Series 65 Client Investment Recommendations and Strategies

Question 1

Nora, 34, will not need this money for 25 years. Her salary is stable, and she can tolerate a 20% drop without selling. Which recommendation fits her horizon, cash need, and risk capacity?

Accepted Answer

A diversified stock fund she can leave untouched for decades.

Question 2

Owen needs $40,000 in four months for a house down payment and has no other cash. Which recommendation fits that horizon and cash need?

Accepted Answer

A Treasury bill that matures before the closing date.

Question 3

Priya retires in two years, spends nearly all of her pension, and cannot replace a large loss. Which recommendation fits her horizon and risk capacity?

Accepted Answer

Short bonds for near-term spending plus a modest stock sleeve she can hold.

Question 4

Quentin is 28, has six months of expenses in cash, and is saving for retirement in 35 years. He says a 25% decline would not force a sale. Which recommendation does not fit?

Accepted Answer

A one-year certificate of deposit as his only retirement holding.

Question 5

Rosa must pay $18,000 of tuition in nine months. She has saved that amount and has no other reserve. Which recommendation fits?

Accepted Answer

A Treasury bill that matures just before the tuition is due.

Question 6

Samir, 45, has a secure pension, a large emergency fund, and a 20-year goal. He can accept a 30% drop. Which recommendation does not fit his horizon, cash need, and risk capacity?

Accepted Answer

Margin buying of one penny stock with the whole account.

Question 7

Talia loses her job next month and must pay living expenses from this account for about a year. She cannot afford a market loss. Which recommendation fits?

Accepted Answer

A high-quality money-market fund sized to about one year of spending.

Question 8

Victor is 62 and retires in six months. Withdrawals start then. His pension covers half of his spending. Which recommendation fits the invested half?

Accepted Answer

Cash and short bonds for near withdrawals, with stocks for later years.

Question 9

Willa is 31, debt-free, with 12 months of cash and a 30-year retirement goal. She has rebalanced through two bear markets without selling. Which recommendation does not fit?

Accepted Answer

Moving the entire 30-year portfolio into a savings account because prices fell last week.

Question 10

Andre works only at Helio Motors, and Helio stock is 70% of his investments. What is the main portfolio problem?

Accepted Answer

His paycheck and his largest asset both depend on Helio, so one setback can hit income and wealth together.

Question 11

Bianca is a senior engineer at Northline Software, and Northline shares are her largest holding. Which step reduces that double exposure?

Accepted Answer

Gradually sell Northline and buy a broad fund that is not dominated by Northline.

Question 12

Carlo's salary, bonus, and stock grants all come from Pinnacle Bank, and Pinnacle stock is 80% of his taxable account. If the stock falls 50% in a bad year for the bank, what else is likely?

Accepted Answer

His bonus and the value of new grants can fall in the same year as the stock.

Question 13

Dina, a pilot at Harbor Air, holds Harbor Air stock as 65% of her net worth outside her home. Which recommendation fits?

Accepted Answer

Cap Harbor Air at a modest share and invest new savings in other holdings.

Question 14

Elliot is a store manager at BrightCart, and BrightCart stock is his only investment. BrightCart announces layoffs in his region. Why is the plan fragile?

Accepted Answer

A weak stretch can cut his job and the stock price at the same time.

Question 15

Farah's largest asset is stock from her employer, Lumen Devices, and Lumen is also her only paycheck. Which action makes the concentration worse?

Accepted Answer

Directing new savings into more Lumen stock.

Question 16

George works at Keystone Mining, and Keystone stock is 75% of his portfolio. A strike shuts the mine. Which outcome matches that concentration?

Accepted Answer

He can lose wages and a large part of the portfolio in the same episode.

Question 17

Hana is a product lead at Orbit Media. Orbit stock, Orbit options, and her salary are almost her whole financial life. Which statement is right?

Accepted Answer

Her work and her portfolio are bets on one firm, so she needs assets that do not rise and fall with Orbit.

Question 18

Ivan, 52, plans to leave Cedar Health in eight years. Cedar stock is 60% of his retirement account, and Cedar pays his wages. Which recommendation fits?

Accepted Answer

Cut Cedar toward a small share on a schedule and fill the rest with a diversified mix.

Question 19

Jade owns two funds that have risen and fallen together in recent markets. What does that pattern mean for risk?

Accepted Answer

The pair does less to reduce risk than two funds that do not move together.

Question 20

Ken's second fund has a correlation of about 0.95 with his first fund. Leah's two funds have a correlation near 0.20. Who gets more diversification, all else equal?

Accepted Answer

Leah, because holdings that do not move together reduce risk more.

Question 21

Mateo adds a gold fund that often rises when his stock fund falls. Nina adds a fund that tracks the same stocks she already owns. Whose addition lowers portfolio swings more?

Accepted Answer

Mateo, because a holding that does not move with the stocks offsets more stock risk.

Question 22

Omar's two bond funds both drop when interest rates jump. What is the diversification lesson?

Accepted Answer

Holdings that fall together do less to reduce risk than holdings that do not.

Question 23

Paula holds a stock fund and a short-term Treasury fund that have often moved in different directions. Which description is accurate?

Accepted Answer

The weak tendency to move together can reduce the combined portfolio's ups and downs.

Question 24

Quinn owns four sector funds that all plunged in the last recession. What limited the diversification?

Accepted Answer

They moved together, so they did less to reduce risk than funds that do not share the same drops.

Question 25

Renee can add Fund P, correlation 0.85 with her portfolio, or Fund Q, correlation 0.15, with similar volatility. Which addition diversifies more?

Accepted Answer

Fund Q, because the lower correlation reduces risk more.

Question 26

Sergio pairs an international stock fund with his domestic stock fund. In recent years the two fell in the same months. What should he conclude?

Accepted Answer

The international fund reduced risk less than an asset that does not fall with domestic stocks.

Question 27

Thea owns a utility stock and a Treasury bond. In a panic the stock fell and the bond rose. How did that pair behave?

Accepted Answer

The bond offset part of the stock loss because the two did not move together.

Question 28

Using required return = risk-free rate + beta x market excess return, Uma's stock has a beta of 1.2. The risk-free rate is 3% and the market excess return is 5%. What is the required return?

Accepted Answer

9%, from 3% + 1.2 x 5%.

Question 29

The required return equals the risk-free rate plus beta times the market excess return. Vance uses a 2% risk-free rate, a 6% market excess return, and a beta of 0.5. What is the required return?

Accepted Answer

5%, from 2% + 0.5 x 6%.

Question 30

Sharpe ratio = excess return / standard deviation. Wendy's fund returned 11%, the risk-free rate is 3%, and the standard deviation is 16%. What is the Sharpe ratio?

Accepted Answer

0.50, from (11 - 3) / 16.

Question 31

Sharpe ratio = excess return / standard deviation. Xavier's portfolio returned 9%, the risk-free rate is 4%, and the standard deviation is 10%. What is the Sharpe ratio?

Accepted Answer

0.50, from (9 - 4) / 10.

Question 32

Required return = risk-free rate + beta x market excess return. Yolanda's beta is 1.5, the risk-free rate is 4%, and the market excess return is 6%. What is the required return?

Accepted Answer

13%, from 4% + 1.5 x 6%.

Question 33

Required return = risk-free rate + beta x market excess return. Zane's beta is 0.8, the risk-free rate is 3%, and the market excess return is 7%. What is the required return?

Accepted Answer

8.6%, from 3% + 0.8 x 7%.

Question 34

Sharpe ratio = excess return / standard deviation. Ada's fund returned 14%, the risk-free rate is 2%, and the standard deviation is 20%. What is the Sharpe ratio?

Accepted Answer

0.60, from (14 - 2) / 20.

Question 35

Blake's fund returned 10% with a standard deviation of 16%. Cara's returned 10% with a standard deviation of 20%. The risk-free rate is 2%. Sharpe ratio = excess return / standard deviation. Which statement is right?

Accepted Answer

Blake's Sharpe ratio is 0.50 and is higher than Cara's 0.40.

Question 36

Required return = risk-free rate + beta x market excess return. Dana's beta is 2, the risk-free rate is 3%, and the market excess return is 5%. A forecast of 15% is how far from the required return?

Accepted Answer

Two points above a required return of 13%.

Question 37

Elena's written plan is 60% stocks and 40% bonds for the long run. She moves 5% from bonds to stocks for one quarter because she expects a brief rally, then plans to return to 60/40. What is the 5% move?

Accepted Answer

A short-term tactical shift around the strategic mix.

Question 38

Felix's target is 50% stocks and 50% bonds. A rally leaves him at 58% stocks and 42% bonds. He sells stocks and buys bonds until he is back at 50/50. What did he do?

Accepted Answer

Rebalancing back to the strategic targets.

Question 39

Greta's strategic mix is 70% stocks and 30% bonds for a 15-year goal. Her adviser suggests 75% stocks for six months, then a return to 70%. How should she label the six-month idea?

Accepted Answer

A tactical shift that is meant to be temporary.

Question 40

Hugo's policy target is 40% U.S. stocks, 20% international stocks, and 40% bonds. After a bond rally he is at 36%, 18%, and 46%. Which trade is rebalancing?

Accepted Answer

Sell bonds and buy both stock sleeves until 40/20/40 is restored.

Question 41

Iris keeps a strategic stock weight of 80%. She cuts stocks to 70% for three months because she fears a near-term drop, and she plans to restore 80% afterward. Which description fits?

Accepted Answer

The cut is a tactical shift, and the later purchase restores the strategic weight.

Question 42

Jamal's targets are 55% stocks and 45% bonds. Stocks fall and he is at 48% stocks. He buys stocks with bond proceeds until he is back at 55%. Why is that rebalancing?

Accepted Answer

He is restoring the weights his long-run policy already set.

Question 43

Keisha's strategic policy is 65% stocks. A tactical note allows up to 70% for a single quarter. She is at 70% and the quarter has ended. What does the policy call for?

Accepted Answer

Rebalance back toward the 65% strategic target.

Question 44

Leo's long-run mix is 30% stocks and 70% bonds. He does not change that mix when headlines change. This month he only sells the sleeve that drifted above its target. Which statement is right?

Accepted Answer

The 30/70 mix is strategic, and the sale is rebalancing back to it.

Question 45

Mina's target weight in a real-estate fund is 25%. The fund has grown to 33% of the account. She wants the long-run weight to stay 25%. What should she do?

Accepted Answer

Rebalance by selling the real-estate fund down toward 25%.

Question 46

Noah invests $300 each month. The prices are $10, $15, and $6, so he buys 30, 20, and 50 shares. What is his average cost per share?

Accepted Answer

$9, because $900 divided by 100 shares equals $9.

Question 47

Olivia invests $200 a month. At $20 she buys 10 shares, at $10 she buys 20, and at $25 she buys 8. How many shares does she hold?

Accepted Answer

38 shares.

Question 48

Paul invests $100 four times, at $25, $20, $10, and $20. He buys 4, 5, 10, and 5 shares. What is his average cost per share?

Accepted Answer

$16.67, because $400 divided by 24 shares is $16.67.

Question 49

Reed invests $120 at $12 and buys 10 shares, then $120 at $8 and buys 15 shares. Investing the whole $240 at the $10 average of those two prices would have bought 24 shares. What is true of his actual shares?

Accepted Answer

He holds 25 shares, one more than the 24 shares a $10 purchase would have bought.

Question 50

Rita invests $400 at $40, $400 at $20, and $400 at $16. Those purchases buy 10, 20, and 25 shares. What are her total dollars and total shares?

Accepted Answer

$1,200 and 55 shares.

Question 51

Sam invests $90 at $9 and buys 10 shares, then $90 at $6 and buys 15 shares. What is the average cost per share?

Accepted Answer

$7.20, because $180 divided by 25 shares is $7.20.

Question 52

Tara invests $250 at $50 and buys 5 shares, $250 at $25 and buys 10, and $250 at $12.50 and buys 20. How many more shares did the cheapest purchase buy than the dearest?

Accepted Answer

15 more shares.

Question 53

Uri invests $90 at $18 and buys 5 shares, $90 at $9 and buys 10, and $90 at $10 and buys 9. What is the average cost per share?

Accepted Answer

$11.25, because $270 divided by 24 shares is $11.25.

Question 54

Vera invests $500 at $25 and buys 20 shares, then $500 at $20 and buys 25 shares. Investing the whole $1,000 at $25 would have bought 40 shares. How many extra shares does she hold versus that result?

Accepted Answer

5 extra shares, because 45 minus 40 equals 5.

Question 55

The rule here disallows a loss if Wes buys the same stock within 30 days after the sale. He sells Maple at a $2,000 loss on March 10 and buys Maple again on March 20. What happens to the loss?

Accepted Answer

The $2,000 loss is disallowed because the repurchase is inside the 30-day window.

Question 56

The rule here disallows a loss if the same security is bought within 30 days after the sale. Ximena sells Brook Fund at a loss on June 1 and buys it again on July 15, which is 44 days later. What is the result?

Accepted Answer

The loss is allowed because the repurchase is outside the 30-day window.

Question 57

The rule here also disallows a loss if the same stock is bought within 30 days before the sale. Yasmin buys Cobalt on May 1 and sells an older Cobalt lot at a $1,500 loss on May 18. What is the result?

Accepted Answer

The loss is disallowed because May 1 is inside the 30 days before the sale.

Question 58

Zoe's federal rate on corporate bond interest in a taxable account is 32%, and municipal bond interest is free of that tax. A municipal bond yields 3% and a corporate bond yields 4%. Which has the higher after-tax yield?

Accepted Answer

The municipal bond, at 3%, versus 2.72% after tax on the corporate bond.

Question 59

The rule here disallows a loss if the same stock is bought within 30 days after the sale. Faith sells Rowan at a $2,400 loss on January 5 and buys Rowan again on February 6, which is 32 days later. What is the result?

Accepted Answer

The $2,400 loss is allowed because the repurchase is outside the 30-day window.

Question 60

The rule here disallows a loss only if the same stock is bought within 30 days before or after the sale. Beth sells Oak at a $3,000 loss and buys a broad stock index fund the next day. She does not buy Oak. What is the result?

Accepted Answer

The loss is allowed because she did not buy Oak inside the 30-day window.

Question 61

Carl's federal rate on corporate bond interest in a taxable account is 22%, and municipal interest is free of that tax. A municipal bond yields 2.5% and a corporate bond yields 4%. Which has the higher after-tax yield?

Accepted Answer

The corporate bond, because 3.12% after tax beats the municipal 2.5%.

Question 62

The rule here disallows a loss if the same fund is repurchased on any day from 1 through 30 after the sale. Daphne sells Pine Fund at a $1,200 loss and buys it again on day 30. What happens?

Accepted Answer

The $1,200 loss is disallowed because day 30 is inside the stated window.

Question 63

Esther's federal rate on Treasury interest in a taxable account is 24%, and municipal interest is free of that tax. A municipal bond yields 3.2% and a Treasury yields 4%. She also has an IRA. Where does the municipal bond fit?

Accepted Answer

In the taxable account, because 3.2% beats the Treasury's 3.04% after tax.

Question 64

Gabe's marginal rate today is 32%, and he expects 22% in retirement. A traditional contribution is deducted at today's rate, and withdrawals are taxed at the retirement rate. A Roth contribution is taxed now, and qualified withdrawals are not taxed later. Which fits the rate gap?

Accepted Answer

Traditional, because the deduction saves 32% now and withdrawals are taxed at 22% later.