AWMA Practice Exam I Questions With
Correct Answers
Baby boomers and older Gen Xers, as compared to millennials and younger Gen
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Xers
A) have financial planning needs that have stayed relatively the same over many
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years.
B) have not experienced significant bear markets.
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C) are generally seeking many more technological options in financial planning.
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D) are likely to be advised by a millennial adviser. - CORRECT ANSWER✔✔-A)
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Older wealthy investors (mostly baby boomers) have financial planning needs
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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
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have fallen. To which one these risks are Dan's bonds most likely to be subject?
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A) Interest rate risk
| | |
B) Default risk
| |
C) Reinvestment rate risk
| | |
D) Financial risk - CORRECT ANSWER✔✔-C)
| | | | |
,Reinvestment rate risk is the risk associated with reinvesting interest and/or
| | | | | | | | | | |
principal payments when interest rates have fallen.
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The relationship between investment strategy and investment policy is one in
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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 ANSWER✔✔-
| | | | | | | | |
A)
Investment policy provides the guidelines to be used in managing a portfolio,
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including investment strategies that may be employed. In other words,
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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 ANSWER✔✔-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
| | | | | | | | | |
ANSWER✔✔-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 ANSWER✔✔-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 ANSWER✔✔-C)
| | | | | | |
Correct Answers
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 ANSWER✔✔-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 ANSWER✔✔-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 ANSWER✔✔-
| | | | | | | | |
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 ANSWER✔✔-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
| | | | | | | | | |
ANSWER✔✔-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 ANSWER✔✔-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 ANSWER✔✔-C)
| | | | | | |
