AWMA Practice Exam II Questions With
Correct Answers
Using the capital asset pricing model, what is the expected return for a stock
| | | | | | | | | | | | | |
where its beta is 1.20, the risk-free rate is 4%, and the market rate of return is
| | | | | | | | | | | | | | | | |
10%? (Set calculator for four decimal places to reduce rounding error.)
| | | | | | | | | |
A)11.2%
B)8.8%
C)10.1%
D)16.0% - CORRECT ANSWER✔✔-A
| | |
.04 + 1.2 (.10 − .04) = .04 + .072 = .112 or 11.2%
| | | | | | | | | | | | |
Which of these is NOT a general rule pertaining to investing in small firms?
| | | | | | | | | | | | |
A)Look for low volatility stocks
| | | |
B)Diversify among 20 to 30 different issues| | | | | |
C)Have a long-term time horizon
| | | |
D)Avoid turnover of more than 30% annually - CORRECT ANSWER✔✔-A
| | | | | | | | |
Investors in small firms need to expect volatility and have a long-term time
| | | | | | | | | | | | |
horizon. Gerald Perritt recommends investing in between 20 and 30 different
| | | | | | | | | | |
issues, and turnover should be limited to no more than 30% annually in order to
| | | | | | | | | | | | | | |
control transaction costs.
| |
,Special arrangements need to be made concerning the residence and contents of
| | | | | | | | | | | |
the high net worth individual's primary residence for which situation?
| | | | | | | | |
A)When the owner is planning to live overseas for a year
| | | | | | | | | |
B)When the owner is taking a month to travel through Europe
| | | | | | | | | |
C)When the owner is on vacation for a week
| | | | | | | |
D)When the owner is at their vacation home for two weeks - CORRECT
| | | | | | | | | | | | |
ANSWER✔✔-A
When the primary residence will be vacant for a short time, homeowners policies
| | | | | | | | | | | |
will continue to provide coverage. However, when the owner will be out of the
| | | | | | | | | | | | | | |
country for a year, the property may be considered vacant and coverage may not
| | | | | | | | | | | | | |
apply. Specialty insurance carriers who commonly deal with situations such as
| | | | | | | | | | |
clients who live internationally for periods of time can reduce the likelihood that
| | | | | | | | | | | | |
a significant risk is overlooked. These companies often provide risk managers who
| | | | | | | | | | |
can properly advise clients concerning their choices.
| | | | | | |
Your client is currently subject to the Medicare contribution tax. Which method
| | | | | | | | | | | |
may help reduce the impact of the Medicare contribution tax?
| | | | | | | | |
A)Receiving passive business income | | |
B)Receiving municipal bond interest | | |
C)Capturing capital gain income | | |
D)Maximizing the use of charitable contribution deductions. - CORRECT | | | | | | | | |
ANSWER✔✔-B
Municipal bond interest is not subject to the Medicare contribution tax, nor does
| | | | | | | | | | | | |
it increase the AGI.
| | | |
,Charitable contributions increase itemized deductions, thereby reducing taxable
| | | | | | | |
income. However, the threshold for the Medicare contribution tax is based on
| | | | | | | | | | | |
AGI, not taxable income.
| | | |
Passive business income is specifically subject to the Medicare contribution tax,
| | | | | | | | | | |
as is capital gain income.
| | | |
Which of these is a characteristic of an unfunded excess benefit plan?
| | | | | | | | | | |
A)The plan must comply with the reporting requirements, but not the disclosure
| | | | | | | | | | | |
requirements under ERISA. | |
B)The plan must comply with both the disclosure and reporting requirements
| | | | | | | | | | |
under ERISA.
|
C)The plan generally need not comply with either the disclosure or reporting
| | | | | | | | | | | |
requirements of ERISA. | |
D)The plan must comply with the disclosure requirements, but not the reporting
| | | | | | | | | | | |
requirements under ERISA. - CORRECT ANSWER✔✔-C | | | | |
Unfunded excess benefit plans need not comply with ERISA disclosure or filing
| | | | | | | | | | | |
requirements; however, excess benefit plans that are funded do need to comply.
| | | | | | | | | | | |
Top-hat plans and SERPs also are subject to some reporting and disclosure
| | | | | | | | | | | |
requirements under ERISA. | |
Which statement is correct regarding federal transfer taxation?
| | | | | | |
A)Use of the estate tax marital deduction exempts the subject property from
| | | | | | | | | | | |
further transfer taxation.
| |
, B)Direct payment of tuition expenses to an educational institution by a
| | | | | | | | | | |
decedent's estate for the benefit of a surviving child is exempt from transfer
| | | | | | | | | | | | |
taxation.
C)The generation-skipping transfer tax (GSTT) can be applied to transfers of
| | | | | | | | | | |
wealth between parties who are not related to each other.
| | | | | | | | |
D)The gift tax is tax inclusive. - CORRECT ANSWER✔✔-C
| | | | | | | |
*If the transferor and transferee are not related to each other in any way, the
| | | | | | | | | | | | | | |
GSTT can still apply if the transferee is more than 37.5 years younger than the
| | | | | | | | | | | | | | |
transferor. |
*The gift tax is tax exclusive. Direct payment of tuition expenses is exempt from
| | | | | | | | | | | | | |
gift tax and GSTT, but is not exempt from estate tax.
| | | | | | | | | | |
*The marital deduction merely delays application of the gift or estate tax until the
| | | | | | | | | | | | |
recipient spouse dies. If handled properly, the unused portion of the first
| | | | | | | | | | | | |
spouse's exclusion amount is portable to the surviving spouse.
| | | | | | | |
In 2007 the SEC commissioned the RAND Corporation to do a study to better
| | | | | | | | | | | | | |
understand the financial landscape. Which statement about the study is NOT
| | | | | | | | | | |
accurate?
A)The study found that there was confusion over services offered by investment
| | | | | | | | | | | |
advisers and broker-dealers, and the fees they charge.
| | | | | | |
B)The study found that the public generally has a good understanding about the
| | | | | | | | | | | | |
differences between the suitability and fiduciary standards.
| | | | | |
C)The study found the financial landscape to be complex and confusing for both
| | | | | | | | | | | | |
financial professionals and investors.
| | |
D)The study found that there was confusion over titles and credentials used in
| | | | | | | | | | | | |
the field, including generic titles such as financial adviser. - CORRECT
| | | | | | | | | | |
ANSWER✔✔-B
Correct Answers
Using the capital asset pricing model, what is the expected return for a stock
| | | | | | | | | | | | | |
where its beta is 1.20, the risk-free rate is 4%, and the market rate of return is
| | | | | | | | | | | | | | | | |
10%? (Set calculator for four decimal places to reduce rounding error.)
| | | | | | | | | |
A)11.2%
B)8.8%
C)10.1%
D)16.0% - CORRECT ANSWER✔✔-A
| | |
.04 + 1.2 (.10 − .04) = .04 + .072 = .112 or 11.2%
| | | | | | | | | | | | |
Which of these is NOT a general rule pertaining to investing in small firms?
| | | | | | | | | | | | |
A)Look for low volatility stocks
| | | |
B)Diversify among 20 to 30 different issues| | | | | |
C)Have a long-term time horizon
| | | |
D)Avoid turnover of more than 30% annually - CORRECT ANSWER✔✔-A
| | | | | | | | |
Investors in small firms need to expect volatility and have a long-term time
| | | | | | | | | | | | |
horizon. Gerald Perritt recommends investing in between 20 and 30 different
| | | | | | | | | | |
issues, and turnover should be limited to no more than 30% annually in order to
| | | | | | | | | | | | | | |
control transaction costs.
| |
,Special arrangements need to be made concerning the residence and contents of
| | | | | | | | | | | |
the high net worth individual's primary residence for which situation?
| | | | | | | | |
A)When the owner is planning to live overseas for a year
| | | | | | | | | |
B)When the owner is taking a month to travel through Europe
| | | | | | | | | |
C)When the owner is on vacation for a week
| | | | | | | |
D)When the owner is at their vacation home for two weeks - CORRECT
| | | | | | | | | | | | |
ANSWER✔✔-A
When the primary residence will be vacant for a short time, homeowners policies
| | | | | | | | | | | |
will continue to provide coverage. However, when the owner will be out of the
| | | | | | | | | | | | | | |
country for a year, the property may be considered vacant and coverage may not
| | | | | | | | | | | | | |
apply. Specialty insurance carriers who commonly deal with situations such as
| | | | | | | | | | |
clients who live internationally for periods of time can reduce the likelihood that
| | | | | | | | | | | | |
a significant risk is overlooked. These companies often provide risk managers who
| | | | | | | | | | |
can properly advise clients concerning their choices.
| | | | | | |
Your client is currently subject to the Medicare contribution tax. Which method
| | | | | | | | | | | |
may help reduce the impact of the Medicare contribution tax?
| | | | | | | | |
A)Receiving passive business income | | |
B)Receiving municipal bond interest | | |
C)Capturing capital gain income | | |
D)Maximizing the use of charitable contribution deductions. - CORRECT | | | | | | | | |
ANSWER✔✔-B
Municipal bond interest is not subject to the Medicare contribution tax, nor does
| | | | | | | | | | | | |
it increase the AGI.
| | | |
,Charitable contributions increase itemized deductions, thereby reducing taxable
| | | | | | | |
income. However, the threshold for the Medicare contribution tax is based on
| | | | | | | | | | | |
AGI, not taxable income.
| | | |
Passive business income is specifically subject to the Medicare contribution tax,
| | | | | | | | | | |
as is capital gain income.
| | | |
Which of these is a characteristic of an unfunded excess benefit plan?
| | | | | | | | | | |
A)The plan must comply with the reporting requirements, but not the disclosure
| | | | | | | | | | | |
requirements under ERISA. | |
B)The plan must comply with both the disclosure and reporting requirements
| | | | | | | | | | |
under ERISA.
|
C)The plan generally need not comply with either the disclosure or reporting
| | | | | | | | | | | |
requirements of ERISA. | |
D)The plan must comply with the disclosure requirements, but not the reporting
| | | | | | | | | | | |
requirements under ERISA. - CORRECT ANSWER✔✔-C | | | | |
Unfunded excess benefit plans need not comply with ERISA disclosure or filing
| | | | | | | | | | | |
requirements; however, excess benefit plans that are funded do need to comply.
| | | | | | | | | | | |
Top-hat plans and SERPs also are subject to some reporting and disclosure
| | | | | | | | | | | |
requirements under ERISA. | |
Which statement is correct regarding federal transfer taxation?
| | | | | | |
A)Use of the estate tax marital deduction exempts the subject property from
| | | | | | | | | | | |
further transfer taxation.
| |
, B)Direct payment of tuition expenses to an educational institution by a
| | | | | | | | | | |
decedent's estate for the benefit of a surviving child is exempt from transfer
| | | | | | | | | | | | |
taxation.
C)The generation-skipping transfer tax (GSTT) can be applied to transfers of
| | | | | | | | | | |
wealth between parties who are not related to each other.
| | | | | | | | |
D)The gift tax is tax inclusive. - CORRECT ANSWER✔✔-C
| | | | | | | |
*If the transferor and transferee are not related to each other in any way, the
| | | | | | | | | | | | | | |
GSTT can still apply if the transferee is more than 37.5 years younger than the
| | | | | | | | | | | | | | |
transferor. |
*The gift tax is tax exclusive. Direct payment of tuition expenses is exempt from
| | | | | | | | | | | | | |
gift tax and GSTT, but is not exempt from estate tax.
| | | | | | | | | | |
*The marital deduction merely delays application of the gift or estate tax until the
| | | | | | | | | | | | |
recipient spouse dies. If handled properly, the unused portion of the first
| | | | | | | | | | | | |
spouse's exclusion amount is portable to the surviving spouse.
| | | | | | | |
In 2007 the SEC commissioned the RAND Corporation to do a study to better
| | | | | | | | | | | | | |
understand the financial landscape. Which statement about the study is NOT
| | | | | | | | | | |
accurate?
A)The study found that there was confusion over services offered by investment
| | | | | | | | | | | |
advisers and broker-dealers, and the fees they charge.
| | | | | | |
B)The study found that the public generally has a good understanding about the
| | | | | | | | | | | | |
differences between the suitability and fiduciary standards.
| | | | | |
C)The study found the financial landscape to be complex and confusing for both
| | | | | | | | | | | | |
financial professionals and investors.
| | |
D)The study found that there was confusion over titles and credentials used in
| | | | | | | | | | | | |
the field, including generic titles such as financial adviser. - CORRECT
| | | | | | | | | | |
ANSWER✔✔-B
