AWMA Practice Exam I Exam Questions
Answered Correctly (Qs) 2026 update
Baby boomers and older Gen Xers, as compared to millennials and younger Gen Xers
A) have financial planning needs that have stayed relatively the same over many years.
B) have not experienced significant bear markets.
C) are generally seeking many more technological options in financial planning.
D) are likely to be advised by a millennial adviser. - CORRECT ANSWERS A)
Older wealthy investors (mostly baby boomers) have financial planning needs that have stayed relatively
the same over many years. Younger high net worth individuals are, generally, seeking fresh approaches
to financial planning, including more technological options.
Dan has bonds maturing in two weeks. Since he bought the bonds, interest rates have fallen. To which
one these risks are Dan's bonds most likely to be subject?
A) Interest rate risk
B) Default risk
C) Reinvestment rate risk
D) Financial risk - CORRECT ANSWERS C)
Reinvestment rate risk is the risk associated with reinvesting interest and/or principal payments when
interest rates have fallen.
The relationship between investment strategy and investment policy is one in which
A)
investment strategy is subservient to investment policy.
,B)
investment strategy dictates the asset categories to be incorporated into the investment policy.
C)
investment policy is established once the investment strategies to be used are agreed upon.
D)
investment policy is determined by investment strategy. - CORRECT ANSWERS A)
Investment policy provides the guidelines to be used in managing a portfolio, including investment
strategies that may be employed. In other words, investment strategies are subservient to investment
policies.
If ABC Corporation has net profits of $100,000 and distributes $50,000 as dividends, what is its taxable
income?
A) $0
B) $100,000
C) $50,000
D) $25,000 - CORRECT ANSWERS B)
The net profits of a corporation are subject to federal income taxation. This tax is levied on corporate
taxable income before payment of dividends to common and preferred shareholders. Thus, if ABC
Corporation has net profits of $100,000 and distributes $50,000 as dividends, its taxable income is still
$100,000. Distribution of profits as dividends does not reduce taxable income for a corporation.
Joseph, age 60, is a taxpayer who has a considerable amount of income that is not subject to
withholding. He has not made any estimated payments during the year. At a planning review session in
mid-December, his adviser informs him that he's approximately $25,000 underwithheld. What course of
action might Joseph follow to avoid an underpayment penalty?
A)Make an estimated tax payment before the end of the year. This will make up for any
underwithholding.
,B)Initiate a $25,000 distribution from his IRA account, and direct that 100% of the distribution be
withheld for federal income tax before year-end. This will make up for any underwithholding.
C)Make an estimated tax payment in December and another before the January 15 deadline for the
fourth quarter. This will make up for any underwithholding.
D)No exceptions to the underpayment penalty are available. - CORRECT ANSWERS B)
Withholding from IRAs, qualified plans, wages, and other income sources is treated as having been
made evenly throughout the year, even if the actual withholding is a lump sum at year-end. Thus, it is
possible for Joseph to "catch up" by having extra federal income tax withheld at the end of the year.
Which of these statements accurately describe characteristics of using life insurance for the informal
funding of a nonqualified deferred compensation plan?
It represents an asset that may be purchased to fund the employer's unsecured promise to pay deferred
amounts to the employee.
It offers the advantage of being able to fund a death benefit immediately.
It offers the advantage of various settlement options.
It offers the advantage of simplified administration since death proceeds are paid directly to an
employee's surviving spouse or other beneficiary.
A) II and IV
B) I and II
C) I and III
D) I, II, and III - CORRECT ANSWERS D)
Life insurance is used to informally fund a nonqualified deferred compensation plan because it can
immediately fund a death benefit and offers several settlement options. However, the proceeds from
the policy are paid to the employer.
Which statement best explains the unauthorized practice of law?
A) A non-attorney who advises a client of potential "red flags" in their estate plan
, B) A non-attorney who advises a client to have their estate plan updated
C) A non-attorney who advises a client to take actions that will affect their property or legal rights
D) A non-attorney who discusses with a licensed attorney whether provisions in their client's will are
necessary - CORRECT ANSWERS C)
There are two actions that constitute the unauthorized practice of law in every state: drafting
documents that will affect the property or legal rights of someone else, and advising another person to
take actions that will affect their property or legal rights. The other choices are authorized actions by a
non-attorney.
Changes that have occurred since investment firms changed from private partnerships to publicly traded
companies include all of these except
A) partners no longer share in both the profits and losses of the firm.
B) profits can be privatized (bonuses) and losses socialized (bailouts).
C)Nthere is greater individual accountability.
D) risk taking has increased. - CORRECT ANSWERS C)
The repeal of Glass-Steagall accelerated the conversion of investment firms that had been structured as
partnerships into publicly traded companies that took on more risk. This transferred much of the risk
and accountability from general partners to public shareholders.
The most important stated life goal of wealthy individuals is
A) protecting wealth.
B) assuring retirement lifestyle.
C) leaving an estate to heirs.
D) maintaining good health. - CORRECT ANSWERS D)
Answered Correctly (Qs) 2026 update
Baby boomers and older Gen Xers, as compared to millennials and younger Gen Xers
A) have financial planning needs that have stayed relatively the same over many years.
B) have not experienced significant bear markets.
C) are generally seeking many more technological options in financial planning.
D) are likely to be advised by a millennial adviser. - CORRECT ANSWERS A)
Older wealthy investors (mostly baby boomers) have financial planning needs that have stayed relatively
the same over many years. Younger high net worth individuals are, generally, seeking fresh approaches
to financial planning, including more technological options.
Dan has bonds maturing in two weeks. Since he bought the bonds, interest rates have fallen. To which
one these risks are Dan's bonds most likely to be subject?
A) Interest rate risk
B) Default risk
C) Reinvestment rate risk
D) Financial risk - CORRECT ANSWERS C)
Reinvestment rate risk is the risk associated with reinvesting interest and/or principal payments when
interest rates have fallen.
The relationship between investment strategy and investment policy is one in which
A)
investment strategy is subservient to investment policy.
,B)
investment strategy dictates the asset categories to be incorporated into the investment policy.
C)
investment policy is established once the investment strategies to be used are agreed upon.
D)
investment policy is determined by investment strategy. - CORRECT ANSWERS A)
Investment policy provides the guidelines to be used in managing a portfolio, including investment
strategies that may be employed. In other words, investment strategies are subservient to investment
policies.
If ABC Corporation has net profits of $100,000 and distributes $50,000 as dividends, what is its taxable
income?
A) $0
B) $100,000
C) $50,000
D) $25,000 - CORRECT ANSWERS B)
The net profits of a corporation are subject to federal income taxation. This tax is levied on corporate
taxable income before payment of dividends to common and preferred shareholders. Thus, if ABC
Corporation has net profits of $100,000 and distributes $50,000 as dividends, its taxable income is still
$100,000. Distribution of profits as dividends does not reduce taxable income for a corporation.
Joseph, age 60, is a taxpayer who has a considerable amount of income that is not subject to
withholding. He has not made any estimated payments during the year. At a planning review session in
mid-December, his adviser informs him that he's approximately $25,000 underwithheld. What course of
action might Joseph follow to avoid an underpayment penalty?
A)Make an estimated tax payment before the end of the year. This will make up for any
underwithholding.
,B)Initiate a $25,000 distribution from his IRA account, and direct that 100% of the distribution be
withheld for federal income tax before year-end. This will make up for any underwithholding.
C)Make an estimated tax payment in December and another before the January 15 deadline for the
fourth quarter. This will make up for any underwithholding.
D)No exceptions to the underpayment penalty are available. - CORRECT ANSWERS B)
Withholding from IRAs, qualified plans, wages, and other income sources is treated as having been
made evenly throughout the year, even if the actual withholding is a lump sum at year-end. Thus, it is
possible for Joseph to "catch up" by having extra federal income tax withheld at the end of the year.
Which of these statements accurately describe characteristics of using life insurance for the informal
funding of a nonqualified deferred compensation plan?
It represents an asset that may be purchased to fund the employer's unsecured promise to pay deferred
amounts to the employee.
It offers the advantage of being able to fund a death benefit immediately.
It offers the advantage of various settlement options.
It offers the advantage of simplified administration since death proceeds are paid directly to an
employee's surviving spouse or other beneficiary.
A) II and IV
B) I and II
C) I and III
D) I, II, and III - CORRECT ANSWERS D)
Life insurance is used to informally fund a nonqualified deferred compensation plan because it can
immediately fund a death benefit and offers several settlement options. However, the proceeds from
the policy are paid to the employer.
Which statement best explains the unauthorized practice of law?
A) A non-attorney who advises a client of potential "red flags" in their estate plan
, B) A non-attorney who advises a client to have their estate plan updated
C) A non-attorney who advises a client to take actions that will affect their property or legal rights
D) A non-attorney who discusses with a licensed attorney whether provisions in their client's will are
necessary - CORRECT ANSWERS C)
There are two actions that constitute the unauthorized practice of law in every state: drafting
documents that will affect the property or legal rights of someone else, and advising another person to
take actions that will affect their property or legal rights. The other choices are authorized actions by a
non-attorney.
Changes that have occurred since investment firms changed from private partnerships to publicly traded
companies include all of these except
A) partners no longer share in both the profits and losses of the firm.
B) profits can be privatized (bonuses) and losses socialized (bailouts).
C)Nthere is greater individual accountability.
D) risk taking has increased. - CORRECT ANSWERS C)
The repeal of Glass-Steagall accelerated the conversion of investment firms that had been structured as
partnerships into publicly traded companies that took on more risk. This transferred much of the risk
and accountability from general partners to public shareholders.
The most important stated life goal of wealthy individuals is
A) protecting wealth.
B) assuring retirement lifestyle.
C) leaving an estate to heirs.
D) maintaining good health. - CORRECT ANSWERS D)
