Question of the Week

Sam and Betty are a married couple with two children, ages 7 and 9.  Both Sam and Betty are full-time employed and their children are kept by a part-time housekeeper after school.  Sam is 37 and has a corporate pension plan provided by his employer.  Betty is 35 and participates in her firm’s 401(k) program.  The couple just bought a new home and sold the old one.  From the proceeds of the sale of the old home, they realized a profit of $32,000 which they plan to invest for their retirement.  They have stated their basic objectives as long-term growth, but are willing to accept market fluctuations. Which of the following types of mutual funds should their registered representative recommend?
   
A) 20% Government securities, 30% municipal bonds, 50% high-yield bonds.
B) 25% conservative growth, 75% aggressive growth.
C) 25% bond and preferred stock, 50% growth and income, 25% municipal bonds.
D) 50% bond and preferred stock, 50% Ginnie Mae.

Answer:

The correct answer is B)

Many questions of this nature are open to interpretation, but in this case, the couple appears to be financially able to take the risks they mentioned in their objectives. The major problem facing them is that of loss of purchasing power. No debt instrument will provide any kind of hedge against inflation. A conservative growth fund should provide stability and growth while an aggressive growth provides opportunity for accelerated returns.


Professionals FAQs
  1. Where can I look for a financial planner?

    References from trusted friends or family members can help you find a financial planner; however, keep in mind that your friends' financial situations and goals may differ from yours and, therefore, their planners won't necessarily be the best fit for you.The Certified Financial Planner (CFP) Board of Standards certifies financial planners and maintains an online list of certified financial planners on its CFP Board of Standards website.
  2. If I am looking to get an Investment Banking job. What education do employers prefer? MBA or CFA?

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA. The caveat here is that the MBA would most probably need to be from a Top-20 B-School.The Chartered Financial Analyst (CFA) is well worth considering if you (a) are aiming for an entry-level position in investment banking, and/or (b) cannot afford to shell out six figures for an MBA or have to settle for a lesser-known B-school.That's because in the investment banking field, most entry-level positions are at the analyst level.
  3. Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't count on it. The CFA Institute has long emphasized that ethics is a particular area of focus for it. The seriousness with which the CFA Institute views ethics is evident from the fact that for exam candidates with borderline total scores, performance on the ethics section can mean the difference between passing and failing the exam.
  4. Under the USA, registration as an IAR includes all of the following EXCEPT:

    Under the USA, registration as an IAR includes all of the following EXCEPT: A. Minimum net capitalB. Passing a qualification examC. Filing a consent to service of processD. Posting a surety bond The correct answer is "A", since only an IA would need to prove minimum net capital requirements.