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Flashcards in S6: Evaluation of Customers Deck (52)
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1

A person looking for INCOME would want ______

Preferred Stock

2

Aggressive growth portfolios tend to have ______ yields

Low

3

Muni bonds are most suitable for investors in _______ tax bracket

High

4

An investor who inherits $300,000 & wants to invest for INCOME & SAFETY should invest in a portfolio of ______ not _____

Bonds

Stocks

5

A customer interested in tax free income would invest in a ______ mutual fund since interest is exempt from federal taxes

Muni bond

6

Market Risk

- systematic risk

- cannot avoid market risk by diversification

- the risk that investors may lose some of their principal due to price volatility in the market (market price goes up/market price goes down)

7

Interest Rate Risk

Risk that involves the competitive cost of $

8

Inflation Risk

Uncertainty regarding the future purchasing power of invested dollars

9

A person looking for PRESERVATION OF CAPITAL & INCOME would be suitable for _______

Bonds

10

Credit Risk

- AKA financial/default

- financial default of the issuer

- bonds backed by federal govt or municipalities tend to be very secure & have low credit risk

10

Business Risk

- AKA: capital risk

- stock specific business risk that effects the stock price (not going broke)

- lu lu yoga

- chance that investors might lose all of their $ or capital under circumstances unrelated to the financial strength of the issuer

11

Reinvestment Risk

- risk not being able to reinvest their interest income or principal at the same rate (reaches maturity)

- concern during periods of falling interest rates

12

Call Risk

- the risk that a bond might be called before maturity

- the fact that the issuer could call the bond prior to maturity

13

Purchasing Power Risk

- AKA inflationary risk

- fixed income securities (bonds) has purchasing power risk

- danger is the result of rising prices

- if an investments yield is lower than the rate of inflation, the clients money will have less purchasing power as time goes on

14

Constant Dollars

- is a dollar that is adjusted (indexed) for inflation

ex: if you invested $100 a year ago, and during that year there was 10% inflation, your investment should not be worth $110 (if it isn't you're losing ground)

15

Current Dollar

- is a dollar that is not adjusted or indexed for inflation

16

Interest Rate Risk

- systematic risk

- the sensitivity of investments price or value to function elations in interest rates

- a bond held to maturity has no interest rate risk

- bonds & preferred stock have more interest rate risk

17

A long term bond purchased & held to maturity has no ______

- interest rate

18

Stocks & bonds would be found in the portfolio of a __________ fund

- balance

19

On a risk spectrum you would find equities to the ______ of a balanced fund.

- right

20

On a risk spectrum you would find fixed income securities (bond/debt) to the ______ of a balanced fund

- left

21

Fixed Income securities have _______ risk

- inflationary

22

Muni bonds are most suitable for investors in ______ tax brackets

- high

23

Beta Factors
(a security with a Beta Factor of one moves ______) with the market

- exactly

24

The 3 main suitability obligations under suitability include:

- reasonable basis
- customer specific
- quantitative suitability

25

The triggering event for the application of the suitability obligation is a _________ recommendation

- broker

26

Firms are required to update a clients investment profile at ________ intervals

- regular

27

As a registered rep, you may process _________ requests at any time. The suitability rule doesn't apply.

- unsolicited

28

Systematic Risk

- unpredictable & impossible to avoid
- risk of whole system

29

Systematic Risks include:

- market risk
- inflationary risk
- interest rate risk