AAMS Practice Exam Questions with Complete Solutions, A+

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? - cORRECT sOLUTION Variable life insurance The latest economic reports have been gloomy, and the stock market is in a protracted slump. Most of your regular stock customers are selling out their positions. A new client, Mr. Jones, sees these conditions as a buying opportunity. You would define his investment personality as - cORRECT sOLUTION contrarian 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 What is Bob's net worth? - cORRECT sOLUTION $364,000 Assets = $17,000 + $400,000 + $95,000 +$45,000 + $8,000 + $15,000 + $125,000 = $705,000. Liabilities = $16,000 + $285,000 + $40,000 = $341,000, so net worth is $364,000. Notice that auto notes of $16,000 are included in this calculation, but auto payments of $7,000 is a cash flow item and therefore not included. For the year ending December 31, 20X2, Ted Jones has the following financial information: Salaries$70,000 Auto payments$5,000 Insurance$3,800 Food$8,000 Credit card balance$10,000 Dividends$1,100 Utilities$3,500 Mortgage payments$14,000 Taxes$13,000 Clothing$9,000 Interest income$2,100 Checking account$4,000 Vacations$8,400 Donations$5,800 What is the surplus or (deficit) for Ted? - cORRECT sOLUTION $2,700 Income = $70,000 + $1,100 + $2,100 = $73,200. Expenses = $5,000 + $3,800 + $8,000 + $3,500 + $14,000 + $13,000 + $9,000 + $8,400 + $5,800 = $70,500, so there is a surplus of $2,700 Which one of the following statements comparing the suitability and fiduciary standards is correct? - cORRECT sOLUTION Legally, suitability disputes are often resolved in arbitration whereas fiduciary disputes are ultimately resolved in the courts. Which one of the following types of distributions from a qualified retirement plan may be subject to mandatory 20% withholding? - cORRECT sOLUTION indirect rollover Which one of the following statements regarding a qualified plan is correct? - cORRECT sOLUTION The employer's deduction is available in the year that a contribution is made. 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 - cORRECT sOLUTION specific investments. Which of the following has a direct bearing on which investments are appropriate for achieving a goal? - cORRECT sOLUTION the investor's time horizon