In 2008, Mr. Conservative bought a 1-year Treasury bill that was yielding 1.63%. The average annual rate of inflation in 2008 was 3.85%. In this case:
Answer(s): B
If Mr. Conservative bought a 1-year Treasury bill in 2008 that was yielding 1.63%, and the average annual rate of inflation in 2008 was 3.85%, Mr. Conservative earned a real return of -2.22 % on his investment. In other words, he lost 2.22% in purchasing power since the dollars he received when the bill matured were worth less than the dollars he paid to buy the bill. Real return = nominal return - inflation rate = 1.63% - 3.85% = -2.22%.
Which of the following statements about the over-the-counter market is true?
Answer(s): D
Stocks that are listed on exchange floors are also traded in the over-the-counter market. The term "third market" refers to over-the-counter trading of listed stocks. All types of securities-stocks, bonds, options, warrants, rights-trade over the counter. The over-the- counter market is a negotiated market, not an auction market.
A mutual fund may not do which of the following, under any circumstances?I). buy securities on marginII). engage in short salesIII). change its investment objectiveIV). invest in more than 1% of the outstanding voting stock of another investment company
Answer(s): A
A mutual fund may not buy securities on margin or engage in short sales, under any circumstances. It may change its investment objective, with shareholder approval. It is permitted to invest in up to 3% of the outstanding voting stock of another investment company.
No: 212Which of the following statements made by a registered representative selling a variable life insurance policy would be likely to result in disciplinary action?
Both Statements A and B are likely to result in disciplinary action. Members are advised not to recommend that a client finance a variable life policy using the cash value of an existing policy unless that transaction is otherwise suitable for that particular client, and members are warned that proving such a transaction was in the customer's best interest is probably going to be more difficult than an outright sale of the variable life policy would have been. Members are also instructed that in no way should a variable life insurance policy be promoted as an investment, a retirement plan, or a savings account. Members are required to market it as what it is-life insurance.
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