AWMA ACTUAL TEST QUESTIONS WITH
COMPLETE ANSWER KEY
●● 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
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
,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.
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.
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.
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.
COMPLETE ANSWER KEY
●● 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
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
,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.
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.
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.
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.
