UNIT 04.01-002 2 Flashcards
An aggressive investor will likely have which of the following traits?
Frequent trading
Attempt to time the market
Buy and hold positions
Little trading activity
Frequent trading
Attempt to time the market
Aggressive traders often try to time the market and trade frequently.
An option disclosure document must be provided to a customer before they may buy or sell which of the following investments?
Options
The option disclosure document is specific to option trading.
Which of the following best defines credit risk?
A risk associated with default of a _____ security
A risk associated with default of a debt security
Credit risk is associated with debt securities and is the risk that an issuer may suffer financial failure and default on its obligation to an investor.
Which segment of the business cycle would one expect to find rising interest rates and higher wages?
Expansion
Expansions in the business cycle are characterized by increasing consumer demand for goods and services and increasing industrial production. One would expect these increases to lead to rising interest rates as demands for loans for purchases increases and higher wages for workers as production increases.
A customer that trades frequently and attempts to time the market is an example of
an aggressive investor.
Frequent trades and timing are traits of an aggressive investor. Passive and index investors do not trade frequently, nor are these traits of a conservative investor.
Aaron has a stated objective of safety and liquidity. Which of the following investments is least suitable for Aaron?
Hedge fund
Hedge funds are often organized as limited partnerships, which often have lock periods. Information on the specific investments may be found inyour SIE study material.
Which of the following explains that including noncorrelated assets in a portfolio can reduce certain risks?
Modern portfolio theory (MPT)
Instead of emphasizing particular stocks, MPT focuses on the relationships among all the investments in a portfolio. This theory holds that specific risk can be diversified away by building portfolios of assets whose returns are not correlated.
Which of the following investments will require a specific disclosure regarding liquidation?
Hedge fund
Hedge funds are often organized as limited partnerships, which often have lock periods. Information on the specific investments may be found as part of your SIE study material.
Diversification helps protect against which of the following types of risk?
Nonsystematic
Business
Diversification reduces non-systematic risk such as business risk, which is associated with the decline of an individual security’s value. Systematic risk, such as market risk, affects all securities and therefore is not significantly reduced by diversification.
Which of the following investments are considered illiquid?
Limited partnership
Limited partnerships are well known as near illiquid investments. Information on the specific investments may be found as part of your SIE study material.
