Series 7 - Suitability Practice Questions
C A balanced fund (Portfolio Construction/Asset Allocation) - correct answer ✔✔Which of the following
investment portfolios is MOST stable?
A An aggressive growth fund
B An income fund
C A balanced fund
D A specialty fund
B Active asset management (Portfolio Construction/Asset Allocation) - correct answer ✔✔The portfolio
management technique that uses a market index as a performance benchmark that the asset manager
must exceed is called:
A Passive asset management
B Active asset management
C Strategic asset management
D Tactical asset management
C tactical asset management (Portfolio Construction/Asset Allocation) - correct answer ✔✔The target
allocation for a specific asset class has been set at 20% of total assets under an asset allocation scheme.
The manager is permitted to reduce this percentage to 15%; and can increase it to 25%; as he or she sees
fit. If this action is taken by the manager, this is termed:
A portfolio rebalancing
B strategic asset management
C tactical asset management
D active asset management
C expected lifetime of that person (Portfolio Construction/Asset Allocation) - correct answer ✔✔The
time horizon to be used when constructing a portfolio for a person who will retire in a few years is the:
A
time remaining until retirement
, B expected time till the person cannot care for him or herself
C expected lifetime of that person
D expected lifetime of that person's beneficiaries
I, II, III (Portfolio Construction/Asset Allocation) - correct answer ✔✔Which of the following are
appropriate investment strategies for a client with a 20-year time horizon?
I Holding less cash
II Holding more stock
III Holding less bonds
C Stock price growth rate (Portfolio Construction/Asset Allocation) - correct answer ✔✔A value investor
would consider all of the following EXCEPT a company's:
A Price / Earnings ratio
B Price / Book Value ratio
C Stock price growth rate
D Market share
A convertible debentures (Portfolio Construction/Asset Allocation) - correct answer ✔✔A customer has
an existing portfolio that is mainly invested in high quality corporate bonds for stable income. As market
interest rates have dropped, the customer's income has declined and she would like to reallocate part of
the portfolio to corporate bonds that offer potential growth. The BEST recommendation is to buy:
A convertible debentures
B equipment trust certificates
C long term zero coupon bonds
D commercial paper
C GNMA pass-through certificates with 5, 6, 7, 8, and 9 year maturities (because of prepayment risk,
which could result in no funds being there for income when children are still in college) (Portfolio
Construction/Asset Allocation) - correct answer ✔✔A customer calls her registered representative and
says the following: "I'm looking for a safe investment for $100,000 that I have, that will give me a
moderate level of income. I have 2 children, ages 12 and 13, and I will need to use these monies to pay
for their college education, starting in 5 years." All of the following recommendations would be suitable
EXCEPT:
C A balanced fund (Portfolio Construction/Asset Allocation) - correct answer ✔✔Which of the following
investment portfolios is MOST stable?
A An aggressive growth fund
B An income fund
C A balanced fund
D A specialty fund
B Active asset management (Portfolio Construction/Asset Allocation) - correct answer ✔✔The portfolio
management technique that uses a market index as a performance benchmark that the asset manager
must exceed is called:
A Passive asset management
B Active asset management
C Strategic asset management
D Tactical asset management
C tactical asset management (Portfolio Construction/Asset Allocation) - correct answer ✔✔The target
allocation for a specific asset class has been set at 20% of total assets under an asset allocation scheme.
The manager is permitted to reduce this percentage to 15%; and can increase it to 25%; as he or she sees
fit. If this action is taken by the manager, this is termed:
A portfolio rebalancing
B strategic asset management
C tactical asset management
D active asset management
C expected lifetime of that person (Portfolio Construction/Asset Allocation) - correct answer ✔✔The
time horizon to be used when constructing a portfolio for a person who will retire in a few years is the:
A
time remaining until retirement
, B expected time till the person cannot care for him or herself
C expected lifetime of that person
D expected lifetime of that person's beneficiaries
I, II, III (Portfolio Construction/Asset Allocation) - correct answer ✔✔Which of the following are
appropriate investment strategies for a client with a 20-year time horizon?
I Holding less cash
II Holding more stock
III Holding less bonds
C Stock price growth rate (Portfolio Construction/Asset Allocation) - correct answer ✔✔A value investor
would consider all of the following EXCEPT a company's:
A Price / Earnings ratio
B Price / Book Value ratio
C Stock price growth rate
D Market share
A convertible debentures (Portfolio Construction/Asset Allocation) - correct answer ✔✔A customer has
an existing portfolio that is mainly invested in high quality corporate bonds for stable income. As market
interest rates have dropped, the customer's income has declined and she would like to reallocate part of
the portfolio to corporate bonds that offer potential growth. The BEST recommendation is to buy:
A convertible debentures
B equipment trust certificates
C long term zero coupon bonds
D commercial paper
C GNMA pass-through certificates with 5, 6, 7, 8, and 9 year maturities (because of prepayment risk,
which could result in no funds being there for income when children are still in college) (Portfolio
Construction/Asset Allocation) - correct answer ✔✔A customer calls her registered representative and
says the following: "I'm looking for a safe investment for $100,000 that I have, that will give me a
moderate level of income. I have 2 children, ages 12 and 13, and I will need to use these monies to pay
for their college education, starting in 5 years." All of the following recommendations would be suitable
EXCEPT:
