SIE: Chapter 5 Practice Questions

Chapter 5 Practice Questions

1. 1. The risk of fluctuation in the market value of fixed income investments, due to interest rate movements, is considered:
2. A. Credit risk
3. B. Call risk
4. C. Market risk
5. D. Interest rate risk
6. 2. What type of bond typically holds the highest interest rate risk?
7. A. A T-bill
8. B. A 10-year Treasury note
9. C. A 30-year Treasury bond
10. D. A 5-year corporate bond
11. 3. Hailey wants to minimize unsystematic risk. Which of the following investments would be best for Hailey?
12. A. A single stock
13. B. A portfolio of two stocks, each in a different industry
14. C. A portfolio of five stocks, all in the same industry
15. D. A mutual fund
16. 4. Diversification of a stock portfolio reduces:
17. A. Systematic risk
18. B. Unsystematic risk
19. C. Market risk
20. D. All of the choices listed
21. 5. Which of the following investment risks is not considered systematic risk?
22. A. Market risk
23. B. Interest rate risk
24. C. Inflation risk
25. D. Business risk
26. 6. Which of the following risks would not be reduced by diversification?
27. A. Political risk
28. B. Market risk
29. C. Liquidity risk
30. D. Regulatory risk
31. 7. Of the following risks, which would a fixed-income investor worry about least?
32. A. Inflationary risk
33. B. Business risk
34. C. Interest rate risk
35. D. Credit risk
36. 8. To a bondholder, interest rate risk is best described as the risk in which:
37. A. Interest rates fall, causing the market price of bonds to fall
38. B. Interest rates rise, causing the market price of bonds to fall
39. C. Interest rates rise, eroding the purchasing power of the initial investment
40. D. Interest rates fall and bond proceeds must be invested in lower yielding bonds
41. 9. FINRA requires disclosure to a customer before engaging in a transaction with that customer for an issuer’s securities if:
42. A. The broker-dealer has acquired material, non-public information regarding the issuer
43. B. The broker-de