Unit 19 Checkpoint Exam

Liquidity risk would be greatest for an investor whose portfolio was primarily composed of A) municipal bonds. B) Nasdaq stocks. C) municipal bond UITs. D) ADRs listed on the NYSE.

A) municipal bonds.

Which of the following will be the most likely risk that you will face during the first year after purchasing a corporate AA bond that matures in 15 years? A) Liquidity B) Interest rate C) Credit D) Market

B) Interest rate

The business school of a local university is conducting a symposium on investment risk. An investment adviser representative (IAR) attending the session dealing with systematic risk would expect to learn about A) market risk. B) financial risk. C) regulatory risk. D) business risk.

A) market risk.

The MNO Manufacturing Company, headquartered in Springfield, has just filed for bankruptcy. Under federal bankruptcy law, holders of which of the following would have highest priority with the bankruptcy trustee? A) Class A common stock B) First lien, senior preferred stock C) Guaranteed bonds D) Mortgage bonds

D) Mortgage bonds

From first to last, in what order would claimants receive payment in the event of bankruptcy? A) Secured debt, subordinated debentures, general creditors, preferred stockholders B) Preferred stockholders, secured debt, general creditors, subordinated debentures C) Secured debt, general creditors, subordinated debentures, preferred stockholders D) Subordinated debentures, preferred stockholders, general creditors, secured debt

C) Secured debt, general creditors, subordinated debentures, preferred stockholders

A conservative investor decides to invest in high-quality corporate bonds paying 5% instead of investing in lower-quality bonds paying 9%. The additional 4% return the investor could have potentially earned on the lower-quality bonds represents A) marketability costs. B) liquidity costs. C) opportunity cost. D) purchasing power costs.

C) opportunity cost.

In 1986, a sweeping change was made to the U.S. Tax Code. This change had a severe effect upon those who had been investing in certain limited partnership tax shelters. This is an example of A) legislative risk. B) regulatory risk. C) market risk. D) business risk.

A) legislative risk.

Which of the following portfolios would most likely be exposed to the most inflation risk? A) 75% S&P 500 Index ETF; 25% municipal bond UIT B) 50% U.S. Treasury bonds, average maturity 20 years; 30% U.S. Treasury notes, average maturity five years; 20% 90-day Treasury bills C) 100% employer's company stock D) 34% diversified common stocks; 33% long-term convertible debentures; 33% noncumulative preferred stock

B) 50% U.S. Treasury bonds, average maturity 20 years; 30% U.S. Treasury notes, average maturity five years; 20% 90-day Treasury bills

If your client is primarily concerned about the rising cost of living but wishes to limit his exposure to business risk, which of the following securities is most appropriate? A) S&P 500 Index fund B) AAA intermediate-term corporate bond fund C) Small-cap stock fund D) Tax-free municipal bond fund

A) S&P 500 Index fund