AWMA EXAM PRACTICE 2025
QUESTIONS AND ANSWERS
What are the 4 rules in terms of investing in a small firm? - ANS Time frame of at least 3-5
years, diversify among 20-30 different issues, avoid turnover of 30% annually, and sell if and
when 40% of company's shares become owned by institutional investors.
What is a characteristic of an unfunded excess benefit plan? - ANS The plan generally need
not comply with either the disclosure or reporting requirements of ERISA.
Unfunded excess benefit plans need not comply with ERISA disclosure or filing requirements.
What is a correct statement regarding federal transfer taxation of the transfer of wealth? -
ANS The generation-skipping transfer tax (GSTT) can be applied to transfers of wealth
between parties who are not related to each other.
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.
According to the investment pyramid, what sequence is correct in terms of increasing safety of
principal (least to most safety of principal)? - ANS *futures contracts, balanced mutual funds,
EE bonds
In terms of increased safety of principal, of the four sequences given, the investment pyramid
in the study materials shows futures contracts (least safety), balanced mutual funds, EE bonds
(most safety with principal guaranteed by the U.S. government) is the correct sequence.
1 @COPYRIGHT THEBRIGHT 2025/2026
, Three years ago, Kerri received a gift of 1,000 shares of Mica Inc. common stock from her
parents. The fair market value of the stock on the date of the gift was $20,000. Kerri's parents
purchased the stock several years earlier for $40,000. She sold this stock for $31,000 last week.
What is the amount of gain or loss, if any, from Kerri's stock sale? - ANS $0
Where the fair market value on the date of gift is less than the donor's adjusted basis, and the
asset is sold at a price between the fair market value on the date of gift and the donor's
adjusted basis, there is no gain or loss recognized on the sale.
What trust will not entitle the grantor to take an annual exclusion upon funding the trust? -
ANS *Bypass trust in which income is paid at the discretion of the trustee
For gifts to a trust to be entitled to the annual exclusion, income must be payable on a
mandatory basis (Section 2503(b)), the beneficiaries must be given a general power of
appointment (such as a Crummey power) over the trust assets, or the trust must conform to
the requirements of Section 2503(c). A bypass trust that gives the trustee discretion over
income is not entitled to the annual exclusion.
When suggesting portfolio assets for a millennial investor, which would best suit that age group
in general? - ANS *36% equities, 22% fixed income, 21% real estate, 21% alternative
investments
Investors under 40 are more likely to choose real estate and alternative investments and less
likely to choose equities and fixed income investments, as compared to investors 40 and over.
What indicator would a contrarian investor interpret as a bullish indicator? - ANS *bullish
specialist sentiment
Specialists are considered "smart money" and, therefore, if they are bullish a contrarian
investor would follow their sentiment.
Your client, John Westfall, is age 72. He has started taking required minimum distributions from
his 401(k), which has grown to over $3 million. He currently has no IRA account. His RMDs are
mostly an annoyance, as he doesn't need the funds to cover his living expenses, and he doesn't
2 @COPYRIGHT THEBRIGHT 2025/2026
QUESTIONS AND ANSWERS
What are the 4 rules in terms of investing in a small firm? - ANS Time frame of at least 3-5
years, diversify among 20-30 different issues, avoid turnover of 30% annually, and sell if and
when 40% of company's shares become owned by institutional investors.
What is a characteristic of an unfunded excess benefit plan? - ANS The plan generally need
not comply with either the disclosure or reporting requirements of ERISA.
Unfunded excess benefit plans need not comply with ERISA disclosure or filing requirements.
What is a correct statement regarding federal transfer taxation of the transfer of wealth? -
ANS The generation-skipping transfer tax (GSTT) can be applied to transfers of wealth
between parties who are not related to each other.
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.
According to the investment pyramid, what sequence is correct in terms of increasing safety of
principal (least to most safety of principal)? - ANS *futures contracts, balanced mutual funds,
EE bonds
In terms of increased safety of principal, of the four sequences given, the investment pyramid
in the study materials shows futures contracts (least safety), balanced mutual funds, EE bonds
(most safety with principal guaranteed by the U.S. government) is the correct sequence.
1 @COPYRIGHT THEBRIGHT 2025/2026
, Three years ago, Kerri received a gift of 1,000 shares of Mica Inc. common stock from her
parents. The fair market value of the stock on the date of the gift was $20,000. Kerri's parents
purchased the stock several years earlier for $40,000. She sold this stock for $31,000 last week.
What is the amount of gain or loss, if any, from Kerri's stock sale? - ANS $0
Where the fair market value on the date of gift is less than the donor's adjusted basis, and the
asset is sold at a price between the fair market value on the date of gift and the donor's
adjusted basis, there is no gain or loss recognized on the sale.
What trust will not entitle the grantor to take an annual exclusion upon funding the trust? -
ANS *Bypass trust in which income is paid at the discretion of the trustee
For gifts to a trust to be entitled to the annual exclusion, income must be payable on a
mandatory basis (Section 2503(b)), the beneficiaries must be given a general power of
appointment (such as a Crummey power) over the trust assets, or the trust must conform to
the requirements of Section 2503(c). A bypass trust that gives the trustee discretion over
income is not entitled to the annual exclusion.
When suggesting portfolio assets for a millennial investor, which would best suit that age group
in general? - ANS *36% equities, 22% fixed income, 21% real estate, 21% alternative
investments
Investors under 40 are more likely to choose real estate and alternative investments and less
likely to choose equities and fixed income investments, as compared to investors 40 and over.
What indicator would a contrarian investor interpret as a bullish indicator? - ANS *bullish
specialist sentiment
Specialists are considered "smart money" and, therefore, if they are bullish a contrarian
investor would follow their sentiment.
Your client, John Westfall, is age 72. He has started taking required minimum distributions from
his 401(k), which has grown to over $3 million. He currently has no IRA account. His RMDs are
mostly an annoyance, as he doesn't need the funds to cover his living expenses, and he doesn't
2 @COPYRIGHT THEBRIGHT 2025/2026
