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Unit Questions > Unit 15: Ethics, Recommendations and Taxation > Flashcards

Unit 15: Ethics, Recommendations and Taxation Flashcards

1
Q

For preservation of capital and low risk tolerances, move toward _______ securities and away from ________ securities and equities.

A

Move towards government securities and away from corporate securities

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2
Q

Many investors, particularly those on fixed incomes, want to generate current income from their investments.

_______ bonds,
_______ bonds,
_______ and _______ securities,
_______ - oriented mutual funds,
some stocks (including utilities and REITs),
money market funds and annuities are among the investments that can contribute current income through dividend or interest payments.

A

Corporate bonds,
municipal bonds,
government and agency securities,
income-oriented mutual funds,
some stocks (including utilities and REITs),
money market funds and annuities are among the investments that can contribute current income through dividend or interest payments.

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3
Q

If current income on a monthly basis is the customer’s investment objective, then _______ _________ or _______ should be considered first. The investor’s profile and needs will determine which of the two is better.

A

Variable annuity or GNMA

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4
Q

Refers to an increase in an investment’s value over time. The can come from increases in the security’s value, the reinvestment of distributions, or both.

A

Growth

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5
Q

The most common growth-oriented investments are _______ _______ and _____ _______ ________ _______.

A

Common stock and common stock mutual funds.

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6
Q

The product is _____ if the customer can sell it quickly at a fair market price.

A

liquid

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7
Q

Stock has varying degrees of liquidity, were as _____, _____ and ______CDs generally are considered illiquid.

A

DPPs, annuities and bank CDs

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8
Q

Real estate is the classic example of an _____ investment because of the time and money it takes to convert it into cash.

A

Real estate

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9
Q

______ are highly liquid and are often used for this purpose.

A

Money Market Funds

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10
Q

to ______ is to earn much higher-than-average returns in exchange for higher-than-average risk

A

speculate

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11
Q

_____ bonds pay interest only if the corporation meets targeted earnings levels.

A

Income bonds

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12
Q

________ bonds or preferred generally pay out a lower income rate than _______ because the investors receive benefit from the conversion feature.

A

Convertibles (bond or preferred); nonvonvertibles

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13
Q

A measure of performance that adjusts for risk, relative to a known benchmark

A

Alpha

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14
Q

7 Speculative Investments

A

1) Speculative Stocks
2) Speculative Stock Options
3) Low-rated debt securities
4) Precious metals
5) Commodities & futures
6) Speculative LPs
7) Speculative Mutual Funds

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15
Q

7 Growth Investments

A

1) Growth & Small-Cap Stocks
2) Stock Options
3) Non-bank grade bonds
4) Growth-oriented LPs
5) Growth stock mutual funds
6) Commodities funds
7) Variable Annuities

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16
Q

78 Safety Investments

A

1) Cash
2) Money Market Funds
3) Certificates of deposit
4) U.S. Treasury Securities
5) Bank-grade corporate and muni bonds
6) Blue-chip stocks
7) Blue-chip stock & bond mutual funds

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17
Q

In finance, ______ is defined as the uncertainty that an investment will earn its expected rate of return.

A

Risk

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18
Q

A measure of its volatility in relation to the overall market. It measures a security’s systemic (or systematic) risk - the risk that can be associated with the market in general.

A

Beta

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19
Q

_______ Investment Strategies have growth or income as an objective, but safety of principal tends to be the top priority.

A

Defensive

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20
Q

In a Defensive Investment Strategy, invest in _________ stocks with moderate or low volatility or _____ rated bonds.

A

Invest in blue-chip stocks with moderate or low volatility; AAA rated bonds

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21
Q

_______ Investment Strategies attempt to maximize investment returns by assuming higher risk.

A

Aggressive

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22
Q

Aggressive Investment Strategies include:

1) selecting ________ volatile stocks
2) buying securities on __________
3) Using ___________ strategies

A

1) Selecting highly volatile stocks
2) buying securities on margin
3) Using put & call option stragegies

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23
Q

A_________ investment, such as the purchase of a limited partnership unit, is not considered an outside business activity.

A

passive

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24
Q

Defined as any sale of securities outside an associated person’s regular business and his employing member.

A

Private Securities Transaction (aka selling away)

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25
Q

__________ __________must be consistent with customer needs, financial capability, objectives and risk tolerance; must be in the customer’s best interest – not the registered representatives.

A

Investment recommendations

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26
Q

Excessive trading aka _______in a customer’s account to generate commissions rather than to help achieve the customer’s stated investment objectives is an abuse of fiduciary responsibility.

A

churning

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27
Q

________ churning - the specific practice of placing clients who trade infrequently in fee-based accounts.

A

Reverse churning

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28
Q

When one party sells stock to another with the understanding that the stock will be repurchased later in the day at virtually the same price. The intent of such transactions is to make it appear that far more activity in a stock exists than actually does.

A

Painting the Tape

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29
Q

is a widely used investment strategy. By mixing industries and types of securities, investors attempt to spread their risk.

A

Diversification

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30
Q

Involves periodic purchases of a fixed dollar amount in one or more common stocks or mutual funds. It doesn’t guarantee against loss, but it does help control the cost of investing.

A

Dollar Cost Averaging

31
Q

An investor buys or sells securities in a manner that keeps the portfolio balanced between equity and debt securities.

A

Constant Ratio Plan

32
Q

Primary goal is to buy and sell securities so that a set dollar amount remains invested at all times.

A

Constant Dollar Plan

33
Q

refers to an increase in an investment’s value over time.

A

Growth

34
Q

A product is________ if a customer can sell it quickly at a fair market price.

A

liquid

35
Q

try to earn much higher-than-average returns in exchange for higher-than-average risks

A

Speculate

36
Q

This risk is the effect of continually rising prices on investment returns.

A

Purchasing power risk (inflation risk)

37
Q

This risk is the potential for an investor to lose some or all of his money – his invested capital – under circumstances unrelated to an issuer’s financial strength.

A

Capital Risk

38
Q

The risk to an investor of buying or selling at the wrong time and incurring losses or lower gains.

A

Timing risk

39
Q

This risk is the sensitivity of an investment’s value to fluctuations in interest rates.

A

Interest rate risk

40
Q

This risk is when interest rates decline, it is difficult to invest proceeds from redemptions, calls, or investment distributions to maintain the same level of income without increasing credit or market risks.

A

Reinvestment risk

41
Q

The risk that a bond might be called before maturity and an investor will be unable to reinvest the principal at a comparable rate of return.

A

Call risk

42
Q

A period during which a bond cannot be called.

A

Call protection

43
Q

The risk that investors may lose some or their principal as a result of price volatility in the overall market.

A

Market risk (systematic risk)

44
Q

The risk/danger of losing one’s invested principal through an issuer’s failure.

A

Credit risk (financial risk or default risk)

45
Q

The risk that a client might not be able to sell his investment quickly at a fair market price

A

Liquidity (marketability) risk

46
Q

The risk that such legal changes might affect an investment adversely

A

Legislative risk (or political risk)

47
Q

Defined as the uncertainty that an investment will earn its expected rate of return.

A

Risk

48
Q

A measure of performance that adjusts for risk, relative to a known benchmark.

A

Alpha

49
Q

A measure of a stock’s volatility in relation to the overall market.

A

Beta

50
Q

This investment strategy may have growth or income as an objective, but safety of principal tends to be the top priority.

A

Defensive investment strategies

51
Q

This investment strategy will attempt to maximize investment returns by assuming higher risks

A

Aggressive investment strategies

52
Q

The balancing of different asset classes, generally stocks, bonds, and cash, within an investment portfolio.

A

Asset allocation

53
Q

Refers to the proportion of various types of investments that should compose a long-term investment portfolio

A

Strategic asset allocation

54
Q

Refers to short-term portfolio adjustments that adjust the portfolio mix between asset classes in consideration of current market conditions.
Example: if the stock market is expected to do well over the near term, a portfolio manager may allocate greater portions of a portfolio to stocks. If the market is expected to decline, the portfolio manager may allocate greater portions of the portfolio to bonds and cash.

A

Tactical asset allocation

55
Q

Relies on the manager’s stock picking and market timing ability to outperform market indices

A

Active management

56
Q

International equities and equity funds can add even more____________ to a portfolio if this is the objective, but remember that investments abroad generally carry more risk.

A

diversification

57
Q

A___________ must review and approve all correspondence and keep a record of all securities transactions and correspondence.

A

principal

58
Q

________ ________ must periodically review all branch office activities to detect and discipline any individuals who engage in unethical behavior.

A

Member firms

59
Q

It is the ________ responsibility to provide full and honest disclosure to the registered representative or investment advisor.

A

customer’s

60
Q

All ______________are required to maintain written supervisory procedures.

A

broker-dealers

61
Q

A___________ is responsible for enforcing the rules of the broker-dealer.

A

principal

62
Q

A ______________ may have its own house rules that can be more stringent than those of the self-regulatory organization (SRO), but these rules can never be less stringent

A

broker-dealer

63
Q

The ________ ________ deal with ethical treatment of customers.

A

Conduct Rules

64
Q

A registered representative offers an attorney and an accountant two tickets to a professional sporting event each time one of them refers one of their clients to him. These tickets would be considered noncash compensation, and giving them in exchange for referrals would be____________.

A

prohibited

65
Q

These rules permit occasional noncash expenditures that exceed the $_______ limit, such as dinners, seminars, tickets to entertainment events, or reminder advertising. Vacations or season tickets are always violations.

A

$100

66
Q

If a registered representative (RR) witnesses or believes unethical trading or business practices are occurring, a regulatory tip may be filed with_________ via the Regulatory Tip Line in Washington, DC.

A

FINRA

67
Q

__________ ________ instruments are susceptible to reinvestment risk. When interest rates fall, mortgage holders typically refinance at lower rates. This means that they pay off their mortgages early, which causes a prepayment of principal to holders of mortgage-backed securities. The early principal payments cannot be reinvested at a comparable return.

A

Mortgage backed

68
Q

Which instruments are not subject to reinvestment risk. Of the ones listed, the best answer to choose is typically a ______ _______ bond. Because no interest is paid on a current basis, the investor has no reinvestment risk.

A

zero-coupon

69
Q

___________risk, or the risk of a general market decline, cannot be diversified away._____________ risk, also known as selection risk, is the risk that a single investment will not perform. Diversifying a portfolio minimizes nonsystematic risk.

A

Systematic;

Nonsystematic

70
Q

Taxes such as sales, excise, payroll, property and gasoline, are levied equally regardless of income, thus representing a smaller portion of income for wealth tax payers than for taxpayers with lower incomes.

A

Regressive taxes

71
Q

Taxes such as estate and income taxes, increase the tax rate as income increases. Affect people with high incomes more than people with low incomes.

A

Progressive taxes

72
Q

Income that includes salary, bonuses, and income derived from active participation in a trade or business.

A

Earned (Active) Income

73
Q

Income and losses that come from rental property, LPs, and enterprises in which an individual is not actively involved.

A

Passive Income and Losses

74
Q

Includes dividends, interest, and net capital gains derived from the sale of securities.

A

Portfolio Income

Unit Questions (18 decks)

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