4.a

Question 1

What is the primary goal when a registered representative analyzes a customer’s account or portfolio?

Answer 1

To select products and make recommendations that fit the specific needs of that customer.

This involves balancing the investor’s objectives with the characteristics and risks of different investments.

Question 2

What is the primary goal and concerns when analyzing an account for an aggressive investor?

Answer 2

Primary Goal: Capital appreciation (growth).

Concerns:
- For a market timer: Current market price movements (up, down, or flat).
- For a buy-and-hold investor: Long-term earnings growth and potential for future expansion.

Question 3

What is the primary goal and concerns when analyzing an account for a conservative or income-oriented investor?

Answer 3

Primary Goal: Generating current income.

Concerns:
- The interest rates on bonds and CDs.
- The dividend yield from stocks and mutual funds.
- How current market interest rates will affect reinvestment opportunities when their bonds mature.

Question 4

What is the most important rule to follow when measuring the performance of an investment?

Answer 4

Compare ‘apples to apples.’

You must use an appropriate standard or benchmark for comparison. For example, compare a growth fund’s performance to a growth fund index, not to the yield on a Treasury bond.

Question 5

What is diversification and what is its primary benefit in a portfolio?

Answer 5

Diversification is the strategy of spreading assets among different investments to reduce risk (‘don’t put all your eggs in one basket’).

Its primary benefit is that it helps protect against unsystematic risk (risk specific to a single company or industry).