Kaplan Mutual Fund Customer Suitability Quiz Flashcards
Andy Jones, 52, and Patty Jones, 56, have a large investment portfolio concentrated in stocks and stock mutual funds, including an international fund. They maintain their cash reserves in a money market account at their local bank. Andy is employed as a consultant, where he earns a $400,000/year salary. The Joneses are seeking a safe investment because they will need to liquidate a portion of their portfolio when Andy retires in about 5 years. They also recognize the need for additional diversification of their portfolio.
A. Spencer Cash Reserve Fund (The fund’s objectives are to maintain a stable net asset value and to provide current income. The fund invests in high-quality short-term obligations, including US Treasury bills, commercial paper certificates of deposit, and repurchase agreements. Check-writing privileges are available.)
B. MacDonald Balanced Fund (The fund seeks to duplicate the price and yield performance of Standard & Poor’s Composite Index of 500 stocks. The fund invests in each of the index’s 500 stocks in approximately the same composition as the index. The portfolio is not actively traded and therefore features a low turnover ratio.)
C. Spencer Tax-Free Municipal Bond Fund (The fund seeks to maximize tax-exempt current yield. It invests in a portfolio of high-quality municipal debt obligations. The portfolio is diversified among securities issued by many different state and municipal taxing authorities. Income distributions provided by the fund are exempt from federal income tax.)
D. MacDonald Stock Index Fund (The fund seeks to duplicate the price and yield performance of Standard & Poor’s Composite Index of 500 stocks. The fund invests in each of the index’s 500 stocks in approximately the same composition as the index. The portfolio is not actively traded and therefore features a low turnover ratio.)
(C) Spencer Tax-Free Municipal Bond Fund
The Joneses are almost entirely invested in the stock market. As they approach retirement, they should shift some of their portfolio to bonds. Because they are in a high tax bracket, a municipal bond fund best meets their objectives of diversification and safety.
Sarah Davis, 30, and Jim Davis, 32, have been married for 4 years. Both work and they have no children, so their disposable income is relatively high. They live in the suburbs and plan to buy a condominium downtown so they can enjoy some of their favorite activities on the weekends. They need a safe place to invest the amount they have saved for their down payment for about 6 months while they shop for the perfect unit.
A. ATF Biotechnology Fund (The fund seeks maximum capital appreciation through investment in stocks of companies providing innovative products in the biotechnology sector, including pharmaceutical developers and medical equipment suppliers. Fund management seeks to evaluate emerging economic and political trends and to select individual compa- nies that may benefit from technological advances.)
B. ATF Capital Appreciation Fund (The fund seeks to achieve maximum capital appreciation with little or no pursuit of current income. The fund invests in stocks of small and medium-size companies that demonstrate significant long-term growth potential. The fund’s management believes that despite year-to-year fluctuations, the strategy of investing in companies that show strong earnings growth can result in superior investment returns.)
C. Spencer Cash Reserve Fund (The fund’s objectives are to maintain a stable net asset value and to provide current income. The fund invests in high-quality short-term obligations, including US Treasury bills, commercial paper certificates of deposit, and repurchase agreements. Check-writing privileges are available.)
D. Laramie Equity Income Fund (The fund seeks primarily current income, with secondary objectives of capital growth and growth of income. Its portfolio is composed of common stock, preferred stock, and convertible securities of large, well-established companies with a history of paying high dividends. Its equity concentration can help protect against the loss of purchasing power owing to inflation.)
(C) Spencer Cash Reserve Fund
Jim and Sarah Davis are preparing to make a major purchase within the next 6 months. They require a highly liquid investment to keep their money safe for a short time. The money market fund best matches this objective.
Adam Garcia is 26 and earns $45,000/year as an advertising executive. He already has accumulated $5,000 in a savings account and is seeking a secure place to invest the amount and begin a periodic investment plan. He knows his long-term time-frame means he should be willing to take some risk, but he is uncomfortable with the thought of losing money. Adam would prefer moderate overall returns rather than high returns accompanied by high volatility.
A. Spencer Tax-Free Municipal Bond Fund (The fund seeks to maximize tax-exempt current yield. It invests in a portfolio of high-quality municipal debt obligations. The portfolio is diversified among securities issued by many different state and municipal taxing authorities. Income distributions provided by the fund are exempt from federal income tax.)
B. MacDonald Balanced Fund (The fund seeks to preserve capital, to generate current income, and to provide long-term capital growth. Its strategy is to invest 60% of its portfolio in common stocks and 40% in bonds and fixed-income secu- rities. Through diversification, the fund intends to provide protection against downturns in the market. In its endeavors to produce positive returns during market decline, the fund may not participate fully in rising stock markets.)
C. XYZ Government Income Fund (The fund seeks to maximize safety of invested principal while providing current income. By investing in a broad range of debt securities issued by the US Treasury as well as by government agencies such as the Government National Mortgage Association, the fund provides reduced risk. It aims for a current yield higher than the yield of short-term debt instruments and money market instruments.)
D. MacDonald Stock Index Fund (The fund seeks to duplicate the price and yield performance of Standard & Poor’s Composite Index of 500 stocks. The fund invests in each of the index’s 500 stocks in approximately the same composi- tion as the index. The portfolio is not actively traded and therefore features a low turnover ratio.)
(B) MacDonald Balanced Fund
Adam Garcia is a young investor who is at the beginning of his investment cycle. For other investors in his situation, an aggressive growth fund might help achieve maximum capital appreciation over a long-term timeframe. However, Adam is risk averse and has not had any experience investing in the securities markets. A balanced fund is a good place to begin investing for high total return and low volatility.
Mark Blair is a retired widower, 72, seeking a moderate level of current income to supplement his Social Security benefits and his company pension plan. Mark is a Depression-era grandfather of 6 with a conservative attitude toward investments. An equally important goal for him is capital preservation.
A. MacDonald Stock Index Fund (The fund seeks to duplicate the price and yield performance of Standard & Poor’s Composite Index of 500 stocks. The fund invests in each of the index’s 500 stocks in approximately the same composi- tion as the index. The portfolio is not actively traded and therefore features a low turnover ratio.)
B. Spencer Tax-Free Municipal Bond Fund (The fund seeks to maximize tax-exempt current yield. It invests in a portfolio of high-quality municipal debt obligations. The portfolio is diversified among securities issued by many different state and municipal taxing authorities. Income distributions provided by the fund are exempt from federal income tax.)
C. XYZ Government Income Fund (The fund seeks to maximize safety of invested principal while providing current income. By investing in a broad range of debt securities issued by the US Treasury as well as by government agencies such as the Government National Mortgage Association, the fund provides reduced risk. It aims for a current yield higher than the yield of short-term debt instruments and money market instruments.)
D. ATF Overseas Opportunities Fund (The fund seeks maximum capital appreciation by investing in common stocksof companies located outside the United States. The management selects well-established companies that are listed on their native stock exchanges and that have demonstrated high earnings potential. Although the fund may be affected by fluctuations in currency exchange rates, over the long term it may provide protection against downturns in US markets.)
(C) XYZ Government Income Fund
Mark Blair requires maximum safety and current income. While all fixed-income fundsaim to provide current income, the US government bond fund offers the best combination of safety and a higher yield than a money market fund.
Helen Wong is 29 and is seeking a long-term growth investment. She is concerned about the loss of purchasing power as a result of inflation and often complains about high commissions and charges that reduce her investment returns. When she was in college, she took a few economics courses and firmly believes that securities analysts cannot consistently outperform the overall market.
A. MacDonald Balanced Fund (The fund seeks to preserve capital, to generate current income, and to provide long-term capital growth. Its strategy is to invest 60% of its portfolio in common stocks and 40% in bonds and fixed-income securities. Through diversification, the fund intends to provide protection against downturns in the market. In its endeavors to produce positive returns during market decline, the fund may not participate fully in rising stock markets.)
B. MacDonald Stock Index Fund (The fund seeks to duplicate the price and yield performance of Standard & Poor’s Composite Index of 500 stocks. The fund invests in each of the index’s 500 stocks in approximately the same composition as the index. The portfolio is not actively traded and therefore features a low turnover ratio.)
C. Spencer Cash Reserve Fund (The fund’s objectives are to maintain a stable net asset value and to provide current income. The fund invests in high-quality short-term obligations, including US Treasury bills, commercial paper certificates of deposit, and repurchase agreements. Check-writing privileges are available.)
D. ATF Biotechnology Fund (The fund seeks maximum capital appreciation through investment in stocks of companies providing innovative products in the biotechnology sector, including pharmaceutical developers and medical equipment suppliers. Fund management seeks to evaluate emerging economic and political trends and to select individual companies that may benefit from technological advances.)
(B) MacDonald Stock Index Fund
Helen Wong requires a mutual fund that offers the potential for long-term capital growth. She believes money managers cannot consistently outperform the overall market; this indicates that an index fund that attempts to match the performance ofthe stock market is the most appropriate investment for her.
Gina and Peter Stout, both 42, have two children, ages 14 and 12. The Stouts have spent the past 10 years accumulating money to provide for their children’s education. Their oldest child will enter college in 4 years and they are not willing to take risks with the money they worked hard to accumulate. They need a safe investment that provides regular income to help them meet tuition payments.
A. Laramie Equity Income Fund (The fund seeks primarily current income, with secondary objectives of capital growth and growth of income. Its portfolio is composed of common stock, preferred stock, and convertible securities of large, well-established companies with a history of paying high dividends. Its equity concentration can help protect against the loss of purchasing power owing to inflation.)
B. ATF Capital Appreciation Fund (The fund seeks to achieve maximum capital appreciation with little or no pursuit of current income. The fund invests in stocks of small and medium-size companies that demonstrate significant long-term growth potential. The fund’s management believes that despite year-to-year fluctuations, the strategy of investing in companies that show strong earnings growth can result in superior investment returns.)
C. Spencer Cash Reserve Fund (The fund’s objectives are to maintain a stable net asset value and to provide current income. The fund invests in high-quality short-term obligations, including US Treasury bills, commercial paper certificates of deposit, and repurchase agreements. Check-writing privileges are available.)
D. MacDonald Investment-Grade Bond Fund (The fund seeks high current yield accompanied by reasonable risk.It invests most of its portfolio in corporate bonds having one of the top three ratings according to Moody’s and Standard & Poor’s. It seeks to reduce the risk associated with interest rate fluctuations by investing a portion of its assets in short- term corporate debt.)
(D) MacDonald Investment-Grade Bond Fund
The Stouts’ investment goal of providing for their children’s education is about 4 years away. They cannot afford to take a risk that a downturn in the stock market will occur within that time. A safe alternative that also provides additional returns is the high-quality corporate bond fund.
Pat Long, 60, and Sadie Long, 58, are married and have raised 3 children. Both have decided to retire this year and are looking forward to an active retirement. They have accumulated a nest egg of about $1 million, which they plan to use to travel the world, pursue their hobbies, and care for their health. Both are concerned about rising inflation and are comfortable with a reasonable level of risk.
A. Spencer Tax-Free Municipal Bond Fund (The fund seeks to maximize tax-exempt current yield. It invests in a portfolio of high-quality municipal debt obligations. The portfolio is diversified among securities issued by many different state and municipal taxing authorities. Income distributions provided by the fund are exempt from federal income tax.)
B. XYZ Government Income Fund (The fund seeks to maximize safety of invested principal while providing current income. By investing in a broad range of debt securities issued by the US Treasury as well as by government agencies such as the Government National Mortgage Association, the fund provides reduced risk. It aims for a current yield higher than the yield of short-term debt instruments and money market instruments.)
C. Laramie Equity Income Fund (The fund seeks primarily current income, with secondary objectives of capital growth and growth of income. Its portfolio is composed of common stock, preferred stock, and convertible securities of large, well-established companies with a history of paying high dividends. Its equity concentration can help protect against the loss of purchasing power owing to inflation.)
D. MacDonald Stock Index Fund (The fund seeks to duplicate the price and yield performance of Standard & Poor’s Composite Index of 500 stocks. The fund invests in each of the index’s 500 stocks in approximately the same composi- tion as the index. The portfolio is not actively traded and therefore features a low turnover ratio.)
(C) Laramie Equity Income Fund
The Longs are preparing for retirement. They want to maintain a comfortable standard of living, which means staying ahead of inflation. A combined fund that offers both current income and growth potential is the best choice for this couple.
Amy Cain, 50, and Eric Cain, 48, have a combined annual income of more than $200,000. Their portfolio consists of common stocks and bonds that offer a wide range of safety and return potential. The Cains are becoming even more concerned about the effects of rising inflation in the US economy. They are seeking to invest a small percentage of their portfolio in a fund that will provide additional diversification.
A. ATF Biotechnology Fund (The fund seeks maximum capital appreciation through investment in stocks of companies providing innovative products in the biotechnology sector, including pharmaceutical developers and medical equipment suppliers. Fund management seeks to evaluate emerging economic and political trends and to select individual compa- nies that may benefit from technological advances.)
B. XYZ Government Income Fund (The fund seeks to maximize safety of invested principal while providing current income. By investing in a broad range of debt securities issued by the US Treasury as well as by government agencies such as the Government National Mortgage Association, the fund provides reduced risk. It aims for a current yield higher than the yield of short-term debt instruments and money market instruments.)
C. MacDonald Stock Index Fund (The fund seeks to duplicate the price and yield performance of Standard & Poor’s Composite Index of 500 stocks. The fund invests in each of the index’s 500 stocks in approximately the same composi- tion as the index. The portfolio is not actively traded and therefore features a low turnover ratio.)
D. ATF Overseas Opportunities Fund (The fund seeks maximum capital appreciation by investing in common stocksof companies located outside the United States. The management selects well-established companies that are listed on their native stock exchanges and that have demonstrated high earnings potential. Although the fund may be affected by fluctuations in currency exchange rates, over the long term it may provide protection against downturns in US markets.)
(D) ATF Overseas Opportunities Fund
The Cains’ substantial portfolio is diversified between equity and debt investments. However, to counteract the effects of the US economy on their portfolio returns, they should invest a portion of their assets in the international stock fund.
Mike and Mary Cole are both 34 and employed in their computer software business. They have one daughter, age 4. The Coles want to begin accumulating the money required to send their daughter to one of the nation’s top universities in 14 years. In addition, they have not yet begun to accumulate money for their retirement.
A. MacDonald Balanced Fund (The fund seeks to preserve capital, to generate current income, and to provide long-term capital growth. Its strategy is to invest 60% of its portfolio in common stocks and 40% in bonds and fixed-income securities. Through diversification, the fund intends to provide protection against downturns in the market. In its endeavors to produce positive returns during market decline, the fund may not participate fully in rising stock markets.)
B. Laramie Equity Income Fund (The fund seeks primarily current income, with secondary objectives of capital growth and growth of income. Its portfolio is composed of common stock, preferred stock, and convertible securities of large, well-established companies with a history of paying high dividends. Its equity concentration can help protect against the loss of purchasing power owing to inflation.)
C. ATF Capital Appreciation Fund (The fund seeks to achieve maximum capital appreciation with little or no pursuit of current income. The fund invests in stocks of small and medium-size companies that demonstrate significant long-term growth potential. The fund’s management believes that despite year-to-year fluctuations, the strategy of investing in companies that show strong earnings growth can result in superior investment returns.)
D. Spencer Tax-Free Municipal Bond Fund (The fund seeks to maximize tax-exempt current yield. It invests in a portfolio of high-quality municipal debt obligations. The portfolio is diversified among securities issued by many different state and municipal taxing authorities. Income distributions provided by the fund are exempt from federal income tax.)
(C) ATF Capital Appreciation Fund
The Coles require maximum capital appreciation. Their long-term timeframe enables them to ride out the fluctuationsof the stock market. The best investment for them is the stock market fund that concentrates solely on achieving long-term growth rather than generating current income.
Liz Scott, 45, is single and in search of maximum capital appreciation. She inherited a substantial amount of money a few years ago and has taken an active interest in managing her investments. Her portfolio is diversified among common stocks, tax-exempt bonds, international investments, and limited partnerships. She has a long- term time frame and is not averse to risk.
A. Laramie Equity Income Fund (The fund seeks primarily current income, with secondary objectives of capital growth and growth of income. Its portfolio is composed of common stock, preferred stock, and convertible securities of large, well-established companies with a history of paying high dividends. Its equity concentration can help protect against the loss of purchasing power owing to inflation.)
B. ATF Capital Appreciation Fund (The fund seeks to achieve maximum capital appreciation with little or no pursuit of current income. The fund invests in stocks of small and medium-size companies that demonstrate significant long-term growth potential. The fund’s management believes that despite year-to-year fluctuations, the strategy of investing in companies that show strong earnings growth can result in superior investment returns.)
C. MacDonald Balanced Fund (The fund seeks to preserve capital, to generate current income, and to provide long-term capital growth. Its strategy is to invest 60% of its portfolio in common stocks and 40% in bonds and fixed-income securities. Through diversification, the fund intends to provide protection against downturns in the market. In its endeavors to produce positive returns during market decline, the fund may not participate fully in rising stock markets.)
D. ATF Biotechnology Fund (The fund seeks maximum capital appreciation through investment in stocks of companies providing innovative products in the biotechnology sector, including pharmaceutical developers and medical equipment suppliers. Fund management seeks to evaluate emerging economic and political trends and to select individual compa- nies that may benefit from technological advances.)
(D) ATF Biotechnology Fund
Liz Scott has a high net worth and substantial investment experience. She is capable of assuming the higher risk and return potential of a speculative investment such as the biotechnology sector fund.
