AWMA UPDATED EXAMS TEST PAPER
QUESTIONS AND ANSWERS SURE A+
✔✔When the personal circumstances of a client change, to which wealth management
step does the investment professional return?
A)Data gathering and goal establishment
B)Analyzing and evaluating the client's financial status
C)Monitoring financial planning recommendations
D)Implementing financial planning recommendations - ✔✔A) In Step 2 of the wealth
adviser financial planning process, advisers discover client goals and gather financial
data about the client. If there is a major event in the client's life, then planners should
come back to this goal-setting, data-gathering step. Mod 1
✔✔Compared to those planners working alone, advisers working with a team generally
have
A)more assets under management but less revenue.
B)more assets under management and more revenue.
C) fewer assets under management but more revenue.
D)fewer assets under management and less revenue. - ✔✔B) Teamwork is a bonus for
advisers, who, when compared to sole practitioners, generally have deeper client
,relationships, generate more assets and revenue, have lower attrition, and have a
higher fee-based ratio. Mod 1
✔✔When working in a team at a financial institution, which one of the following is
something an adviser would likely not do?
A)Implement client recommendations
B)Refer problems to another team member
C)Collaborate with a customized team of specialists
D)Develop and retain lasting client relationships - ✔✔B) At a financial institution,
advisers may need to develop and retain lasting client relationships, collaborate with a
customized team of specialists, resolve problems, and implement client
recommendations. Mod 1
✔✔Some high net worth clients are generally very concerned about the economy, so
advisers should
A)advise clients to ignore economic conditions.
B)be concerned that those clients are concentrating on short-term and not long-term
goals.
C)refer those clients to an economic specialist.
D)change a client's investment policy statement based on current economic conditions.
- ✔✔B) High net worth investors are very concerned with the state of the economy,
which can make them want to change investments often. This puts an undue emphasis
on short-term goals, leaving behind the long-term goals established by their adviser.
However, the wealthy desire economic advice from their adviser, including advice on
how they will meet their goals under particular economic conditions. The investment
policy statement can keep a client focused on long-term goals and not short-term
economic conditions. Mod 1
✔✔Gary would like to know the weighted beta coefficient for his portfolio. He owns 100
shares of ACE common stock with a beta of 1.1 and total current market value of
$5,000; 400 shares of BDF common stock with a beta of .70 and total current market
value of $8,000; and 200 shares of GIK common stock with a beta of 1.5 and total
current market value of $10,000.
What is the overall weighted beta coefficient for Gary's portfolio?
A)1.05
B)1.01
C)1.13
D)1.10 - ✔✔C Mod2
✔✔The higher the standard deviation of an investment in relation to its rate of return,
, A)the greater the level of risk for a given rate of return.
B)the lower the expected rate of return and the lower the level of risk.
C)the greater the expected rate of return and the lower the level of risk.
D)the lower the level of risk for a given level of return. - ✔✔A) The greater the
dispersion of returns around an average rate of return, the greater will be the standard
deviation and, consequently, the higher the level of risk for a given rate of return. Mod2
✔✔During the past year, the portfolio of your largest client had a return of 10% and a
beta of 1.1. During the same year, the average T-bill rate was 1.25%. What is the
Treynor ratio for the performance of this portfolio?
A).0796
B)5.50
C).1527
D).0993 - ✔✔A) The Treynor ratio divides the excess return (return − risk-free rate) by
the beta—in this case, (.10 − .0125) ÷ 1.1 = .0796. Mod2
✔✔The portfolio performance calculation that investors prefer to see is the
A)arithmetic return.
B)time-weighted return.
C)Jensen's alpha.
D)dollar-weighted return. - ✔✔D) Dollar-weighted returns (also known as internal rate of
return) accounts for the client's contributions to and withdrawals from a portfolio and it is
the most accurate representation of how the client fared. Mod2
✔✔Portfolio X had a Sharpe ratio of 1.10, while Portfolio Y had a Sharpe ratio of .55.
Based on this information, which one of the following statements is correct?
A)Portfolio X had better performance than Portfolio Y on a risk-adjusted basis.
B)Portfolio X had twice the performance of Portfolio Y.
C)Portfolio X had better performance than Portfolio Y.
D)Portfolio X had worse performance than Portfolio Y. - ✔✔A) A higher Sharpe ratio
does indicate better performance based on the risk taken, as measured by standard
deviation. Mod2
✔✔Which one of the following is a type of systematic risk?
A)Reinvestment risk
B)Default risk
C)Financial risk
D)Liquidity risk - ✔✔A) Reinvestment risk is a type of systematic risk. The others are
considered unsystematic risks. Mod2
✔✔Which of the following types of risk can be reduced through diversification?
QUESTIONS AND ANSWERS SURE A+
✔✔When the personal circumstances of a client change, to which wealth management
step does the investment professional return?
A)Data gathering and goal establishment
B)Analyzing and evaluating the client's financial status
C)Monitoring financial planning recommendations
D)Implementing financial planning recommendations - ✔✔A) In Step 2 of the wealth
adviser financial planning process, advisers discover client goals and gather financial
data about the client. If there is a major event in the client's life, then planners should
come back to this goal-setting, data-gathering step. Mod 1
✔✔Compared to those planners working alone, advisers working with a team generally
have
A)more assets under management but less revenue.
B)more assets under management and more revenue.
C) fewer assets under management but more revenue.
D)fewer assets under management and less revenue. - ✔✔B) Teamwork is a bonus for
advisers, who, when compared to sole practitioners, generally have deeper client
,relationships, generate more assets and revenue, have lower attrition, and have a
higher fee-based ratio. Mod 1
✔✔When working in a team at a financial institution, which one of the following is
something an adviser would likely not do?
A)Implement client recommendations
B)Refer problems to another team member
C)Collaborate with a customized team of specialists
D)Develop and retain lasting client relationships - ✔✔B) At a financial institution,
advisers may need to develop and retain lasting client relationships, collaborate with a
customized team of specialists, resolve problems, and implement client
recommendations. Mod 1
✔✔Some high net worth clients are generally very concerned about the economy, so
advisers should
A)advise clients to ignore economic conditions.
B)be concerned that those clients are concentrating on short-term and not long-term
goals.
C)refer those clients to an economic specialist.
D)change a client's investment policy statement based on current economic conditions.
- ✔✔B) High net worth investors are very concerned with the state of the economy,
which can make them want to change investments often. This puts an undue emphasis
on short-term goals, leaving behind the long-term goals established by their adviser.
However, the wealthy desire economic advice from their adviser, including advice on
how they will meet their goals under particular economic conditions. The investment
policy statement can keep a client focused on long-term goals and not short-term
economic conditions. Mod 1
✔✔Gary would like to know the weighted beta coefficient for his portfolio. He owns 100
shares of ACE common stock with a beta of 1.1 and total current market value of
$5,000; 400 shares of BDF common stock with a beta of .70 and total current market
value of $8,000; and 200 shares of GIK common stock with a beta of 1.5 and total
current market value of $10,000.
What is the overall weighted beta coefficient for Gary's portfolio?
A)1.05
B)1.01
C)1.13
D)1.10 - ✔✔C Mod2
✔✔The higher the standard deviation of an investment in relation to its rate of return,
, A)the greater the level of risk for a given rate of return.
B)the lower the expected rate of return and the lower the level of risk.
C)the greater the expected rate of return and the lower the level of risk.
D)the lower the level of risk for a given level of return. - ✔✔A) The greater the
dispersion of returns around an average rate of return, the greater will be the standard
deviation and, consequently, the higher the level of risk for a given rate of return. Mod2
✔✔During the past year, the portfolio of your largest client had a return of 10% and a
beta of 1.1. During the same year, the average T-bill rate was 1.25%. What is the
Treynor ratio for the performance of this portfolio?
A).0796
B)5.50
C).1527
D).0993 - ✔✔A) The Treynor ratio divides the excess return (return − risk-free rate) by
the beta—in this case, (.10 − .0125) ÷ 1.1 = .0796. Mod2
✔✔The portfolio performance calculation that investors prefer to see is the
A)arithmetic return.
B)time-weighted return.
C)Jensen's alpha.
D)dollar-weighted return. - ✔✔D) Dollar-weighted returns (also known as internal rate of
return) accounts for the client's contributions to and withdrawals from a portfolio and it is
the most accurate representation of how the client fared. Mod2
✔✔Portfolio X had a Sharpe ratio of 1.10, while Portfolio Y had a Sharpe ratio of .55.
Based on this information, which one of the following statements is correct?
A)Portfolio X had better performance than Portfolio Y on a risk-adjusted basis.
B)Portfolio X had twice the performance of Portfolio Y.
C)Portfolio X had better performance than Portfolio Y.
D)Portfolio X had worse performance than Portfolio Y. - ✔✔A) A higher Sharpe ratio
does indicate better performance based on the risk taken, as measured by standard
deviation. Mod2
✔✔Which one of the following is a type of systematic risk?
A)Reinvestment risk
B)Default risk
C)Financial risk
D)Liquidity risk - ✔✔A) Reinvestment risk is a type of systematic risk. The others are
considered unsystematic risks. Mod2
✔✔Which of the following types of risk can be reduced through diversification?
