Series 82: Chapter 3 Practice Questions

Chapter 3 Practice Questions

1. 1. In examining the suitability of a particular investment recommendation for a customer, you are expected to consider all of the following except:
2. A. Information about the customer that is commonly known but that the customer refuses to disclose
3. B. The customer’s financial status and past investment experience
4. C. The customer’s tax status
5. D. The customer’s investment objectives and expectations
6. 2. The risk that a bond might be redeemed by its issuer prior to the maturity date is known as:
7. A. Interest rate risk
8. B. Default risk
9. C. Credit risk
10. D. Call risk
11. 3. The risk that an investment will lose its value due to an overall decline in the market is called:
12. A. Systematic risk
13. B. Interest rate risk
14. C. Inflation risk
15. D. Specific risk
16. 4. The riskiest investment-grade bond, according to Moody’s, is rated:
17. A. B3
18. B. Ba3
19. C. Baa3
20. D. Baa1
21. 5. The risk of fluctuation in the market value of fixed-income investment products, due to interest rate movements, is considered:
22. A. Credit risk
23. B. Call risk
24. C. Market risk
25. D. Interest rate risk
26. 6. To qualify for long-term capital gains tax treatment, an asset must be held for:
27. A. A month or more
28. B. More than a month
29. C. A year or more
30. D. More than a year
31. 7. All of the following are true of diversification except:
32. A. It involves investing in uncorrelated assets.
33. B. It can lower systematic risk.
34. C. It can be used to reduce risk within an asset class or across asset classes.
35. D. It supports the old adage, “Don’t put all your eggs in one basket.”
36. 8. Which of the following would you not expect from someone with an income strategy?
37. A. Investment in a rental building
38. B. Investment in growth stocks
39. C.