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Series 7 Top-Off > Suitability > Flashcards

Suitability Flashcards

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Series 7 Top-off Exam flashcards
1
Q

Suitable for investors seeking long-term growth and the opportunity to outpace inflation

A

Common Stock

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2
Q

Suitable for investors seeking stable dividend income with returns that are comparable to long-term bonds.

A

Preferred Stock

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3
Q

Suitable for investors seeking long-term growth and retirement savings. Provides a good hedge against inflation.

A

Growth Stock

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4
Q

Suitable for older or retired investors seeking dividend income.

A

Utility Stock

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5
Q

Suitable for investors seeking to invest in foreign companies.

A

ADRs

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6
Q

Suitable for older and/or conservative investors looking for consistent income.

A

Bond

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7
Q

Suitable for investors seeking current income for a specific period.

A

Corporate Bond

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8
Q

Suitable for investors seeking income with the potential for long-term growth.

A

Convertible Bond

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9
Q

Suitable for investors seeking an investment that is less risky than equities and provides predictable growth.

A

Zero-Coupon Bond

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10
Q

Suitable for high risk, speculative investors looking for a higher coupon.

A

High-Yield Bond (Junk Bond)

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11
Q

Suitable for investors seeking conservative investments for short-term needs.

A

Money Market Instruments

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12
Q

Suitable for investors seeking tax-exempt interest income due to their tax bracket.

A

Municipal Bond

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13
Q

Suitable for investors seeking a higher yielding municipal bond and are not subject to the alternative minimum tax.

A

Private Activity/Industrial Development Bond

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14
Q

Suitable for investors in high-tax brackets who are investing for short-term needs.

A

Municipal Note

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15
Q

Suitable for conservative investors seeking income with the option of putting the bond to the issuer at reset.

A

Variable Rate Demand Obligation (VRDO)

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16
Q

Suitable for investors seeking fixed income and safety of principal.

A

Treasury Note and Treasury Bond

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17
Q

Suitable for investors seeking absolute safety of principal and willing to accept a very low return.

A

Treasury Bill

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18
Q

Suitable for conservative investors seeking a long-term hedge against inflation.

A

Treasury Inflation Protected Security (TIPS)

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19
Q

Suitable for investors seeking to receive a fixed sum of money to satisfy a future expense.

A

Treasury STRIPS

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20
Q

Suitable for investors seeking safety, monthly interest income, and a yield that is slightly higher than U.S. Treasuries.

A

Government Agency Mortgage Backed Securities

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21
Q

Suitable for investors seeking monthly income and customized prepayment risk

A

Collateralized Mortgage Obligation (CMO)

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22
Q

Suitable for investors seeking monthly income payments, with predictable payment structure and maturity.

A

Planned Amortization Class (PAC)

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23
Q

Suitable for investors willing to take on a high degree of prepayment risk due to changing interest rates in exchange for a higher yield.

A

Support/Companion Tranche

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24
Q

Suitable for investors with long time horizons and who need future savings.

A

Z Tranche

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25
Q

Suitable for investors who speculate on short-term price fluctuations.

A

Long Options

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26
Q

Suitable for sophisticated investors willing to accept substantial risk in exchange for premium income.

A

Short Options

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27
Q

Suitable for investors seeking to speculate on short-term price volatility.

A

Long Straddle or Long Combination

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28
Q

Suitable for sophisticated investors speculating on short-term price stability and able to accept substantial risk.

A

Short Straddle or Short Combination

29
Q

Suitable for investors seeking to speculate on small, short-term price movements.

A

Debit Spreads

30
Q

Suitable for investors seeking to generate-short term income with limited risk.

A

Credit Spreads

31
Q

Suitable for investors seeking to limit a short-term loss on the stock position while still participating in potential gains.

A

Protective Put

32
Q

Suitable for investors seeking a conservative income generating strategy, with risk exposure that is less than holding the stock without the option.

A

Covered Call

33
Q

Suitable for investors seeking to limit a short-term loss on the short stock position, while still participating in potential gains.

A

Protective Call

34
Q

Suitable only for sophisticated investors who are able to afford the potential loss resulting from the rising value of a short stock position.

A

Covered Put

35
Q

Suitable for investors who are able to afford significant risks and commit capital for the long term.

A

Direct Participation Program (DPP) Limited Partnership

36
Q

Suitable for investors seeking to invest in a diversified portfolio of securities rather than creating their own.

A

Mutual Fund

37
Q

Suitable for investors willing to accept the risk associated with long-term growth.

A

Growth Fund

38
Q

Suitable for investors seeking current income from a high dividend yield.

A

Income Fund

39
Q

Suitable only for aggressive investors who are seeking a higher return with less diversification.

A

Specialized/Sector Fund

40
Q

Suitable for conservative investors seeking both long-term growth and current income.

A

Balanced Fund

41
Q

Suitable for investors seeking to diversify into foreign stocks.

A

International Stock Fund

42
Q

Suitable for investors seeking a low-cost alternative to more actively managed funds with similar objectives.

A

Index Fund

43
Q

Suitable as a low cost and long-term investment traded in real-time on an exchange.

A

Traditional ETF

44
Q

Suitable for short- term trading and speculation traded in real-time on an exchange.

A

Non-traditional ETF

45
Q

Suitable for investors seeking to add diversification in their portfolio and those who want a speculative investment.

A

Exchange Traded Note (ETN)

46
Q

Suitable for investors seeking to invest in a diversified portfolio with short-term trading capabilities.

A

Closed End Fund

47
Q

Suitable for aggressive investors seeking high dividends who are able to withstand short-term volatility and/or for those seeking an investment that is often only available to large private equity funds.

A

Business Development Company (BDC)

48
Q

Suitable for investors seeking high dividend yield and willing to accept the price volatility associated with the value of the underlying properties.

A

Real Estate Investment Trust (REIT)

49
Q

Suitable only for sophisticated investors who can afford the increased risk and potential loss of capital.

A

Hedge Fund

50
Q

Suitable for investors seeking tax-deferred retirement savings or the potential for lifetime payments.

A

Variable Annuity

51
Q

Suitable for investors seeking lifetime income payments after retirement, with the understanding that the same rate of return may not keep up with inflation.

A

Fixed Annuity

52
Q

Suitable for investors a tax deferred investments with earned income who are saving for retirement.

A

Individual Retirement Account (IRA)

53
Q

Suitable for investors with earned income who are saving for retirement and want future tax-free withdrawals.

A

Roth IRA

54
Q

Suitable for investors saving for a child’s education expenses, including elementary, secondary, or higher education.

A

Coverdell Education Saving Account (CESA)

55
Q

Suitable for investors saving for a child’s higher education expenses.

A

529 College Savings Plan

56
Q 
An investor is in her mid-30s and is interested in saving for retirement. She has a high risk tolerance and wants to outpace inflation. Which of the following is the most suitable investment?
A) A CMO
B) A zero-coupon bond 
C) A utility stock
D) A mid-cap stock fund
A

D) A mid-cap stock fund

57
Q 
An investor has been heavily invested in gold. Now that he has retired, he wants to diversify and move some of his investments into assets that will help to pay his expenses. Which of the following investments/strategies should an RR recommend to the investor?
A) Buying a CMO Z tranche 
B) Selling equity options
C) Buying preferred stock 
D) Buying common stock
A

C) Buying preferred stock

58
Q 
A customer wants to add cash flow to his portfolio, but does not want to take an excessive amount of risk. Which of the following should an RR recommend?
A) Income bonds
B) High yield bonds
C) Investment grade debentures 
D) T-STRIPS
A

C) Investment grade debentures

59
Q

A retired couple has substantial savings in various accounts and tells their RR that they fear running out of retirement money. They are hoping to live a long life together and want to be assured that their money will not run out early. Which of the following recommendations should the RR make?
A) Fund a Traditional IRA
B) Fund a lump-sum immediate annuity
C) Fund a periodic payment deferred annuity
D) Fund a 529 plan

A

B) Fund a lump-sum immediate annuity

60
Q 
Interest rates have been rising for several years and the yield curve has recently become inverted. If an investor believes that this is an indication that rates will begin falling, what is the best investment?
A) Long-term bonds
B) Short-term bonds
C) TIPS
D) A laddered bond portfolio
A

A) Long-term bonds

61
Q 
A young couple that just had their first child wants to save for her education, but they do not want to take excessive risk. They understand that inflation will cause expenses to be higher in the future and want an investment that will keep up. Which of the following investments is the BEST choice?
A) An REIT
B) Municipal bonds
C) A gold ETF
D) An equity index fund
A

D) An equity index fund

62
Q

An investor who has several long-term stock positions is worried about negative earnings reports; however, she does not want to miss out on gains if the reports are positive. What should an RR recommend to the investor?
A) Buy call options on each of her stocks
B) Buy put options on each of her stocks
C) Sell call options on each of her stocks
D) Sell put options on each of her stocks

A

B) Buy put options on each of her stocks

63
Q

A married couple are both in their mid-40s and want to know the best way to invest in their IRAs. They are willing to take a fair amount of risk to maximize their long-term returns. What is the most appropriate portfolio mix for the couple?
A) 100% in growth funds
B) 100% in income funds
C) 70% in growth funds and 30% in income funds
D) 40% in growth funds and 60% in income funds

A

C) 70% in growth funds and 30% in income funds

64
Q 
An investor needs monthly income to pay his bills. If he needs the income to be stable and predictable, which investment is the MOST suitable?
A) PAC
B) TAC
C) Support Tranche
D) Z Tranche
A

A) PAC

65
Q 
An investor is disappointed with bank CD yields. How can she best increase her retirement income, without incurring a high degree of risk?
A) Commercial paper
B) Laddered corporate bond portfolio
C) T STRIPS
D) Income bonds
A

B) Laddered corporate bond portfolio

66
Q 
A recently retired 65-year-old has just rolled over his 401(k) plan into an IRA. The customer’s objective is to increase retirement income and provide some growth of capital. The investment that best satisfies these objectives is:
A) Common stock
B) TANs
C) Real estate investment trusts
D) Investment grade bonds
A

C) Real estate investment trusts

67
Q 
An investor with high income wants to maximize her retirement savings. She already contributes the maximum amount to her employer plan and she wants to save at least another $20,000 per year. Which of the following funding vehicles is the BEST for her needs?
A) Traditional IRA 
B) Variable annuity 
C) Roth IRA
D) Fixed annuity
A

B) Variable annuity

68
Q 
A very conservative investor needs a specific amount of capital in exactly 7 1⁄2 years and will not be withdrawing money before then. If he does not want to pay high fees or be involved in anything complicated, which investment is the MOST suitable?
A) T-STRIPS
B) Fixed annuity
C) Convertible bonds
D) S&P 500 ETF
A

D) S and P 500 ETF

69
Q

A customer wants to purchase a security that invests primarily in private companies that have difficulty raising capital in public markets. Which of of the following investments would you recommend?
A) A real estate investment trust (REIT)
B) A collateralized mortgage obligation (CMO)
C) A direct participation program (DPP)
D) A business development company (BDC)

A

D) A business development company (BDC)

Series 7 Top-Off (23 decks)

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