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Question 1 of 10
1. Question
Which of the following is not considered when determining suitability?
Correct
The term suitability, as it applies to investing, refers to the act of determining the client’s needs and applying those needs in the consideration of securities best suited to those needs. Clients in need of current income and capital preservation will not benefit from the purchase of common stock of risky companies with small-market capitalization (small cap). Also of consideration when determining suitability is the investor’s risk appetite.
Incorrect
The term suitability, as it applies to investing, refers to the act of determining the client’s needs and applying those needs in the consideration of securities best suited to those needs. Clients in need of current income and capital preservation will not benefit from the purchase of common stock of risky companies with small-market capitalization (small cap). Also of consideration when determining suitability is the investor’s risk appetite.
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Question 2 of 10
2. Question
Which document contains detail on Personal securities trading?
Correct
Investment advisors are required to have a code of ethics which covers personal securities trading (PST) by all supervised persons in the company.
Incorrect
Investment advisors are required to have a code of ethics which covers personal securities trading (PST) by all supervised persons in the company.
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Question 3 of 10
3. Question
In relation to coupons, bonds can be divided into how many categories?
Correct
The coupon of a bond is the fixed rate of interest paid to the investor holding the bond. A high coupon is very attractive for an investor seeking current income. The supply of low coupon bonds in low interest rate environments is plentiful because they are being issued regularly.
Incorrect
The coupon of a bond is the fixed rate of interest paid to the investor holding the bond. A high coupon is very attractive for an investor seeking current income. The supply of low coupon bonds in low interest rate environments is plentiful because they are being issued regularly.
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Question 4 of 10
4. Question
Which of the following parameters is important in calculating discounted flow rate?
Correct
Discounted cash flow = CF
____
(1+r)^nWhere, CF: cash flow
r: discount rate
n: number of paymentsIncorrect
Discounted cash flow = CF
____
(1+r)^nWhere, CF: cash flow
r: discount rate
n: number of payments -
Question 5 of 10
5. Question
According to the way that bond repayments can be financed, how many types of municipal bonds are there?
Correct
There are three main types of municipal bonds, categorized according to the way that the bond repayments can be financed:
1. General obligation bonds
2. Revenue bonds
3. Double barrelled bondsIncorrect
There are three main types of municipal bonds, categorized according to the way that the bond repayments can be financed:
1. General obligation bonds
2. Revenue bonds
3. Double barrelled bonds -
Question 6 of 10
6. Question
The technique of accessing returns of a portfolio without considering client withdrawals or contributions from or to the account is called:
I. Geometric mean return
II. Internal rate of return
III. Time-weighted average
IV. Time-weighted returnCorrect
Time-weighted return is a technique of assessing the returns of a portfolio without considering client withdrawals or contributions from or to the account. The time-weighted rate of return is sometimes also referred to as the geometric mean return, because it is taken by calculating the geometric mean among the various time periods under consideration, although without counting any inflows or outflows of cash in the investment as part of the return.
Incorrect
Time-weighted return is a technique of assessing the returns of a portfolio without considering client withdrawals or contributions from or to the account. The time-weighted rate of return is sometimes also referred to as the geometric mean return, because it is taken by calculating the geometric mean among the various time periods under consideration, although without counting any inflows or outflows of cash in the investment as part of the return.
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Question 7 of 10
7. Question
Which of the following is true about Internal Rate of Return?
I. It is used for comparison purposes against the current rate of return.
II. They are adjusted for cash flows into and out of a portfolio based on a gross present value of zero.
III. It does not warrant counting any inflows or outflows of cash in the investment as part of the return.
IV. Its evaluation is important in helping creating a metric by which cash flows may be assessed to determine the viability of an investment opportunity.Correct
Dollar-weighted return, or internal rate of return (IRR), is used for comparison purposes against the current rate of return. Dollar-weighted returns are adjusted for cash flows into and out of a portfolio based on a net present value of zero. This helps the investor determine if the investment is worth making based on the future cash flows of this investment versus the cash flows available with other investments. The dollar-weighted return evaluation is important in helping creating a metric by which cash flows may be assessed to determine the viability of an investment opportunity.
Incorrect
Dollar-weighted return, or internal rate of return (IRR), is used for comparison purposes against the current rate of return. Dollar-weighted returns are adjusted for cash flows into and out of a portfolio based on a net present value of zero. This helps the investor determine if the investment is worth making based on the future cash flows of this investment versus the cash flows available with other investments. The dollar-weighted return evaluation is important in helping creating a metric by which cash flows may be assessed to determine the viability of an investment opportunity.
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Question 8 of 10
8. Question
Concerning Expected rates of return, the following are false EXCEPT?
I. Expected rates of return should be the sole consideration when determining suitable investments.
II. Expected rates of return help the investor identify which securities are worth the capital outlay based on the expected rate of return versus differing levels of risk.
III. Expected returns are the estimates of return that an investor expects to receive from an asset based on the probability of that asset returning several different rates.
IV. The most basic function of expected return is to assess if an investment will produce positive or negative results.Correct
Expected rates of return should not be the sole consideration when determining suitable investments.
Incorrect
Expected rates of return should not be the sole consideration when determining suitable investments.
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Question 9 of 10
9. Question
Which of the following is true about inflation-adjusted returns?
I. They measure the performance of securities over a given period of time and subtract the rate of inflation over that period of time.
II. They measure the performance of securities over a given period of time and add the rate of inflation over that period of time.
III. They are calculated by subtracting the rate of inflation from the rate of return of a security.
IV. They are calculated by adding the rate of inflation from the rate of return of a security.Correct
*Inflation-adjusted returns measure the performance of securities over a given period of time and subtract the rate of inflation over that period of time to provide a clearer picture of how the security actually performed.
*Simple inflation-adjusted returns are calculated by subtracting the rate of inflation from the rate of return of a security.Incorrect
*Inflation-adjusted returns measure the performance of securities over a given period of time and subtract the rate of inflation over that period of time to provide a clearer picture of how the security actually performed.
*Simple inflation-adjusted returns are calculated by subtracting the rate of inflation from the rate of return of a security. -
Question 10 of 10
10. Question
Yield-to-maturity is calculated using the following excluding:
I. Net value of the security
II. The current market price
III. Time to maturity
IV. Coupon interest rate paidCorrect
Yield-to-maturity is calculated using the par value of the security, the current market price, time to maturity, and coupon interest rate paid.
Incorrect
Yield-to-maturity is calculated using the par value of the security, the current market price, time to maturity, and coupon interest rate paid.