AAMS Practice Exam
A client, age 55, takes a $3,000 distribution from his rollover IRA to pay for a semester
of his 21-year-old son's college tuition. Which one of the following correctly explains the
tax consequences for the father? The entire distribution is - ANS-subject to income tax,
but it is free from the 10% early withdrawal penalty.
A major responsibility of FINRA is - ANS-insuring customer accounts in the event of the
liquidation of brokerage firms.
A nonspringing durable power of attorney - ANS-remains effective after the principal
becomes incapacitated.
A self-employed client opens a SEP-IRA on the advice of her investment professional.
The most immediate effect on her tax situation for this year is - ANS-tax reduction.
A trust that is created by a decedent's will and made effective at death is a(n) -
ANS-testamentary trust.
According to research reports from your firm, CodeHead Software's earnings for this
year are estimated to be $2.00 and next year are estimated to be $2.25 per share. The
current P/E ratio of similar software vendors is 15, but CodeHead typically sells at a
10% premium to these other vendors. What stock price would you estimate for
CodeHead next year? - ANS-It sells at a 10% premium so the P/E of the industry, 15,
has to be increased by 10%. 10% of 15 = 1.5, which added to 15 = 16.5. Then taking
next year's earnings of $2.25 × 16.5 = $37.125 or $37.13.
All of the following are permissible deductions for the federal estate tax EXCEPT -
ANS-the annual exclusion.
All of the following should be agreed upon between the client and the investment
professional when making recommendations based on an investment policy statement
EXCEPT - ANS-specific investments.
An employer plans to use corporate-owned life insurance to informally fund a
nonqualified deferred compensation agreement and wants flexibility regarding
investment choices. Which one of the following types of life insurance should this
employer choose? - ANS-Variable life insurance
, An investment professional is assessing the life insurance needs of the Johnson family.
As it stands, Mr. Johnson has determined that the family's immediate cash flow
requirements in the event of his death are $65,000. The amount needed to meet all
future funding requirements (net of Mrs. Johnson's income and Social Security and
pension benefits) is estimated to be $550,000. The family owns a home in which their
equity interest is $200,000. Based upon these figures, the investment professional
would recommend life insurance with a face amount of - ANS-$615,000
$65,000 + $550,000 = $650,000; the $200,000 equity in the home does not represent a
truly liquid asset to offset these expenses (though it could possibly be tapped with a
home equity loan).
An investor notices that technology stocks are in a strong bull market and wants to take
advantage of it. Even though valuations are at record high levels, he buys a technology
stock that a brokerage firm is recommending. Which one of the following is the investor
demonstrating? - ANS-C)
rationalization
An investor who would like to know how a portfolio manager performed relative to how
the manager was expected to perform on a risk-adjusted basis would use which one of
the following indicators? - ANS-Jensen's alpha
As described in this course, many individuals and households overlook the potential
needs for - ANS-disability income and long-term care insurance.
As of December 31, 20X1, Bob Larkin has the following financial data:
Bond fund $17,000
Residence$400,000
Vested 401(k) plan$95,000
Auto notes$16,000
Residence mortgage$285,000
Auto payments$7,000
Automobiles$45,000
Checking account$8,000
Utilities$4,000
CD$15,000
Stock$125,000
Home equity loan$40,000
A client, age 55, takes a $3,000 distribution from his rollover IRA to pay for a semester
of his 21-year-old son's college tuition. Which one of the following correctly explains the
tax consequences for the father? The entire distribution is - ANS-subject to income tax,
but it is free from the 10% early withdrawal penalty.
A major responsibility of FINRA is - ANS-insuring customer accounts in the event of the
liquidation of brokerage firms.
A nonspringing durable power of attorney - ANS-remains effective after the principal
becomes incapacitated.
A self-employed client opens a SEP-IRA on the advice of her investment professional.
The most immediate effect on her tax situation for this year is - ANS-tax reduction.
A trust that is created by a decedent's will and made effective at death is a(n) -
ANS-testamentary trust.
According to research reports from your firm, CodeHead Software's earnings for this
year are estimated to be $2.00 and next year are estimated to be $2.25 per share. The
current P/E ratio of similar software vendors is 15, but CodeHead typically sells at a
10% premium to these other vendors. What stock price would you estimate for
CodeHead next year? - ANS-It sells at a 10% premium so the P/E of the industry, 15,
has to be increased by 10%. 10% of 15 = 1.5, which added to 15 = 16.5. Then taking
next year's earnings of $2.25 × 16.5 = $37.125 or $37.13.
All of the following are permissible deductions for the federal estate tax EXCEPT -
ANS-the annual exclusion.
All of the following should be agreed upon between the client and the investment
professional when making recommendations based on an investment policy statement
EXCEPT - ANS-specific investments.
An employer plans to use corporate-owned life insurance to informally fund a
nonqualified deferred compensation agreement and wants flexibility regarding
investment choices. Which one of the following types of life insurance should this
employer choose? - ANS-Variable life insurance
, An investment professional is assessing the life insurance needs of the Johnson family.
As it stands, Mr. Johnson has determined that the family's immediate cash flow
requirements in the event of his death are $65,000. The amount needed to meet all
future funding requirements (net of Mrs. Johnson's income and Social Security and
pension benefits) is estimated to be $550,000. The family owns a home in which their
equity interest is $200,000. Based upon these figures, the investment professional
would recommend life insurance with a face amount of - ANS-$615,000
$65,000 + $550,000 = $650,000; the $200,000 equity in the home does not represent a
truly liquid asset to offset these expenses (though it could possibly be tapped with a
home equity loan).
An investor notices that technology stocks are in a strong bull market and wants to take
advantage of it. Even though valuations are at record high levels, he buys a technology
stock that a brokerage firm is recommending. Which one of the following is the investor
demonstrating? - ANS-C)
rationalization
An investor who would like to know how a portfolio manager performed relative to how
the manager was expected to perform on a risk-adjusted basis would use which one of
the following indicators? - ANS-Jensen's alpha
As described in this course, many individuals and households overlook the potential
needs for - ANS-disability income and long-term care insurance.
As of December 31, 20X1, Bob Larkin has the following financial data:
Bond fund $17,000
Residence$400,000
Vested 401(k) plan$95,000
Auto notes$16,000
Residence mortgage$285,000
Auto payments$7,000
Automobiles$45,000
Checking account$8,000
Utilities$4,000
CD$15,000
Stock$125,000
Home equity loan$40,000
