AWMA Practice Exam II Questions
Answered Correctly (Qs) 2026 update
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 ANSWERS 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 ANSWERS 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 ANSWERS 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 ANSWERS 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 ANSWERS 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 ANSWERS 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 ANSWERS B
The study found that the public does not have a good understanding about the different standards that
investment advisers and broker-dealers are held to. In fact, most participants in the study believed that
investment advisers and broker-dealers are held to the same standard, namely being a fiduciary and
looking out for the best interests of their clients.
An important difference with baby boomers, versus the earlier greatest and silent generations is that
A)as a group, baby boomers have fewer funds to pass to the next generation.
B)baby boomers are working later into life.
C)the greatest and silent generations care more about supporting a present lifestyle.
D)the greatest and silent generations saved more toward retirement. - CORRECT ANSWERS
B
Statistics from PEW Research show that baby boomers are staying in the workforce later than the silent
and greatest generations did.
Question #9 of 80
Question ID: 1334316
Assume you have the following portfolio:
StockWeightBetaBCD40%1.15EFG25%.90HIJ35%1.05
What is the overall weighted beta for this portfolio?
A)1.053
Answered Correctly (Qs) 2026 update
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 ANSWERS 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 ANSWERS 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 ANSWERS 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 ANSWERS 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 ANSWERS 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 ANSWERS 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 ANSWERS B
The study found that the public does not have a good understanding about the different standards that
investment advisers and broker-dealers are held to. In fact, most participants in the study believed that
investment advisers and broker-dealers are held to the same standard, namely being a fiduciary and
looking out for the best interests of their clients.
An important difference with baby boomers, versus the earlier greatest and silent generations is that
A)as a group, baby boomers have fewer funds to pass to the next generation.
B)baby boomers are working later into life.
C)the greatest and silent generations care more about supporting a present lifestyle.
D)the greatest and silent generations saved more toward retirement. - CORRECT ANSWERS
B
Statistics from PEW Research show that baby boomers are staying in the workforce later than the silent
and greatest generations did.
Question #9 of 80
Question ID: 1334316
Assume you have the following portfolio:
StockWeightBetaBCD40%1.15EFG25%.90HIJ35%1.05
What is the overall weighted beta for this portfolio?
A)1.053
