Professional Knowledge Flashcards

A client nearing retirement wants to reduce portfolio risk. Which strategy is most appropriate?

Answer: Gradually shift toward more fixed-income assets

Reducing equity exposure in favor of bonds lowers volatility as the client approaches retirement.

What is the primary purpose of Know Your Client (KYC) procedures?

Answer: Understand the client's needs, risk tolerance, and prevent illicit activity

KYC gathers client information to give suitable advice and guard against money laundering and fraud.

Which of the following is an example of a systematic risk?

Answer: A recession affecting the entire economy

Systematic risk affects the whole market and cannot be diversified away, like an economic recession.

In behavioral finance, 'loss aversion' describes the tendency to do what?

Answer: Feel losses more strongly than equivalent gains

Loss aversion means the pain of a loss is felt more intensely than the pleasure of an equal gain.

What does the term 'net present value (NPV)' indicate when it is positive?

Answer: The investment is expected to add value

A positive NPV means projected discounted cash flows exceed the initial cost, adding value.

Which type of life insurance provides coverage for a specified period with no cash value component?

Answer: Term life insurance

Term life offers pure death benefit protection for a set term without accumulating cash value.

When constructing a client portfolio, 'asset allocation' primarily refers to what?

Answer: Dividing investments among asset classes like stocks, bonds, and cash

Asset allocation distributes a portfolio across asset classes to balance risk and return per client goals.