Market risk is the same as:
a. systematic risk
b. non-systematic risk
c. credit risk
d. selection risk
systematic risk
Which of the following is NOT considered to be a cyclical stock?
a. home appliance manufacturer
b. automobile manufacturer
c. natural gas producer
d. home builder
natural gas producer
Which of the following industries is NOT considered to be defensive?
a. pharmaceuticals
b. building materials
c. food products
d. electric power
building materials
Growth companies typically have which of the following?
I. low dividend payout ratios
II. high dividend payout ratios
III. low price / earnings ratio
IV. high price / earnings ratio
low dividend payout ratios
high price / earnings ratio
The measure of "stock specific" risk is:
a. alpha
b. beta
c. delta
d. sigma
alpha
The market theory that states that technical and fundamental analysis is of no use in selecting stocks for a portfolio is known as the:
a. efficient market theory
b. Keynesian theory
c. monetarist theory
d. market equilibrium theory
efficient market theory
An older female customer, in the lowest tax bracket, wants an investment that will provide asset growth for retirement. The best recommendation would be:
a. emerging markets fund
b. single stock
c. municipal bond
d. index fund
index fund
A portfolio with a beta of +1 has:
a. systematic risk
b. unsystematic risk
c. both systematic and unsystematic risk
d. no risk
systematic risk
What would be the best investment recommendation for a single mother who is in a low tax bracket who wishes to start savings for her young child's college education?
a. municipal bonds
b. treasury bills
c. growth stocks
d. speculative stocks
growth stocks
A wealthy, sophisticated investor with a high risk tolerance has just turned extremely bearish on the market. To profit from this, the best recommendation to the client would be to:
a. buy index calls
b. buy index puts
c. buy inverse floaters
d. buy lever
buy leveraged inverse ETFs
Strategic portfolio management is the selection of the:
a. securities in which to invest
b. asset classes in which to invest
c. target asset allocation for each asset class selected for investment
d. allocation for each asset class selected for investment
target asset allocation for each asset class selected for investment
Tactical portfolio management is the selection of the:
a. securities in which to invest
b. asset classes in which to invest
c. target asset allocation for each asset class selected for investment
d. allocation for each asset class selected for investment
allocation for each asset class selected for investment
Passive asset management is:
a. buying securities positions and holding them to the liquidation date of the portfolio
b. buying securities positions and holding them until pre-established price are reached
c. selected securities to be purchased for each a
using index funds as the investments for each assets class
Diversification among multiple asset classes reduces the:
I. market risk of the portfolio
II. marketability risk of the portfolio
III. standard deviation of the portfolio returns
market risk of the portfolio
standard deviation of the portfolio returns
A value investor would consider all of the following except a company's:
a. price / earning ratio
b. price / book value ratio
c. stock price growth rate
d. market share
stock price growth rate
When the investment performance of each asset class varies from the anticipated rate of return, the:
a. selection of the type and number of asset classes used for the portfolio must be changed
b. target allocation percentages assigned to each asset class
portfolio must be rebalanced by liquidating portions of overperforming classes and investing the proceeds in underperforming classes
Which statements are TRUE about asset classes and investment time horizons?
I. equity investments are the better choice for short term equity horizons
II. interest bearing investments are the better choice for short term horizons
III. equity investments a
interest bearing investments are the better choice for short term horizons
equity investments are the better choice for long term time horizons
The use of index funds as investment vehicles for asset classes increases:
a. diversification
b. expected rate of return
c. standard deviation of return
d. market risk
diversification
Active asset managers select investments based primarily upon:
a. inefficient market pricing of the investment
b. efficient market pricing of the investment
c. minimum time needed to achieve projected investment returns
d. minimum number of investments ne
inefficient market pricing of the investment
If 26-week T-bills are yielding 5%, all common stocks are yielding 10%, and growth stocks are yielding 15%, the risk premium for investing in growth stocks is:
a. 0%
b. 5%
c. 10%
d. 15%
10%
When recommending domestic corporate long-term debt instruments to a customer, which of the following risks is the LEAST important consideration?
a. Inflation (purchasing power) risk
b. market risk
c. credit risk
d. currency exchange risk
currency exchange risk
A new client with no other investment assets has just come into an inheritance of $500,000 of ABCD stock, a blue chip company listed on the NYSE. As the adviser to this customer, your IMMEDIATE concern should be:
a. whether the company is a candidate for
the lack of diversification of the customer's investment
A customer owns 1,000 shares of XYZZ stock, purchased at $40 per share. The stock is now at $45 and the customer has become extremely bearish on the company. The client asks her representative for an aggressive recommendation. The client should be told to
sell 1,000 shares of XYZZ and buy 10 XYZZ put contracts
The use of multiple asset classes when constructing a portfolio reduces:
a. regulatory (legislative) risk
b. market (capital) risk
c. interest rate risk
d. purchasing power risk
market (capital) risk
The target allocation for a specific asset class has been set at 20% of total assets under an asset allocation scheme. The manager is permitted to reduce this percentage to 15%; and can increase it to 25%; as he or she sees fit. If this action is taken by
tactical asset management
Customers who actively trade their listed stock portfolios should have a strong understanding of:
a. liquidity risk
b. inflation risk
c. timing risk
d. call risk
timing risk
A customer, age 69, has never invested in securities. She is retired with no dependents, living on a fixed pension of $35,000 per year. She has a savings account with $160,000 and her home is fully paid. She desires to supplement her retirement income, as
CMO planned amortization class tranch
Customer Z is a single 26-year-old man who earns $125,000 annually. He informs you that he is getting married and that his new wife's income of $75,000 per year will put them into the highest federal tax bracket. The couple will have investable income of
open a cash account and invest in mutual funds holding high yielding common and preferred stocks
A 60-year-old widow is looking for an investment that will provide safety of principal and a moderate level of income. All of the following recommendations are suitable EXCEPT a(n):
a. income mutual fund
b. income bond
c. US gov bond
d. US gov bond fund
income bond
A couple wants to invest for the college education of their two children, currently ages 1 and 3. They estimate they will need to start using the funds to pay for college in 15 years. The BEST recommendation is to invest in:
a. treasury bills
b. 10 year t
10 year treasury notes
Mature companies are characterized by:
I. High price / earnings ratios
II. Low price / earnings ratios
III. High dividend payout ratios
IV. Low dividend payout ratios
Low price / earnings ratios
High dividend payout ratios
Growth companies typically have which of the following?
I. Low dividend payout ratios
II. High dividend payout ratios
III. Low Price / Earnings ratios
IV. High Price / Earnings ratios
Low dividend payout ratios
High Price / Earnings ratios
A counter-cyclical stock would be described by which of the following?
A. No earnings variability due to changes in economic growth
B. A stock which remains unaffected in good or bad economies
C. A stock price that tends to move in the same direction of t
A stock price that tends to move in the opposite direction of the market as a whole
All of the following are defensive stocks EXCEPT:
A. Beer Manufacturer
B. Supermarket Chain
C. Home Builder
D. Public Utility
Home Builder
Which of the following securities are directly interest rate sensitive?
I. Utility Stocks
II. Growth Stocks
III. Preferred Stocks
IV. Common Stocks
Utility Stocks
Preferred Stocks
Which of the following best describes a stock that pays out most of its earnings as dividends?
A. Income stock
B. Special situations stock
C. Defensive stock
D. Blue Chip stock
Income stock
Historically, which of the following investments has provided the highest return over time?
A. Treasury Bills
B. Treasury Bonds
C. Listed common stocks
D. Listed corporate bonds
Listed common stocks
Which of the following investment portfolios is MOST liquid?
A. An aggressive growth fund
B. A U.S. Government bond fund
C. A money market fund
D. An income fund
A money market fund
By definition, a money market instrument is liquid. They are readily traded at a discount equal to the market rate of interest because any purchaser knows that he or she will be paid when it matures in the near future. Long term govern
Which of the following investments is LEAST liquid?
A. Mutual funds
B. Long term corporate bonds
C. Private placements
D. Closed-end funds
Private placements
Closed-end funds trade like any other stock, so they are highly liquid. Corporate bonds are traded OTC and have slightly higher liquidity risk than listed securities, but the trading market for these is active. Mutual funds do not trade
Which of the diversification factors below will not reduce the non-systematic (credit) risk of a bond portfolio?
A. Maturity
B. Industry in which issuer operates
C. Coupon rate
D. Geographic location of issuer
Coupon rate
The coupon rate has no bearing on diversification to reduce potential credit risk. In the trading market, the price of a bond is determined by the market yield for that type of security - not the coupon rate. To reduce non-systematic risk (mea
Passive asset management is:
A. buying securities positions and holding them to the liquidation date of the portfolio
B. buying securities positions and holding them until pre-established prices are reached
C. selecting securities to be purchased for each
using index funds as the investments for each asset class
Passive asset management does not mean that there is no management. Passive asset management is the use of index funds (which are managed to mirror a chosen index benchmark) as the security selecti
Active portfolio management is:
A. buying and holding the investments chosen by the Registered Representative
B. determining the securities to be bought or sold based on investment research performed by the Registered Representative
C. managing a portfoli
managing a portfolio to exceed the performance of a benchmark portfolio
Establishing the structure of a portfolio to meet specific financial goals is called:
A. Strategic allocation
B. Tactical allocation
C. Rebalancing
D. Risk adjustment
Strategic allocation
Which of the following are appropriate investment strategies for a client with a 20-year time horizon?
I. Holding less cash
II. Holding more stock
III. Holding less bonds
All of them
Value investors:
A. seek to find investments that are undervalued by the market
B. determine the value of a security through fundamental analysis
C. invest in securities included in the Value Line Index
D. make their investment decision based upon the mar
seek to find investments that are undervalued by the market
An investment strategy where a higher price is paid for a stock based upon expected returns is:
A. growth investing
B. value investing
C. conservative investing
D. passive investing
growth investing
When the investment performance of each asset class varies from the anticipated rate of return, the:
A. selection of the type and number of asset classes used for the portfolio must be changed
B. target allocation percentages assigned to each asset class
portfolio must be rebalanced by liquidating portions of overperforming classes and investing the proceeds in underperforming classes
A customer has an existing portfolio that is mainly invested in high quality corporate bonds for stable income. As market interest rates have dropped, the customer's income has declined and she would like to reallocate part of the portfolio to corporate b
convertible debentures
A customer calls her registered representative and says the following: "I'm looking for a safe investment for $100,000 that I have, that will give me a moderate level of income. I have 2 children, ages 12 and 13, and I will need to use these monies to pay
GNMA pass-through certificates with 5, 6, 7, 8, and 9 year maturities
A retired customer that has a portfolio of blue chip stocks is looking to supplement his retirement income. An appropriate recommendation would be to:
A. sell covered calls
B. sell naked calls
C. sell covered puts
D. sell naked puts
sell covered calls
Covered call writing is the most popular retail income strategy in a flat market, and is appropriate for conservative investors that are looking for extra income. The customer sells calls against stock that is already owned, getting pre
A customer in a low tax bracket has just inherited $10,000 and is looking for an investment that will provide current income and liquidity. The BEST recommendation is a:
A. Corporate Bond ETF
B. Variable Rate Bond
C. Municipal Bond Fund
D. Treasury STRIPS
Corporate Bond ETF
The Corporate Bond ETF is liquid because it is exchange traded, and it provides taxable income from its bond investments. Because the customer is in a low tax bracket, lower yielding tax-free municipal bond investments are not appropria
A retired customer has an existing stock portfolio held in a cash account. He has heard that "leveraging" his portfolio can increase his return. The portfolio holds blue chip stocks that pay current dividends. He wants to transfer the positions to a margi
This is not an appropriate strategy because the customer's income will decline
This customer needs income. If he margins the blue chip stock positions to "double up" on the amount of stock owned (since Regulation T margin is 50%), this does not come for f
A young couple wishes to save $50,000 as the down payment on a new house that they plan to purchase in the next 6 months. Which of the following are suitable investment vehicles to recommend to the couple?
I. Money market funds
II. Bank certificates of de
Money market funds
Bank certificates of deposit
Commercial paper
This couple needs $50,000 cash in 6 months. Clearly, money market funds and bank certificates of deposit are suitable. Blue chip stocks are not suitable, since they are subject to market ris
A younger female customer, in the highest tax bracket, already has a substantial investment portfolio that is invested in a balance of quality stocks and bonds. She wants an investment that will provide rapid asset growth and is willing to assume risk. Th
Emerging markets fund
Since this customer already has a balanced quality portfolio and is looking for rapid growth, an emerging markets fund would give the customer the rapid growth she is seeking (along with greater risk).
A 79-year old customer in the highest tax bracket with $1,000,000 to invest is risk averse. Which investment recommendation would be appropriate?
A. Money market funds
B. Municipal bonds
C. A Dow Jones Industrial Average index fund
D. Certificates of depo
Municipal bonds
Since this customer is in the highest tax bracket, and appears to be wealthy (with $1,000,000 to invest), tax-free municipal bonds are the best recommendation.
An older female customer, in the lowest tax bracket, wants an investment that will provide asset growth for retirement. The best recommendation would be:
A. Emerging markets fund
B. Single stock
C. Municipal bond
D. Index fund
Index fund
A municipal bond is not appropriate for a low tax bracket customer and it does not give growth. An emerging markets fund certainly offers high growth, but it also high risk and this customer is "older." A single stock might be a great investmen
A 60-year old man, whose investment objectives are income and capital gains, wishes to buy securities that allow for liquidity during the trading day. The BEST recommendation would be:
A. ETFs
B. ETNs
C. UITs
D. Mutual Funds
ETFs
Both ETFs (Exchange Traded Funds) and ETNs (Exchange Traded Notes) trade, so they allow for liquidity during the trading day. There is no trading of mutual funds and UITs - these are redeemable securities. Mutual funds can be redeemed at NAV based th
A 70-year old client wants to invest in U.S. Treasury securities. When performing the suitability determination, the client informs the registered representative that he is looking for after-tax income, liquidity, and to avoid market risk. The registered
client's age
Since Treasury securities are the safest security, they are an appropriate recommendation for a 70-year old client. So age really is not a concern with this recommendation. The client's tax bracket is a concern because the income is Federally
An elderly customer seeking extra income who has $100,000 to invest could be recommended which of the following?
I. The $100,000 purchase of a variable annuity
II. The $100,000 purchase of dividend paying blue chip stocks in a cash account against which c
The $100,000 purchase of dividend paying blue chip stocks in a cash account against which calls are sold
The $100,000 purchase of Treasury bonds
The purchase of a variable annuity is not suitable for an elderly customer. The whole concept behind a variabl
A Registered Investment Adviser has a retired client who wishes to put aside funds for the purchase of a car 5 years from now. Preservation of capital is important to this client. The RIA should recommend investments in:
I. Money market funds
II. Bank cer
Money market funds
Bank certificates of deposit
5 Year Treasury Bonds
This customer needs funds in 5 years and preservation of capital is important to the client. Money market funds and bank certificates of deposit are clearly suitable. The 5 year Treasur
A new client who is in the lowest tax bracket has 2 young children. He has just inherited $10,000 and wants to use the money to invest for the college education of both children. The client has never invested before and states that he wants an investment
Treasury bills
The key wording here is that the customer wants "no risk." The only risk-free security offered as a choice is T-Bills. It could be argued that blue chip stocks would be a better choice to build a college education fund over a long-term time
A self-employed client has an annual income of $200,000 and is in a high tax bracket. He is not covered by a retirement plan and would like to make the maximum contribution to one to reduce his taxable income. He believes that he will be in a lower tax br
SEP IRA
A Roth IRA does not work for 3 reasons - the maximum contribution is only $5,500 (in 2017); the contribution is not deductible; and this person is a high earner and cannot use a Roth. He can use a Traditional IRA, but it only allows for a maximum
A 57-year old customer, earning $85,000 per year, is currently employed as an outside salesman. He enjoys his work so much that he has no intention of retiring until at least age 75. He wants to put extra money away for his retirement at that time and can
Roth IRA
Only a Roth IRA permits contributions to continue after age 70 1/2 if one is still working and only a Roth IRA does not require that distributions start at age 70 1/2. Roth IRA contributions are not deductible; the account grows tax deferred; and
If a portfolio manager's market sentiment is bullish, then which of the following are appropriate actions?
I. Cash positions will be decreased
II. Cash positions will be increased
III. Investments in stock positions will be decreased
IV. Investments in st
Cash positions will be decreased
Investments in stock positions will be increased
From a "market sentiment" standpoint, a portfolio manager will decrease his or her cash position; and increase the portion of funds invested in securities, when he or she is
Institutional portfolio managers have been allocating an increasing percentage of their funds to cash and cash equivalent positions. This is an indication that their market sentiment is:
A. bullish
B. neutral
C. bearish
D. cautious
bearish
From a "market sentiment" standpoint, a portfolio manager will increase his or her cash position; and decrease the portion of funds invested in securities, when he or she is bearish on the market. Conversely, if the manager is bullish, he or she w
A customer has a $1,000,000 portfolio that is invested in the following:
$250,000 Large Cap Growth Stocks
$250,000 Large Cap Defensive Stocks
$250,000 U.S. Government Bonds
$250,000 Investment Grade Corporate Bonds
During a period of economic expansion, t
Large Cap Growth Stocks
Investment Grade Corporate Bonds
In a period of economic expansion, growth companies do well, so their stock prices increase. Defensive companies are those that are unaffected by the general economy (such as drug companies), so an
A customer account holds the following:
10% Market Index-Linked CDs
20% Plain Vanilla CMOs
20% ACME Drug Company shares
10% REITs
25% Health Care Sector ETFs
15% Growth Fund Shares
This portfolio is MOST susceptible to which risk?
A. market risk
B. busine
business risk
This portfolio is concentrated in the Health Care sector, with 25% of the portfolio being in Heath Care ETFs and 20% in a drug company. A portfolio concentrated in one stock or industry is susceptible to business risk - the risk that the bus
A customer has the following investment mix:
25% Growth Stocks
25% Defensive Stocks
25% High Quality Corporate Bonds
25% Speculative Stocks
During a period of economic expansion, the best performing asset classes are likely to be:
I. Growth Stocks
II. Def
Growth Stocks
Speculative Stocks
During a period of economic expansion, growth stocks and speculative stocks perform well compared to the overall market. However, during a period of recession, these tend to decline in value. In contrast, in a period of ex
When making a recommendation of a 10 year Treasury Note to a customer, the MOST important risk consideration is:
A. liquidity risk
B. credit risk
C. market risk
D. call risk
market risk
Market risk for a bondholder is the risk of rising interest rates forcing the price of a bond to drop, with longer maturity issues dropping fastest. 10-Year Bonds have a fairly long term maturity and are subject to this risk. The other risks a
A constant ratio investment plan is one which:
A. invests a fixed percentage amount periodically in equity securities
B. invests a fixed percentage amount periodically in debt securities
C. maintains a fixed percentage amount of a portfolio's assets in eq
maintains a fixed percentage amount of a portfolio's assets in equities
Under a constant ratio plan, a portfolio manager sets a fixed percentage level (say 70% of total asset value) to be maintained in equity securities. If the value rises above 70%, the
The "Efficient Market Theory" states that:
I. undervalued securities should exist
II. undervalued securities should not exist
III. overvalued securities should exist
IV. overvalued securities should not exist
undervalued securities should not exist
overvalued securities should not exist
The "Efficient Market" Theory holds that prices of securities in the market fully reflect all publicly available information, so that undervalued or overvalued securities shoul
The Capital Asset Pricing Model (CAPM) is a methodology that values securities based upon:
A. fundamental analysis of the company
B. technical analysis of the company
C. the issue's risk-free rate of return plus a risk premium
D. book value of the issuer
the issue's risk-free rate of return plus a risk premium
CAPM is a methodology for finding the most efficient investments - those that give the greatest return for the amount of risk assumed. The model identifies the most efficient investments as those th
Which of the following statements is TRUE about non-systematic risk?
I. It is the same as stock selection risk
II. It is the same as market risk
III. It can be diversified away
IV. It cannot be diversified away
It is the same as stock selection risk
It can be diversified away
Market risk is the same as systematic risk. It is the risk of the market moving adversely, and one's securities positions moving with the market. This risk cannot be diversified away; but i
Which of the investments listed below offers the greatest protection against market risk?
A. Common Stocks
B. Treasury Bills
C. Preferred Stocks
D. Treasury Bonds
Treasury Bills
Market risk is the risk the securities prices, as a whole, will fall, dragging down both good and bad investments. To minimize market risk, common stocks should be avoided, as should long term fixed income securities, such as preferred stoc
Which statement is TRUE about a stock's Beta Coefficient?
A. Beta measures price movement of a stock relative to its industry
B. Beta measures price movement of a stock relative to the market
C. Beta measures the credit rating of a stock relative to its i
Beta measures price movement of a stock relative to the market
The "Beta" coefficient is a measure of price volatility of a stock (or a portfolio) relative to the market. A Beta of +1 indicates that a particular security moves as fast, and in the same dir
Which statement is TRUE regarding a portfolio that has a "Beta" of +1?
A. Changes in the value of the portfolio should be both in the same direction and velocity as price movements in the market
B. Changes in the value of the portfolio should be at the sa
Changes in the value of the portfolio should be both in the same direction and velocity as price movements in the market
A portfolio with a "beta" coefficient of +1 is one that moves in both the same direction and same velocity as the market as a whole. A
Which of the following statements are TRUE about a stock's Beta coefficient?
I. A Beta of -1 indicates that the stock moves as fast as, but in the exact opposite direction of, the market
II. A Beta of -1 indicates that the stock moves as fast as, and in t
A Beta of -1 indicates that the stock moves as fast as, but in the exact opposite direction of, the market
A stock with a negative beta is a counter-cyclical stock
The alpha coefficient is a measure of:
I. stock specific risk
II. market risk
III. a stock's price movement relative to the market as a whole
IV. a stock's price movement independent of the market as a whole
stock specific risk
a stock's price movement independent of the market as a whole