SIE Exam Question 540: Answer and Explanation

Question: 540

Which of the following is the correct reason to purchase a particular investment for a client's portfolio?

• A. Growth stocks because they pay high dividends.
• B. FNMA securities because they are backed by the full faith and credit of the U.S. government.
• C. Global fund because it provides only international exposure.
• D. Blue chip common stocks because they provide a hedge against inflation.

Correct Answer: D

Explanation:

Blue chip common stocks provide a hedge against inflation. Growth stocks typically reinvest their earnings back into the company rather than pay dividends to shareholders. GNMA securities, not FNMA, are backed by the U.S. government. Global funds invest in both U.S. and international companies.