UNIT 26 CHECKPOINT EXAM Flashcards
Gerald is 78 years old. He approaches you to help him invest $150,000. He would like the money to generate some income to help pay for his new hobby, massive, multi-player, online role-playing games. He is rather risk adverse outside the digital world and wants the principal to remain largely intact when he leaves it to his heirs. Which of the following would you recommend?
A) Windmill balanced fund
B) Jim’s growth fund
C) Benji U.S. Treasury income fund
D) Junker’s aviation fund
C) Benji U.S. Treasury income fund
Explanation
The U.S. Treasury fund is most aligned with Gerald’s objectives of income with capital preservation. The other funds have varying degrees of exposure to stocks, which are not in line with the Gerald’s stated objectives for the money.
Your clients, spouses Jared and Joaquim, are both 33 years old. They are concerned about saving money for a down payment on a home. Currently they have $120,000 set aside for that purpose. They plan to start a family in about a year and would like to buy the home in six months. The amount they have saved is more than 20% of the value of the homes in the area they want to move. They look to you for a place to save the money until they need it. Which of the following is the most suitable recommendation for the couple?
A) The Windmill Growth Fund
B) The Benji Money Market fund
C) A 26-week T-bill
D) The Oldtime Life Insurance Company Variable Annuity
B) The Benji Money Market fund
Explanation
The money market and the T-Bill are safe investments for this short time frame. However, the money market provides the couple with flexibility to withdraw early or leave it in longer should their needs change. Variable annuities are a retirement savings vehicle. The growth fund is subject to market downturns.
All of the following are elements of a customer’s suitability except
A) their current profession.
B) their objectives.
C) their alma mater.
D) their liquid net worth.
C) their alma mater.
Explanation
A customer’s school is not an element of suitability, though it is a good thing to know. The other responses are mandatory elements of suitability.
Which of these would be considered a recommendation?
I. You suggest that the client consider adding the Windmill Growth Fund to their portfolio.
II. You explain to a customer how a sell stop limit order works.
III. When speaking to a client you notice they are carrying a large cash balance. You suggest they move those funds into the firm’s tax-free money market fund.
IV. You enter an order for a trade.
A) II and IV
B) I and III
C) II and III
D) I and II
B) I and III
I. You suggest that the client consider adding the Windmill Growth Fund to their portfolio.
III. When speaking to a client you notice they are carrying a large cash balance. You suggest they move those funds into the firm’s tax-free money market fund.
Explanation
Any suggestion to a client to invest funds in a security is a recommendation, including the suggestion to move a free credit into a money market fund. Explaining how a trade limit works is not a recommendation. A trade may be the result of a recommendation, but the trade, itself, is not.
Which of the following is a financial consideration?
A) Is their child interested in college?
B) How concerned are they about carrying debt?
C) Monthly interest costs of consumer debt loans.
D) Where would they like to retire?
C) Monthly interest costs of consumer debt loans.
Explanation
Financial considerations are those issues that may be defined by a dollar amount (i.e., either a cash flow [$X per month] or a lump sum [$X once]). If the answer isn’t a dollar amount, it is probably nonfinancial.
