customer records B) for use in advertising C) to comply with BSA requirements D) to use in determining suitability
B
Many financial planners recommend that clients wait until age 70 to begin their Social Security retirement benefits. The primary reason for this recommendation is that A) by waiting, you increase the amount that Social Security will pay for burial expenses B) by waiting past full retirement age (currently 66), your payments will grow at an annual rate of 8% C) once you've reached age 70, there is no limit to the amount that may be earned without affecting monthly payments D) taking payments prior to age 70 increases the likelihood that you will run out of money sooner than if you wait
B
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? A) The cause of her father's death B) Her employment situation C) Her father's years of investment experience D) Her financial goals
C
A client who states that she wants to avoid petroleum company stocks is expressing a A) recommendation B) financial consideration C) form of risk avoidance D) non-financial consideration
D
Which of the following would be considered an investment constraint rather than an investment goal? A) Capital preservation B) Growth of capital C) Liquidity D) Current income
C
When preparing a client's personal profile, it is generally accepted that there are both financial and non-financial considerations evaluated in order to issue appropriately suitable recommendations. Which of the following would not be included in the list of financial considerations? A) Income from rental properties B) Risk tolerance C) The client's marginal tax bracket D) Vested interest in the employer's 401(k) plan
B
If a new client has $200,000 to invest and wants to retire in 15 years, which of the following client information is least necessary for an adviser to recommend a suitable investment program? A) Current income and cash flow requirements B) The age of the client C) Tolerance toward risk D) The amount of income he requires for his retirement years
A
When making a customer profile, one of the documents created is a balance sheet. Among other items, your client's balance sheet would include A) assets B) salary or wages C) interest expense D) accumulated depreciation
A
Your 47-year-old client plans to retire at age 65. When constructing a recommendation for the client's $850,000 IRA rollover account, your first consideration should be the client's A) planned retirement age B) liquidity needs C) risk tolerance D) tax status
C
One respect in which an investment adviser differs from an agent for a broker-dealer is that of fiduciary responsibility to the client. Therefore, the IA will have greater concerns about various non-financial needs and attitudes of the client when making recommendations. Included in those concerns would be all of these EXCEPT A) the client's marital status B) the client's time horizon number and age of dependents C) the client's attitudes toward the environment D) the client's retirement plan vested balance
D
Otto and Lucy set up a 529 plan to save funds for the college education of their daughter, Marangue, who is 14. What is the most suitable investment for the largest portion of their contribution? A) A growth stock fund B) A large-cap stock fund C) A long-term bond fund D) An intermediate term bond fund
D
What is the net worth of a customer with the following personal balance sheet? Cash $20,000 Municipal bonds $75,000 401(k) account value $150,000 Salary $80,000 per year Cars $30,000 Home $250,000 Miscellaneous (jewelry, etc.) $50,000 Personal loan $10,000 Car loan $20,000 Mortgage $150,000 Monthly mortgage payment $1,500 A) $95,000 B) $245,000 C) $473,500 D) $395,000
D
Which of the following best describes the determination of a client's risk tolerance? A) The client's net worth B) The client's ability to take risk C) The client's willingness to take risk D) The client's ability and willingness to take risk
D
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 A) his daughter should consider attending a community college instead B) that the goal seems attainable if the client is willing to assume the necessary risk C) the short time horizon is an investment constraint that will make reaching this goal highly unlikely D) this is wonderful news and you are pleased that the client has selected such a worthwhile goal
C
