AWMA Study Guide questions with verified answers
"Carried interest" in a hedge fund refers to Ans✓✓✓ incentive fees.
A client who expects her portfolio of intermediate-term government
bonds to earn 12% a year suffers from which one of the following?
Ans✓✓✓ Unrealistic expectations
A client who is making judgments based on stereotypes (such as not
trusting a certain industry because of past stock losses in that industry)
is exhibiting which behavioral finance bias? Ans✓✓✓
Representativeness
A company is planning to borrow large amounts of money to finance a
major expansion. This company is increasing which type of risk?
Ans✓✓✓ Financial risk
A funded deferred compensation plan Ans✓✓✓ will be taxable to an
employee if nonforfeitable.
A major responsibility of FINRA is Ans✓✓✓ developing rules and
regulations for its members
A potential client, Ross Walker, is contacted by Amy Taylor, an
investment professional. Ross is interested in trading complex options
and is willing to open an account if Amy is knowledgeable about
,options. Amy implies to Ross that she is an expert in option trading but,
in fact, knows only the basic elements of it. Looking solely at Amy's lack
of competency in this area, which fiduciary duty has not been met?
Ans✓✓✓ Duty of care
A qualified domestic trust (QDOT) Ans✓✓✓ is used for deferring estate
taxes on property given to a non-U.S. citizen spouse at the donor's
death.
A rabbi trust is Ans✓✓✓ a form of irrevocable grantor trust established
by an employer.
A taxpayer incurs withholding on a retirement plan distribution in
September of the current year. For estimated tax purposes, the
withholding is treated as Ans✓✓✓ withheld evenly throughout the tax
year.
A top hat plan Ans✓✓✓ is subject to the reporting and disclosure
requirements of ERISA.
Academic studies have shown that managed futures often have a low
correlation with traditional assets and can be a good diversifier for an
investment portfolio. Which of the following has had the most impact
in limiting the effectiveness of using managed futures in portfolios?
Ans✓✓✓ High fees
,According to a College for Financial Planning study, which of the Big
Five personality traits do successful financial advisers rank highest?
Ans✓✓✓ Conscientiousness
According to guidelines developed by Gerald Perritt, which of these
best describes a sound small stock investment strategy? Ans✓✓✓ 20
to 30 issues, 3- to 5-year holding period, high ownership stake by
management
According to John Brown in his book Exit Planning: The Definitive Guide,
when ranking the four most commonly used exit planning strategies
from most utilized to least utilized, the order is Ans✓✓✓ insider
transfer, third-party transfer, transfer to children, ESOP.
According to the investment pyramid, which one of these sequences is
correct in terms of increasing safety of principal (least to most safety of
principal)? Ans✓✓✓ Futures contracts, balanced mutual funds, EE
bonds
All of the following are advantages to implementing a nonqualified
deferred compensation plan, except Ans✓✓✓ NQDC plans are always
free from ERISA regulations.
All of the following are potential personal security risks except
Ans✓✓✓ serving on a board.
, All of the following describe contrasting characteristics of qualified and
nonqualified plans except Ans✓✓✓ the ability to defer the employee's
tax liability until actual receipt of the funds at retirement.
All of these are disadvantages of making a lifetime gift except Ans✓✓✓
removal of the appreciation from the estate of the donor.
All the things that make a high net worth business owner's business
unique, including the knowledge, experience, relationships, and human
resources that create value can be categorized as their Ans✓✓✓
intellectual capital.
Allen is willing to invest in securities with above-average risk if he is
rewarded for doing so. He has been following the stock of a company
that he likes, but is concerned because the stock dropped 8% the last
time the S&P 500 dropped 6%. Allen believes that an 11% return for the
market next year would be good. The current market risk premium is
7% and the Treasury bill rate is 6.5%. Using the CAPM formula,
calculate the required rate of return for the stock and determine if the
stock appears to meet Allen's criteria of investing in above-average-risk
stocks only if he is rewarded for doing so. Ans✓✓✓ The required rate
of return is 15.6%, and the stock meets Allen's criteria.
An advantage to a third-party business sale is that Ans✓✓✓ the sale
can be accomplished in a relatively short time frame.
"Carried interest" in a hedge fund refers to Ans✓✓✓ incentive fees.
A client who expects her portfolio of intermediate-term government
bonds to earn 12% a year suffers from which one of the following?
Ans✓✓✓ Unrealistic expectations
A client who is making judgments based on stereotypes (such as not
trusting a certain industry because of past stock losses in that industry)
is exhibiting which behavioral finance bias? Ans✓✓✓
Representativeness
A company is planning to borrow large amounts of money to finance a
major expansion. This company is increasing which type of risk?
Ans✓✓✓ Financial risk
A funded deferred compensation plan Ans✓✓✓ will be taxable to an
employee if nonforfeitable.
A major responsibility of FINRA is Ans✓✓✓ developing rules and
regulations for its members
A potential client, Ross Walker, is contacted by Amy Taylor, an
investment professional. Ross is interested in trading complex options
and is willing to open an account if Amy is knowledgeable about
,options. Amy implies to Ross that she is an expert in option trading but,
in fact, knows only the basic elements of it. Looking solely at Amy's lack
of competency in this area, which fiduciary duty has not been met?
Ans✓✓✓ Duty of care
A qualified domestic trust (QDOT) Ans✓✓✓ is used for deferring estate
taxes on property given to a non-U.S. citizen spouse at the donor's
death.
A rabbi trust is Ans✓✓✓ a form of irrevocable grantor trust established
by an employer.
A taxpayer incurs withholding on a retirement plan distribution in
September of the current year. For estimated tax purposes, the
withholding is treated as Ans✓✓✓ withheld evenly throughout the tax
year.
A top hat plan Ans✓✓✓ is subject to the reporting and disclosure
requirements of ERISA.
Academic studies have shown that managed futures often have a low
correlation with traditional assets and can be a good diversifier for an
investment portfolio. Which of the following has had the most impact
in limiting the effectiveness of using managed futures in portfolios?
Ans✓✓✓ High fees
,According to a College for Financial Planning study, which of the Big
Five personality traits do successful financial advisers rank highest?
Ans✓✓✓ Conscientiousness
According to guidelines developed by Gerald Perritt, which of these
best describes a sound small stock investment strategy? Ans✓✓✓ 20
to 30 issues, 3- to 5-year holding period, high ownership stake by
management
According to John Brown in his book Exit Planning: The Definitive Guide,
when ranking the four most commonly used exit planning strategies
from most utilized to least utilized, the order is Ans✓✓✓ insider
transfer, third-party transfer, transfer to children, ESOP.
According to the investment pyramid, which one of these sequences is
correct in terms of increasing safety of principal (least to most safety of
principal)? Ans✓✓✓ Futures contracts, balanced mutual funds, EE
bonds
All of the following are advantages to implementing a nonqualified
deferred compensation plan, except Ans✓✓✓ NQDC plans are always
free from ERISA regulations.
All of the following are potential personal security risks except
Ans✓✓✓ serving on a board.
, All of the following describe contrasting characteristics of qualified and
nonqualified plans except Ans✓✓✓ the ability to defer the employee's
tax liability until actual receipt of the funds at retirement.
All of these are disadvantages of making a lifetime gift except Ans✓✓✓
removal of the appreciation from the estate of the donor.
All the things that make a high net worth business owner's business
unique, including the knowledge, experience, relationships, and human
resources that create value can be categorized as their Ans✓✓✓
intellectual capital.
Allen is willing to invest in securities with above-average risk if he is
rewarded for doing so. He has been following the stock of a company
that he likes, but is concerned because the stock dropped 8% the last
time the S&P 500 dropped 6%. Allen believes that an 11% return for the
market next year would be good. The current market risk premium is
7% and the Treasury bill rate is 6.5%. Using the CAPM formula,
calculate the required rate of return for the stock and determine if the
stock appears to meet Allen's criteria of investing in above-average-risk
stocks only if he is rewarded for doing so. Ans✓✓✓ The required rate
of return is 15.6%, and the stock meets Allen's criteria.
An advantage to a third-party business sale is that Ans✓✓✓ the sale
can be accomplished in a relatively short time frame.
