AWMA Exam Review Questions With
Correct Answers
One of the most important financial goals of wealthy individuals is:
| | | | | | | | | |
a. travelling the world.
| | |
b. having good health.
| | |
c. achieving financial success.
| | |
d. assuring retirement lifestyle.
| | |
d. |
The most-stated life goals for wealthy individuals are having good health,
| | | | | | | | | | |
travelling the world, and achieving financial success. To achieve financial success,
| | | | | | | | | | |
the most common financial goals are protecting wealth, assuring retirement
| | | | | | | | | |
lifestyle, minimizing taxes, and leaving an estate to their heirs.
| | | | | | | | |
High net worth individuals under 30, as compared to those wealthy individuals
| | | | | | | | | | | |
over 60, are more likely to have
| | | | | |
a. relationships with multiple firms.
| | | |
b. trust and confidence in a wealth management firm.
| | | | | | | |
c. the feeling that a wealth manager understands their needs.
| | | | | | | | |
d. satisfaction with a wealth manager.
| | | | |
a. |
As compared to those wealthy individuals over 60, high net worth individuals
| | | | | | | | | | | |
under 30 are more likely to have relationships with multiple financial firms, less
| | | | | | | | | | | | |
,likely to have trust and confidence in a wealth management firm, and less likely
| | | | | | | | | | | | | |
to have the feeling that a wealth manager understands their needs.
| | | | | | | | | |
Which one of the following is a correct statement about mind mapping?
| | | | | | | | | | |
a. Mind mapping should be done only for existing clients and later in the
| | | | | | | | | | | | |
client/adviser relationship when advisers know the client well.
| | | | | | | |
b. Mind mapping may be a tool to use with prospective clients.
| | | | | | | | | | |
c. Mind mapping questions concern only the finances of the client.
| | | | | | | | | |
d. Mind mapping contains only questions about client goals.
| | | | | | | |
b. |
The open ended, probing questions of mind mapping are used to uncover the
| | | | | | | | | | | | |
prospective or existing client’s values, goals, interests, key relationships (both
| | | | | | | | | |
personal and professional), preferences for communication and process, as well
| | | | | | | | | |
as net worth by category.
| | | |
Dan Smith has bonds maturing in two weeks. Since he bought the bonds, interest
| | | | | | | | | | | | | |
rates have fallen. To which one of the following risks are Dan's bonds most likely
| | | | | | | | | | | | | | |
to be subject?
| |
a. Interest rate risk
| | |
b. Default risk
| |
c. Financial risk
| |
d. Reinvestment rate risk
| | |
d. |
Reinvestment rate risk is the risk associated with reinvesting interest and/or
| | | | | | | | | | |
principal payments when interest rates have fallen.
| | | | | |
The risk-free rate is 3%, the market rate of return is 10%, the standard deviation
| | | | | | | | | | | | | | |
of XYZ stock is 20, and the beta of XYZ stock is 1.40.
| | | | | | | | | | | |
,Given this information, and using the capital asset pricing model, what is the
| | | | | | | | | | | | |
expected return of XYZ stock? | | | |
a. 9.17%|
b. 12.20%
|
c. 12.80%
|
d. 13.20%
|
CAPM = rf + B (rm - rf)
| | | | | | |
.03 + 1.40(.10 - .03)
| | | |
= .03 + .098
| | |
= .128
|
= 12.8%
|
C
Which one of the following is correct regarding how diversification can affect risk?
| | | | | | | | | | | |
a) Unsystematic risk is unaffected by diversification within an asset class.
| | | | | | | | | |
b) Positive correlation of assets increases systematic risk with a corresponding
| | | | | | | | | | |
increase in return. | |
c) Negative correlation of assets increases systematic risk with a corresponding
| | | | | | | | | | |
increase in return. | |
d) Diversification of assets reduces unsystematic risk without necessarily reducing
| | | | | | | | |
return.
|
d. |
Unsystematic risk decreases by diversification within an asset class. Positive or
| | | | | | | | | | |
negative correlations between assets do not necessarily increase return.
| | | | | | | | |
, Unsystematic risk is reduced through diversification of assets, but this
| | | | | | | | | |
diversification does not necessarily reduce return. | | | | |
As described by Gerald Perritt, which one of the following best describes a sound
| | | | | | | | | | | | | |
small stock investment strategy?
| | |
A) 12 or more carefully selected issues, 1-year holding period or longer, turnover
| | | | | | | | | | | | |
of 30% or less
| | |
B) 12issuesormore,1-to3-yearholdingperiod,sellwheninstitutionalownership
| |
reaches 40% |
C) 20-30 issues, 3- to 5-year holding period, high ownership stake by
| | | | | | | | | | | |
management
D) 30issuesormore,5-to8-yearholdingperiod,buyandhold
|
c. |
Perritt’s guidelines for buying small stocks include 20–30 issues, a 3- to 5-year
| | | | | | | | | | | | |
holding period, and high ownership stake by management.
| | | | | | |
Which one of the following is an advantage of equity REITs over mortgage REITs?
| | | | | | | | | | | | |
A) Equity REITs can participate in the appreciation of the underlying properties.
| | | | | | | | | | |
B) Equity REITs participate in the capital gains of the mortgages, whereas
| | | | | | | | | | | |
mortgage REITs receive only the coupon payments.
| | | | | |
C) EquityREITsretaintherighttothepotentialappreciationofaproperty,but mortgage
| | |
REITs retain the right to only the property's rental income.
| | | | | | | | |
D) Equity REITs have the right to repossess the underlying property if the
| | | | | | | | | | | | |
mortgage REIT fails to make its mortgage payments.
| | | | | | |
a. |
Equity REITs own the underlying real estate properties, giving the owners an
| | | | | | | | | | | |
opportunity to participate in the net cash flows from the operation of the
| | | | | | | | | | | | |
properties and in any appreciation in the market price of the properties.
| | | | | | | | | | |
An investor in improved land (with an office building) is concerned most with
| | | | | | | | | | | | |
which one of the following factors?
| | | | |
Correct Answers
One of the most important financial goals of wealthy individuals is:
| | | | | | | | | |
a. travelling the world.
| | |
b. having good health.
| | |
c. achieving financial success.
| | |
d. assuring retirement lifestyle.
| | |
d. |
The most-stated life goals for wealthy individuals are having good health,
| | | | | | | | | | |
travelling the world, and achieving financial success. To achieve financial success,
| | | | | | | | | | |
the most common financial goals are protecting wealth, assuring retirement
| | | | | | | | | |
lifestyle, minimizing taxes, and leaving an estate to their heirs.
| | | | | | | | |
High net worth individuals under 30, as compared to those wealthy individuals
| | | | | | | | | | | |
over 60, are more likely to have
| | | | | |
a. relationships with multiple firms.
| | | |
b. trust and confidence in a wealth management firm.
| | | | | | | |
c. the feeling that a wealth manager understands their needs.
| | | | | | | | |
d. satisfaction with a wealth manager.
| | | | |
a. |
As compared to those wealthy individuals over 60, high net worth individuals
| | | | | | | | | | | |
under 30 are more likely to have relationships with multiple financial firms, less
| | | | | | | | | | | | |
,likely to have trust and confidence in a wealth management firm, and less likely
| | | | | | | | | | | | | |
to have the feeling that a wealth manager understands their needs.
| | | | | | | | | |
Which one of the following is a correct statement about mind mapping?
| | | | | | | | | | |
a. Mind mapping should be done only for existing clients and later in the
| | | | | | | | | | | | |
client/adviser relationship when advisers know the client well.
| | | | | | | |
b. Mind mapping may be a tool to use with prospective clients.
| | | | | | | | | | |
c. Mind mapping questions concern only the finances of the client.
| | | | | | | | | |
d. Mind mapping contains only questions about client goals.
| | | | | | | |
b. |
The open ended, probing questions of mind mapping are used to uncover the
| | | | | | | | | | | | |
prospective or existing client’s values, goals, interests, key relationships (both
| | | | | | | | | |
personal and professional), preferences for communication and process, as well
| | | | | | | | | |
as net worth by category.
| | | |
Dan Smith has bonds maturing in two weeks. Since he bought the bonds, interest
| | | | | | | | | | | | | |
rates have fallen. To which one of the following risks are Dan's bonds most likely
| | | | | | | | | | | | | | |
to be subject?
| |
a. Interest rate risk
| | |
b. Default risk
| |
c. Financial risk
| |
d. Reinvestment rate risk
| | |
d. |
Reinvestment rate risk is the risk associated with reinvesting interest and/or
| | | | | | | | | | |
principal payments when interest rates have fallen.
| | | | | |
The risk-free rate is 3%, the market rate of return is 10%, the standard deviation
| | | | | | | | | | | | | | |
of XYZ stock is 20, and the beta of XYZ stock is 1.40.
| | | | | | | | | | | |
,Given this information, and using the capital asset pricing model, what is the
| | | | | | | | | | | | |
expected return of XYZ stock? | | | |
a. 9.17%|
b. 12.20%
|
c. 12.80%
|
d. 13.20%
|
CAPM = rf + B (rm - rf)
| | | | | | |
.03 + 1.40(.10 - .03)
| | | |
= .03 + .098
| | |
= .128
|
= 12.8%
|
C
Which one of the following is correct regarding how diversification can affect risk?
| | | | | | | | | | | |
a) Unsystematic risk is unaffected by diversification within an asset class.
| | | | | | | | | |
b) Positive correlation of assets increases systematic risk with a corresponding
| | | | | | | | | | |
increase in return. | |
c) Negative correlation of assets increases systematic risk with a corresponding
| | | | | | | | | | |
increase in return. | |
d) Diversification of assets reduces unsystematic risk without necessarily reducing
| | | | | | | | |
return.
|
d. |
Unsystematic risk decreases by diversification within an asset class. Positive or
| | | | | | | | | | |
negative correlations between assets do not necessarily increase return.
| | | | | | | | |
, Unsystematic risk is reduced through diversification of assets, but this
| | | | | | | | | |
diversification does not necessarily reduce return. | | | | |
As described by Gerald Perritt, which one of the following best describes a sound
| | | | | | | | | | | | | |
small stock investment strategy?
| | |
A) 12 or more carefully selected issues, 1-year holding period or longer, turnover
| | | | | | | | | | | | |
of 30% or less
| | |
B) 12issuesormore,1-to3-yearholdingperiod,sellwheninstitutionalownership
| |
reaches 40% |
C) 20-30 issues, 3- to 5-year holding period, high ownership stake by
| | | | | | | | | | | |
management
D) 30issuesormore,5-to8-yearholdingperiod,buyandhold
|
c. |
Perritt’s guidelines for buying small stocks include 20–30 issues, a 3- to 5-year
| | | | | | | | | | | | |
holding period, and high ownership stake by management.
| | | | | | |
Which one of the following is an advantage of equity REITs over mortgage REITs?
| | | | | | | | | | | | |
A) Equity REITs can participate in the appreciation of the underlying properties.
| | | | | | | | | | |
B) Equity REITs participate in the capital gains of the mortgages, whereas
| | | | | | | | | | | |
mortgage REITs receive only the coupon payments.
| | | | | |
C) EquityREITsretaintherighttothepotentialappreciationofaproperty,but mortgage
| | |
REITs retain the right to only the property's rental income.
| | | | | | | | |
D) Equity REITs have the right to repossess the underlying property if the
| | | | | | | | | | | | |
mortgage REIT fails to make its mortgage payments.
| | | | | | |
a. |
Equity REITs own the underlying real estate properties, giving the owners an
| | | | | | | | | | | |
opportunity to participate in the net cash flows from the operation of the
| | | | | | | | | | | | |
properties and in any appreciation in the market price of the properties.
| | | | | | | | | | |
An investor in improved land (with an office building) is concerned most with
| | | | | | | | | | | | |
which one of the following factors?
| | | | |
