SIE section 2: Understanding Products and Their Risks

1. Owning a company's stock gives the stockholder:

1. A guaranteed fixed interest rate
2. A share of ownership in the company
3. A loan claim repaid at maturity
4. A government-insured deposit balance

2. Which right is generally associated with common stock but not with preferred stock?

1. A stated dividend rate
2. Priority over common in liquidation
3. Voting at shareholder meetings
4. Priority for dividend payments

3. A company declares dividends on both its preferred and common stock. Who is paid first?

1. Preferred stockholders
2. Whichever class has more shares
3. Common stockholders
4. Both are paid pro rata together

4. A corporation goes bankrupt and its assets are liquidated. Among stockholders, who has the higher claim?

1. The holders with the oldest shares
2. Common stockholders
3. Preferred stockholders
4. Common and preferred share equally

5. A dividend is best described as:

1. A distribution of company earnings to stockholders
2. The gain an investor makes from selling stock above its cost
3. A fee charged by the transfer agent
4. Interest a company pays to bondholders

6. An investor buys a stock at $40 and it rises to $52. The $12 increase is called:

1. A dividend
2. Capital appreciation
3. Accrued interest
4. A sales charge on the purchase

7. If a company fails and is liquidated, why might common stockholders receive nothing?

1. Their shares convert into bonds
2. Their shares are insured by SIPC only up to $250,000
3. The SEC cancels common stock first
4. They are paid last, after creditors and preferred holders

8. Under the Exchange Act definition of equity security, which of these is included?

1. A fixed annuity contract
2. A bank certificate of deposit issued by an insured bank
3. A Treasury bill
4. A warrant to purchase the company's stock

9. A bond that can be exchanged for the issuer's stock is treated under Exchange Act section 3(a)(11) as:

1. A government security
2. An equity security
3. An exempted money market instrument
4. A municipal security

10. Rights to subscribe to a company's new shares are classified under the Exchange Act as:

1. Equity securities
2. Insurance products
3. Exempt securities
4. Debt securities

11. An American depositary receipt (ADR) represents:

1. Shares of a non-U.S. company
2. A U.S. Treasury note
3. A U.S. company's bonds sold abroad
4. A deposit at a U.S. bank

12. In what currency do ADRs trade in the United States?

1. U.S. dollars
2. Euros only
3. Special drawing rights
4. The issuer's home currency

13. Who issues ADRs to U.S. investors?

1. The SEC
2. The Options Clearing Corporation, as issuer and guarantor
3. The foreign government
4. A depositary bank holding the foreign shares

14. An ADR program is set up without the cooperation of the non-U.S. company. It is:

1. A direct listing
2. Unsponsored
3. Level 3
4. Sponsored

15. A foreign company wants to use an ADR program to raise capital in the U.S. Which level allows that?

1. An unsponsored program
2. Level 2
3. Level 3
4. Level 1

16. Why do some ADRs represent a fraction or multiple of one foreign share?

1. To make the ADR exempt from SEC registration and reporting rules
2. To guarantee a fixed dividend
3. To avoid all depositary fees
4. To price the ADR in a range typical of U.S. stocks

17. How are depositary bank custody fees on ADRs often collected?

1. Paid in full only by the foreign government, never by holders
2. Deducted from dividends before they reach holders
3. Billed by the SEC each year
4. Added to the ADR's par value

18. A bond is best described as:

1. An ownership share in a company
2. A debt security, like an IOU
3. A contract to buy stock later
4. An insured bank deposit

19. The amount a bond issuer repays at maturity is called the bond's:

1. Market price
2. Current yield
3. Coupon payment
4. Face value or par value

20. Under the SEC's corporate bond bulletin, a bond maturing in seven years is considered:

1. Perpetual
2. Short term
3. Long term
4. Medium term

21. Interest payments on a corporate bond are called coupon payments. The interest rate is the:

1. Coupon rate
2. Yield to call
3. Discount rate
4. Federal funds rate

22. How does a fixed coupon rate respond when market interest rates change?

1. It rises when rates fall
2. It resets to the new market rate
3. It stays the same
4. It is suspended until rates settle

23. A bond whose interest payments reset periodically, such as every six months, to follow market rates is a:

1. Fixed-rate debenture
2. Floating-rate bond
3. Zero-coupon bond
4. Convertible bond

24. A bond makes no interest payments and pays one amount at maturity that is higher than its purchase price. It is a:

1. Zero-coupon bond
2. Convertible bond
3. Floating-rate note
4. Callable debenture

25. How is a zero-coupon bondholder generally taxed before maturity?

1. Only on the final payment's principal amount, at maturity
2. Only if the bond is sold early
3. Not at all until the bond matures
4. On prorated interest each year, though no cash is paid

26. Which measure is the annual return on a bond if held to maturity, reflecting the price paid?

1. Current yield
2. Coupon rate
3. Yield to maturity
4. Par value

27. A bond has a 5 percent coupon and $1,000 par value. It trades at $800. What is its current yield?

1. 4.00 percent
2. 6.25 percent
3. 5.00 percent
4. 8.00 percent

28. As a bond's market price goes up, what happens to its yield?

1. The yield is unchanged
2. The yield goes down
3. The coupon rate rises
4. The yield goes up

29. Market interest rates rise after an investor buys a fixed-rate bond. What generally happens to the bond's price?

1. It falls
2. It stays at par
3. It doubles in value
4. It rises

30. Two bonds are identical except for maturity. Which is generally more exposed to interest rate risk?

1. The longer-maturity bond
2. Both equally, by definition
3. Neither, if both are rated
4. The shorter-maturity bond

31. A bond's coupon rate is higher than current market interest rates. The bond will likely trade:

1. At a discount
2. Only on a stock exchange
3. Exactly at par
4. At a premium

32. An investor buys a bond at a premium. Compared with the coupon rate, the yield to maturity will be:

1. Lower
2. Zero
3. Higher
4. The same

33. A bond's yield to maturity is 5.1 percent and its yield to call is 4.6 percent. What is its yield to worst?

1. 4.85 percent
2. 4.6 percent
3. 9.7 percent
4. 5.1 percent

34. Yield to call is calculated like yield to maturity, but using:

1. A call date and the bond's call price
2. The issuer's stock price
3. Today's federal funds target rate set by the FOMC
4. The original issue date

35. A callable bond gives the right to redeem the bond before maturity to:

1. The trustee
2. The bondholder
3. The rating agency
4. The issuer

36. Issuers are most likely to call bonds when interest rates:

1. Match the coupon rate exactly
2. Stay unchanged for years
3. Decline
4. Rise sharply

37. What is the main risk to an investor whose bond is called?

1. Being forced to buy more bonds
2. Reinvesting the money at a lower rate
3. Losing all principal
4. Owing extra income taxes on the bond's par value

38. A corporate debt security that can be converted into equity at specific times is a:

1. Convertible bond
2. Callable bond
3. Debenture
4. Zero-coupon bond

39. A corporate bond with no collateral pledged to it may be called a:

1. Equipment trust certificate
2. Mortgage bond
3. Collateral trust bond
4. Debenture

40. If an issuer of secured bonds defaults, bondholders have a legal right to:

1. Receive SIPC protection
2. Vote the issuer's common stock at the next meeting
3. Convert into preferred stock
4. Foreclose on the pledged collateral

41. In a corporate bankruptcy, how do bondholders rank against shareholders?

1. Shareholders are paid first
2. Shareholders rank first if they hold voting stock
3. Bondholders have priority over shareholders
4. They rank equally

42. A company has both senior and junior debentures outstanding. Which has the higher priority claim?

1. They always rank equally
2. Whichever was issued later
3. Junior debentures
4. Senior debentures

43. The contract governing a corporate bond, which often contains covenants, is called the:

1. Prospectus summary
2. Indenture
3. Official statement
4. Deposit agreement

44. Who acts on behalf of bondholders and pursues remedies if bond covenants are violated?

1. The transfer agent
2. The trustee
3. The lead underwriter
4. The issuer's auditor

45. Credit rating agencies assign bond ratings mainly to reflect:

1. The bond's tax treatment
2. The size of the underwriting fee
3. The risk that the issuer may default
4. The bond's expected market price

46. Under FINRA's bond data glossary, an investment-grade bond is rated in:

1. Any category above default
2. One of the four highest generic rating categories
3. The top two rating categories only, AAA and AA
4. The highest single category only

47. Non-investment-grade corporate bonds are also called:

1. Agency or sovereign government bonds
2. Prerefunded bonds
3. Senior secured bonds
4. High-yield or speculative bonds

48. Why do high-yield corporate bonds pay a higher rate of interest?

1. To compensate for a higher risk of default
2. Because they are insured by the FDIC
3. Because they always mature sooner than investment-grade bonds
4. Because their interest is tax-exempt

49. The risk that an investor who wants to sell a bond may not receive a price reflecting its true value is:

1. Reinvestment risk
2. Inflation risk
3. Call risk
4. Liquidity risk

50. An investor holds a bond paying a fixed 3 percent while prices rise 4 percent a year. Which risk does this show?

1. Call risk
2. Credit risk
3. Inflation risk
4. Liquidity risk

51. The risk that an issuer fails to make timely interest or principal payments is called:

1. Currency risk
2. Default risk
3. Market timing risk
4. Prepayment risk

52. Compared with high-yield bonds, investment-grade corporate bonds generally have:

1. No credit risk at all
2. Higher yields than junk bonds for the same maturity
3. Lower ratings and more credit risk
4. Higher credit ratings and less credit risk

53. Where can investors get free price and trade histories for particular corporate bonds?

1. The Federal Reserve discount window
2. FINRA's Market Data Center
3. The issuer's transfer agent only
4. The SIPC website

54. What is the least amount an investor can put into a single marketable Treasury security?

1. $5,000
2. $10,000
3. $1,000
4. $100

55. How does an investor earn interest on a Treasury bill?

1. Through monthly payments indexed to CPI
2. By buying below face value and receiving face value at maturity
3. Through dividends declared each quarter by the Treasury Department
4. Through fixed coupon payments paid every six months

56. Which Treasury security has terms of 2, 3, 5, 7 or 10 years and pays fixed interest twice a year?

1. Treasury bonds
2. Savings bonds
3. Treasury notes
4. Treasury bills

57. A Texas resident earns interest on a Treasury note. How is that interest taxed?

1. Taxed only by the state of issue
2. Subject to federal tax but exempt from state and local income tax
3. Exempt from federal tax but subject to Texas state and local tax
4. Exempt from all income taxes

58. Why are Treasury securities considered among the safest investments?

1. They are backed by the full faith and credit of the U.S. government
2. They are insured by SIPC up to $500,000
3. They are secured by gold reserves
4. They are insured by the FDIC up to $250,000 per depositor per bank

59. Which agency security is backed by the full faith and credit of the U.S. government?

1. Ginnie Mae
2. A Federal Home Loan Bank
3. Freddie Mac
4. Fannie Mae

60. Fannie Mae and Freddie Mac are best described as:

1. Federal agencies whose debt carries full faith and credit
2. Divisions of the Treasury Department
3. Self-regulatory organizations
4. Government-sponsored enterprises, not government agencies

61. According to SEC staff guidance, debt issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks is:

1. Guaranteed by the U.S. Treasury
2. Neither guaranteed nor insured by the U.S. government
3. Insured by the FDIC
4. Funded by annual Congressional appropriations and guarantees

62. Municipal bonds are debt securities issued by:

1. States, cities, counties and other governmental entities
2. Federal agencies only
3. Foreign central banks
4. Corporations doing business mainly in a single state

63. A general obligation (GO) municipal bond is backed by:

1. A private hospital's patient revenues and donations
2. Lease fees from a single project
3. The full faith and credit and taxing power of the issuer
4. Tolls from one specific highway

64. A bond repaid only from tolls collected on a new bridge is a:

1. Revenue bond
2. Debenture
3. General obligation bond
4. Treasury note

65. A revenue bond described as non-recourse means that if the revenue stream dries up:

1. The state must pay bondholders from its general fund
2. The FDIC pays the bondholders
3. The issuer is not required to pay bondholders from other funds
4. The bonds convert to GO bonds

66. A municipal issuer sells bonds on behalf of a private non-profit hospital. These are:

1. General obligation bonds
2. Agency pass-throughs
3. Conduit revenue bonds
4. Treasury STRIPS

67. How is interest on most municipal bonds treated for federal income tax?

1. Taxed only when the bond matures
2. Taxed at half the normal rate
3. Generally exempt
4. Fully taxable

68. An Ohio resident buys a bond issued by the State of Ohio. The interest may also be exempt from:

1. Federal estate tax
2. Social Security tax
3. Ohio state and local income tax
4. Capital gains tax on a later sale

69. A municipal bond investor should ask a tax professional whether the bond's interest may be subject to:

1. The SIPC assessment
2. The federal alternative minimum tax
3. The federal estate tax only, at the investor's death
4. FICA payroll tax

70. The disclosure document for a new municipal bond offering, similar to a prospectus, is the:

1. Official statement
2. Program disclosure statement
3. Indenture of trust only
4. Form 10-K

71. Where can investors get free official statements and trade prices for municipal bonds?

1. The MSRB's EMMA website
2. The SEC's EDGAR only
3. The Federal Reserve's H.15 release
4. The FDIC's BankFind

72. An issuer repays a municipal bond before maturity after rates fall. This illustrates:

1. Liquidity risk
2. Currency risk
3. Inflation risk
4. Call risk

73. Does a high credit rating guarantee a municipal bond will not default?

1. Yes, if the bond is a GO bond
2. Yes, because the MSRB insures rated municipal bonds
3. Yes, AAA bonds are guaranteed
4. No, highly rated bonds can still default

74. An investor has trouble finding an active market to sell a small municipal position at a fair price. This is:

1. Call risk
2. Liquidity risk
3. Currency risk
4. Reinvestment risk

75. Commercial paper consists of:

1. Federal agency mortgage pools
2. Short-term promissory notes issued mainly by corporations
3. Bank deposits insured by the FDIC
4. Long-term bonds secured by commercial real estate

76. What is the longest maturity commercial paper can have and still be exempt from SEC registration?

1. 270 days
2. 1 year
3. 90 days
4. 397 days

77. About how long does commercial paper typically run, on average?

1. About 30 days
2. About 2 years
3. About 10 years
4. About 270 days

78. A customer holds a bank certificate of deposit. What protection applies if the bank fails?

1. SIPC protection up to $500,000
2. FDIC insurance up to the coverage limits
3. No protection of any kind
4. A full Treasury guarantee of any amount on deposit

79. An options contract gives its owner:

1. Ownership of 100 shares of stock
2. An obligation to buy the asset at market
3. The right to buy or sell an asset at a fixed price by a set date
4. A guaranteed return of the premium if the stock falls

80. A call option gives the buyer the right to:

1. Vote the underlying shares
2. Buy the underlying stock at the strike price
3. Sell the underlying stock at the strike price
4. Receive the stock's dividends

81. An investor expects a stock to fall and buys a put. What right does the put give the investor?

1. Buy the underlying stock at the strike price
2. Sell the underlying stock at the strike price
3. Extend the expiration date
4. Receive interest from the writer

82. The seller of an options contract is also called the:

1. Clearing member
2. Holder
3. Guarantor
4. Writer

83. When a call option holder exercises, what must the call writer do?

1. Nothing until the option's expiration date
2. Return the premium
3. Sell the shares at the strike price
4. Buy the shares at the strike price

84. When a put option holder exercises, what must the put writer do?

1. Deliver a new option contract
2. Buy the shares at the strike price
3. Sell the shares at the strike price
4. Pay the holder a dividend

85. The notice an option seller receives telling it to fulfill its obligation is called:

1. An exercise
2. A confirmation
3. A margin call
4. An assignment

86. An option contract generally represents how many shares of the underlying stock?

1. 1,000
2. 50
3. 10
4. 100

87. An investor buys one call at a premium of $2.20. What is the total cost of the contract?

1. $220
2. $2,200
3. $22
4. $2.20

88. XYZ stock trades at $55. Which call option is in the money?

1. A call with a $55 strike
2. A call with a $60 strike
3. A call with a $65 strike
4. A call with a $50 strike

89. ABC shares are priced at $55. For a put holder, which strike price would put the option in the money?

1. $60
2. $55
3. $45
4. $50

90. XYZ stock trades at $40. A call with a $40 strike is:

1. At the money
2. Expired
3. In the money
4. Out of the money

91. An investor buys a call for a $3 premium. At expiration the stock is below the strike price. What is the investor's result?

1. The option expires worthless and the $300 premium is lost
2. The premium is refunded by the writer at expiration
3. The loss is unlimited
4. The investor must buy the shares

92. What is the most an option buyer can lose?

1. An unlimited amount
2. The premium paid
3. Twice the premium
4. The strike price times 100

93. Which statement about option writers' risk is accurate?

1. Some written options can expose writers to unlimited losses
2. Writers face no risk at all because they collect the premium
3. Writers' losses are capped at the strike price
4. Writers can lose only the premium received

94. When is the option premium paid, and is it refundable?

1. Monthly, and it is partly refundable if unused
2. At expiration, and it is refundable
3. Up front to the seller, and it is non-refundable
4. Only if exercised, and it is refundable

95. Before approving an options account, a broker must give the customer which publication?

1. The Investor's Guide to SIPC Protection for Options
2. Characteristics and Risks of Standardized Options
3. The Official Statement
4. Form ADV Part 2A

96. Buying shares of a mutual fund gives the investor:

1. A loan to the fund's adviser
2. A guaranteed share of the fund's income
3. Ownership of the adviser's company
4. Part ownership of the fund's portfolio

97. Who manages a mutual fund's pooled portfolio?

1. The fund's transfer agent
2. The SEC's Division of Investment Management
3. A registered investment adviser
4. Each shareholder by vote

98. How does an investor generally sell open-end mutual fund shares?

1. By waiting for the fund to terminate
2. By transferring them privately to another investor only
3. By redeeming them through the fund or an intermediary
4. By selling them on a stock exchange

99. A fund reports a NAV of $12 per share on 5 million shares and has $3 million of liabilities. What are its total assets?

1. $57 million
2. $15 million
3. $60 million
4. $63 million

100. An investor places a mutual fund purchase order at 2 p.m. At what price is it filled?

1. The market price at the exact moment the order was placed
2. The average NAV over the last week
3. The next NAV computed after receipt, plus any charges
4. The prior day's closing NAV

101. In a fund's prospectus fee table, which category includes sales loads charged on purchases?

1. Annual fund operating expenses
2. Acquired fund fees
3. Portfolio transaction costs only
4. Shareholder fees

102. Who ultimately bears a fund's management and other operating expenses?

1. The fund's shareholders, through fund assets
2. The SEC, out of registration fees
3. Only investors who redeem early
4. The adviser, out of its own advisory profits

103. What do 12b-1 distribution fees generally pay for?

1. The fund's audit and legal costs only
2. Interest on the fund's borrowings
3. Extra dividends paid to long-term shareholders
4. Marketing, selling compensation and sales materials

104. Two share classes of the same mutual fund differ mainly in:

1. Their fees and charges
2. The securities each class owns
3. Their investment objective
4. Their investment adviser

105. Which share class typically charges a front-end sales load, often with breakpoint discounts?

1. Class A
2. Class C
3. Institutional class
4. No-load class

106. Compared with some other load classes, Class C shares generally have:

1. The largest front-end load
2. Guaranteed lower total costs
3. Higher ongoing 12b-1 fees
4. No ongoing fees

107. Under FINRA's breakpoint disclosure, which feature lets an investor count existing holdings toward a breakpoint on a new purchase?

1. Rights of accumulation
2. A contingent deferred sales charge
3. A letter of intent
4. A redemption fee

108. An investor plans to invest a set total over a stated period and wants the lower load now. Which feature fits?

1. A letter of intent
2. A 12b-1 waiver
3. Rights of accumulation
4. Dollar-cost averaging

109. Under FINRA Rule 2341, a fund may not be called no-load if its asset-based sales charges and service fees exceed what annual rate?

1. 1.00 percent of average net assets
2. 0.50 percent of average net assets
3. 0.25 percent of average net assets
4. 8.50 percent of the offering price

110. A traditional unit investment trust generally:

1. Holds a fixed portfolio with little or no trading
2. Cannot be redeemed by unit holders
3. Trades its holdings actively every day to beat an index
4. Has no termination date

111. What happens when a unit investment trust reaches its termination date?

1. It converts into an open-end fund
2. It dissolves and distributes proceeds to unit holders
3. It automatically renews for another ten-year term
4. Its units become worthless

112. How do retail investors usually buy and sell ETF shares?

1. Only through the fund's sponsor
2. On an exchange at market prices during the day
3. Directly from the fund at the end-of-day NAV only
4. Only at the fund's quarterly redemption

113. An ETF's market price is above its per-share NAV. The ETF is trading at a:

1. Premium
2. Breakpoint
3. Load
4. Discount

114. Unlike open-end funds, publicly traded closed-end funds generally:

1. Are exempt from SEC registration
2. Redeem shares daily at NAV
3. Never use leverage
4. Do not buy back shares on demand

115. What is the effect of leverage in a closed-end fund?

1. It can magnify both gains and losses
2. It locks the price at NAV
3. It eliminates market risk on the fund's holdings
4. It guarantees higher income

116. An index fund's returns differ somewhat from the index it follows. This difference is called:

1. Market timing
2. Breakpoint risk
3. Call risk
4. Tracking error

117. Money market funds generally invest in:

1. Liquid, short-term instruments
2. Long-term growth stocks
3. Real estate and partnerships
4. Commodity futures and options contracts

118. Is an investment in a money market fund insured by the FDIC?

1. Yes, for government money market funds only
2. Yes, up to $250,000
3. Yes, if bought at a bank
4. No, and investors can lose money

119. During the accumulation phase of a variable annuity, premiums are:

1. Paid out as monthly income
2. Held in cash at a fixed rate
3. Guaranteed by the insurer against all market losses
4. Invested in chosen options and can rise or fall

120. Converting an annuity's accumulated value into a stream of payments is called:

1. Accumulation
2. Annuitization
3. Rebalancing
4. Surrender

121. A variable annuity's mortality and expense risk charge is typically:

1. A fee paid by the underlying funds to the insurer
2. A charge only at death
3. A percentage of contract value charged each year
4. A one-time fee at purchase

122. An owner withdraws $20,000 from a variable annuity in a year with a 5 percent surrender charge. Assuming no free-withdrawal amount, what is the charge?

1. $2,000
2. $100
3. $1,000
4. $500

123. Besides insurance company charges, what other expenses does a variable annuity owner pay?

1. The underlying funds' fees, paid indirectly
2. None; all costs are combined in one contract fee
3. Only state premium tax
4. Only FDIC premiums

124. How are earnings withdrawn from a non-qualified variable annuity generally taxed?

1. At long-term capital gains rates
2. Tax free after ten years
3. Only by the state
4. As ordinary income

125. Absent an exception, taxable variable annuity withdrawals face a 10 percent additional federal tax if taken before what age?

1. 55
2. 62
3. 59 1/2
4. 70 1/2

126. Which type of 529 plan lets savers buy tuition credits or units at current prices?

1. An education savings plan
2. A prepaid tuition plan
3. A Coverdell account
4. An ABLE account

127. Are 529 plan contributions deductible on the federal income tax return?

1. Only for prepaid plans
2. Yes, up to $10,000 a year per beneficiary
3. No, although some states offer incentives
4. Yes, without limit

128. When 529 plan distributions are used for qualified education expenses, the earnings are:

1. Taxed at capital gains rates
2. Taxed as ordinary income
3. Subject to a 10 percent penalty
4. Free of federal income tax

129. Which change of 529 plan beneficiary can be made without federal income tax consequences?

1. To the owner's business as a training fund
2. To a charity of the owner's choice
3. To any unrelated friend of the owner
4. To a member of the current beneficiary's family

130. Does a state-sponsored education savings plan guarantee investment returns?

1. Yes, the state guarantees principal
2. Yes, the FDIC insures it
3. No, its investments carry market risk
4. Yes, if held to the child's age 18

131. A real estate investment trust (REIT) is a company that:

1. Lends money only to homeowners
2. Owns and typically operates income-producing real estate
3. Insures mortgages for the government
4. Builds and sells new homes to the general public

132. What is the main liquidity concern with a non-traded REIT?

1. It must be sold within one year
2. It generally cannot be sold readily on the open market
3. It can be redeemed only at a premium to its offering price
4. It trades only on foreign exchanges

133. How are dividends paid by REITs generally taxed?

1. As tax-exempt income
2. As ordinary income, not at reduced dividend rates
3. Only when shares are sold
4. As long-term capital gains in all cases

134. According to Investor.gov, sales commissions and upfront offering fees on non-traded REITs usually total about:

1. 4 to 5 percent of the investment
2. 15 to 20 percent of the investment
3. 1 to 2 percent of the investment
4. 9 to 10 percent of the investment

135. A hedge fund is best described as:

1. A bank deposit product
2. A private, unregistered investment fund
3. A registered open-end mutual fund
4. A government-sponsored pension plan for retirees

136. Who may generally invest in a hedge fund?

1. Only registered representatives and their families
2. Any retail investor
3. Only retirees over 65
4. Accredited investors or qualified purchasers

137. Hedge funds often charge which fees?

1. Only a front-end load
2. No fees at all, since they are private funds
3. A management fee plus a performance fee
4. Only a 12b-1 fee

138. Many hedge funds limit how soon new investors can redeem through a:

1. Lock-up period
2. Breakpoint
3. Grace period
4. Free-look period

139. Spreading money among different investments to reduce risk is called:

1. Hedging with options
2. Diversification
3. Leverage
4. Annuitization

140. Dividing a portfolio among stocks, bonds and cash is called:

1. Tax-loss harvesting
2. Asset allocation
3. Dollar-cost averaging
4. Rebalancing

141. Bringing a portfolio back to its original mix of asset categories is called:

1. Annuitizing
2. Rebalancing
3. Diversifying
4. Leveraging

142. What is the principal risk for an investor who holds mostly cash equivalents for many years?

1. Unlimited loss of principal
2. Inflation outpacing returns
3. Sudden call of the account
4. Default by the Treasury

143. Among stocks, bonds and cash, which has historically had the greatest risk and highest returns?

1. Stocks
2. Bonds
3. Cash
4. They are all the same