Investment Advisor Client Suitability and Portfolio Management 3

Question 1

What does 'beta' measure in portfolio management?

Accepted Answer

The portfolio's sensitivity to market movements

Answer

Beta measures how much a portfolio or security moves relative to the overall market — a beta of 1.2 means the portfolio typically moves 20% more than the market.

Question 2

A client who wants to maintain their current lifestyle throughout retirement and leave a significant estate would have what type of primary objectives?

Accepted Answer

Income, capital preservation, and growth

Answer

Balancing current income needs, preserving capital, and achieving modest growth to fund an estate legacy requires a blended objective strategy.

Question 3

Which investment constraint refers to restrictions on the types of investments a client is legally or ethically permitted to hold?

Accepted Answer

Legal and regulatory constraint

Answer

Legal and regulatory constraints include rules that prohibit certain investments — such as insiders restricted from trading company stock or pension funds subject to ERISA investment limits.

Question 4

Dollar-cost averaging is best described as:

Accepted Answer

Investing fixed amounts at regular intervals regardless of market price

Answer

Dollar-cost averaging involves investing a fixed dollar amount at regular intervals, automatically buying more shares when prices are low and fewer when prices are high.

Question 5

Which type of analysis focuses on evaluating a company's financial statements, management, and competitive position to determine intrinsic value?

Accepted Answer

Fundamental analysis

Answer

Fundamental analysis examines a company's financial health, earnings, management quality, and competitive advantages to estimate its intrinsic value.

Investment Advisor Practice Test

Investment Advisor Practice Test

Investment Advisor Client Suitability and Portfolio Management 3