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Question 1 of 10
1. Question
The following are false about sector rotation except:
I. Managers make short-term gains through sector rotation.
II. It is a method of diversification of the investor’s portfolio over a specific time period.
III. Aids investors who wish to invest in multiple sectors without initial capital to invest in all sectors.
IV. Sector rotation is the practice of moving invested capital to different sectors of the market.Correct
Sector rotation is the practice of moving invested capital to different sectors of the market under the assumption that different sectors of the market are profitable at different points in time. This is helpful to investors who wish exposure to multiple sectors but may not have the initial capital to invest in all the sectors that they desire. Sector rotation is also a method of diversification of the investor’s portfolio over a specific time period. Some managers attempt to time the market to make short-term gains through sector rotation, with the assumption that certain sectors are more profitable at different times of the year.
Incorrect
Sector rotation is the practice of moving invested capital to different sectors of the market under the assumption that different sectors of the market are profitable at different points in time. This is helpful to investors who wish exposure to multiple sectors but may not have the initial capital to invest in all the sectors that they desire. Sector rotation is also a method of diversification of the investor’s portfolio over a specific time period. Some managers attempt to time the market to make short-term gains through sector rotation, with the assumption that certain sectors are more profitable at different times of the year.
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Question 2 of 10
2. Question
Put contracts are often used to reduce the risk of loss of capital, hence If the security rises, the investor will:
I. Have loss of capital
II. Increase in value of the put
III. Lose value of the security
IV. Lose only the premium he or she paid for the options contractCorrect
Put contracts are often used to reduce the risk of loss of capital. This is achieved when an investor buys a security and then buys a put contract on the same security. While the investor may want the value of the security to rise, if it loses value then the put will increase in value. If the security rises, then the investor’s only loss will be the premium he or she paid for the options contract.
Incorrect
Put contracts are often used to reduce the risk of loss of capital. This is achieved when an investor buys a security and then buys a put contract on the same security. While the investor may want the value of the security to rise, if it loses value then the put will increase in value. If the security rises, then the investor’s only loss will be the premium he or she paid for the options contract.
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Question 3 of 10
3. Question
Leveraged portfolios and securities will not be suited for which of the following?
I. An investor seeking stability.
II. An investor seeking capital appreciation.
III. An investor averse to risks.
IV. An investor seeking large market capitalisation.Correct
Put contracts are often used to reduce the risk of loss of capital. This is achieved when an investor buys a security and then buys a put contract on the same security. While the investor may want the value of the security to rise, if it loses value then the put will increase in value. If the security rises, then the investor’s only loss will be the premium he or she paid for the options contract.
Leveraged securities come with a greater degree of risk however, the reward is commensurate with the risk involved. When managers decide to leverage a position, a greater return can be had than would be possible if using only the unleveraged capital available to them.Incorrect
Put contracts are often used to reduce the risk of loss of capital. This is achieved when an investor buys a security and then buys a put contract on the same security. While the investor may want the value of the security to rise, if it loses value then the put will increase in value. If the security rises, then the investor’s only loss will be the premium he or she paid for the options contract.
Leveraged securities come with a greater degree of risk however, the reward is commensurate with the risk involved. When managers decide to leverage a position, a greater return can be had than would be possible if using only the unleveraged capital available to them. -
Question 4 of 10
4. Question
“The investor who is most interested in income-producing securities is the retired investor seeking current income and capital preservation.” Which of the following is true of the aforementioned?
I. The investor’s income need is met by the interest or dividends paid on the securities.
II. The desire for capital preservation is met because of the stability of the security.
III. They have long time horizons, which allow them to absorb losses and benefit from long-term gains.
IV. They deal in common stock of companies that are of small-market capitalization.Correct
Usually, the investor who is most interested in income-producing securities is the retired investor seeking current income and capital preservation. The investor’s income need is met by the interest or dividends paid on the securities, and the desire for capital preservation is met because of the stability of the security. Investors seeking capital appreciation look to higher-risk and more volatile securities, such as common stock of companies that are of small-market capitalization. These investors are usually younger investors with long time horizons, which allow them to absorb losses and benefit from long-term gains.
Incorrect
Usually, the investor who is most interested in income-producing securities is the retired investor seeking current income and capital preservation. The investor’s income need is met by the interest or dividends paid on the securities, and the desire for capital preservation is met because of the stability of the security. Investors seeking capital appreciation look to higher-risk and more volatile securities, such as common stock of companies that are of small-market capitalization. These investors are usually younger investors with long time horizons, which allow them to absorb losses and benefit from long-term gains.
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Question 5 of 10
5. Question
Regarding Tax implications associated with individual investing. Which of the following statements is false?
I. Capital gains are determined by subtracting the cost basis, or initial investment, from the sales price.
II. Long-term capital gains receive a higher tax rate than do short-term capital gains.
III. Inherited securities’ cost bases are stepped up to the price of the security at the date of the benefactor’s death.
IV. Dividends and interest received, are treated similarly to long-term gains and taxed at the investor’s current tax rate.Correct
Current income, such as dividends and interest received, are treated similarly to short-term gains and taxed at the investor’s current tax rate.
Long-term capital gains, or those gains obtained from capital appreciation when the security was held for greater than one year, receive a lower tax rate than do short-term capital gains.Incorrect
Current income, such as dividends and interest received, are treated similarly to short-term gains and taxed at the investor’s current tax rate.
Long-term capital gains, or those gains obtained from capital appreciation when the security was held for greater than one year, receive a lower tax rate than do short-term capital gains. -
Question 6 of 10
6. Question
Which of the following statements is/are true?
I. Fiduciaries may delegate duties in the administration of the plan.
II. Fiduciary duties may be delegated.
III. Fiduciary duties should not be delegated under any circumstance.
IV. Fiduciaries should not delegate duties in the administration of the plan.Correct
Fiduciaries may delegate duties in the administration of the plan, but under no circumstances may the fiduciary duties be delegated.
Incorrect
Fiduciaries may delegate duties in the administration of the plan, but under no circumstances may the fiduciary duties be delegated.
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Question 7 of 10
7. Question
An investment’s policy statement should include which of the following?
I. The bylaws of the parent company.
II. The plan’s investment philosophy especially regarding asset allocation and management style.
III. The the criteria upon which the selection of investments will be based.
IV. A system for monitoring the performance of the plan and adherence to processes set forth in the plan.Correct
An investment policy statement should include the plan’s investment objectives,
determine how cash flow needs should be met, set forth the plan’s investment philosophy, especially regarding asset allocation and management style, the criteria upon which the selection of investments will be based, and outline a system for monitoring the performance of the plan and adherence to processes set forth in the plan.Incorrect
An investment policy statement should include the plan’s investment objectives,
determine how cash flow needs should be met, set forth the plan’s investment philosophy, especially regarding asset allocation and management style, the criteria upon which the selection of investments will be based, and outline a system for monitoring the performance of the plan and adherence to processes set forth in the plan. -
Question 8 of 10
8. Question
Regarding Coverdell education savings accounts, any withdrawal of funds not related to educational purposes will result in which of the following?
I. The taxation of any gains.
II. A 10 percent penalty assessed to the investor based upon the amount withdrawn.
III. Closure or conversion of the savings account.
IV. Removal of the tax deferred.Correct
Coverdell education savings accounts are tax-advantaged savings plans that allow investors to plan for expenses associated with education. While the contributions must be made with after-tax dollars, the earnings received on a Coverdell account are not taxable as long as they are used for qualified education expenses. Any withdrawal of funds not related to educational purposes will result in the taxation of any gains and a 10 percent penalty assessed to the investor based upon the amount withdrawn.
Incorrect
Coverdell education savings accounts are tax-advantaged savings plans that allow investors to plan for expenses associated with education. While the contributions must be made with after-tax dollars, the earnings received on a Coverdell account are not taxable as long as they are used for qualified education expenses. Any withdrawal of funds not related to educational purposes will result in the taxation of any gains and a 10 percent penalty assessed to the investor based upon the amount withdrawn.
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Question 9 of 10
9. Question
The following are true about Custodial Accounts except:
I. They require a custodian to buy and sell securities in the account.
II. The custodian on the account is required until the closure of the account.
III. The accounts were strictly restricted to gifts until the child reaches the age of majority.
IV. Properties other than gifts are allowed to be transferred to the account of the minor.Correct
Custodial accounts require a custodian to buy and sell securities in the account, exercise rights and warrants in the account, and make decisions to buy, sell, or hold the securities placed in the minor’s account. The custodian on the account is required until the child reaches the age of majority.
Incorrect
Custodial accounts require a custodian to buy and sell securities in the account, exercise rights and warrants in the account, and make decisions to buy, sell, or hold the securities placed in the minor’s account. The custodian on the account is required until the child reaches the age of majority.
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Question 10 of 10
10. Question
Transactions that fiduciaries are prohibited from executing includes which of the following?
I. Accepting remuneration for the private account of the fiduciary that results from transactions involving the plan for which they are the fiduciary party.
II. Managing the plans funds to benefit the fiduciary’s own accounts.
III. Dealing in transactions that create a clear conflict of interests.
IV. Involving the plan assets in a transaction while acting on the behalf of a person, natural, or legal whose goals work counter to the goals of the plan.Correct
Transactions that fiduciaries are prohibited from executing include but are not limited to self-dealing, or managing the plans funds to benefit the fiduciary’s own accounts; involving the plan assets in a transaction while acting on the behalf of a person, natural, or legal whose goals work counter to the goals of the plan as outlined in the plan’s policy statement; and accepting remuneration for the private account of the fiduciary that results from transactions involving the plan for which they are the fiduciary party.
Incorrect
Transactions that fiduciaries are prohibited from executing include but are not limited to self-dealing, or managing the plans funds to benefit the fiduciary’s own accounts; involving the plan assets in a transaction while acting on the behalf of a person, natural, or legal whose goals work counter to the goals of the plan as outlined in the plan’s policy statement; and accepting remuneration for the private account of the fiduciary that results from transactions involving the plan for which they are the fiduciary party.