AAMS TEST PAPER UPDATED QUESTIONS AND ANSWERS
GRADED A+
✔✔What is the appropriate date to identify the statement of financial position of a
calendar-year client for the year 20XX?
A) At December 31, 20XX
B) For the period beginning January 1, 20XX
C) For the period from January 1 to Decemebr 31, 20XX
D) At January 1, 20X1 - ✔✔A) At December 31, 20XX
✔✔How are assets valued on a statement of financial position?
A) Residual value
B) Actual cash value
C) Replacement value
D) Fair market value - ✔✔D) Fair market value
✔✔All of these are topics that needs to be clarified before making investment
recommendations except
A) the client's goals.
B) risk parameters of the client.
C) basis for portfolio review.
D) time horizons of the goals. - ✔✔C) basis for portfolio review.
✔✔All of these are attributes of a good business plan except the plan
A) is written.
B) only includes business-related goals.
C) includes realistic action steps.
D) is shared with someone. - ✔✔B) only includes business-related goals.
✔✔When the personal circumstances of a client change, which asset management step
does the investment professional return to?
A) Analyzing information
B) Monitoring performance
C) Implementing recommendations
D) Data gathering - ✔✔D) Data gathering
✔✔Which of these is the most important factor in establishing trust with a client?
A) Speaking with confidence
B) Demonstrating professionalism and honesty
C) Having a pleasant manner
D) Demonstrating knowledge - ✔✔B) Demonstrating professionalism and honesty
✔✔Which one of these is NOT one of the three characteristics of a well-defined goal?
A) Dollar amount
,B) Purpose
C) Realistic
D) Time frame - ✔✔C) Realistic
✔✔Which one of these is a mismatch between a client's time horizon and stated goal?
A) A client with no current savings who has a one-year-old son says that saving for her
son's college education is her top priority.
B) A 55-year-old client with no current retirement savings says that saving for retirement
is her top priority; she plans to retire at age 65.
C) A prospective client with a sizable amount of liquid assets wishes to purchase a
recreational vehicle within seven years.
D) A professional, age 30, begins to contribute to a Roth IRA for her retirement. - ✔✔B)
A 55-year-old client with no current retirement savings says that saving for retirement is
her top priority; she plans to retire at age 65.
✔✔Managing client expectations is best achieved by
A) downplaying client concerns.
B) presenting research to the client.
C) educating the client.
D) using past performance to reassure clients. - ✔✔C) educating the client.
✔✔In the asset management process, who ultimately makes the investment decision?
A) The client
B) The client and adviser equally
C) The compliance department
D) The adviser - ✔✔A) The client
✔✔Which one of these is NOT included in an investment policy statement?
A) Which securities to include in the portfolio
B) An expected rate of return
C) The level of risk that may be taken
D) Which types of securities to include in the portfolio - ✔✔B) An expected rate of return
✔✔Which one of these types of investors is most concerned with losing what they have
accumulated in their investment portfolio?
A) A risk tolerant investor
B) A contrarian investor
C) A follower investor
D) A risk-averse investor - ✔✔D) A risk-averse investor
✔✔Which one of the following best describes the purpose of an investment policy
statement (IPS)?
A) to select the individual assets, and to make an estimate of their individual rates of
return
,B) to educate the client about the relative performance of different asset classes, and to
form a baseline for performance
C) to provide a foundation on which the client's portfolio is constructed, and to provide a
basis for review and adaptation to changing conditions
D) to acquaint the investment professional with the client's financial situation, and to
determine the timing of acquisitions and sales - ✔✔C) to provide a foundation on which
the client's portfolio is constructed, and to provide a basis for review and adaptation to
changing conditions
✔✔Of the following, which one describes a key attribute of an investment policy
statement?
A) specific-detail of how to manage the portfolio, including specific securities to be
purchased
B) flexible-decisions on securities are left to the investment professional's discretion,
based on the investment policy statement
C) long-term perspective-to take advantage of the positive bias in the markets
D) adviser driven-the investment adviser determines the elements of an investment
policy statement with the consent of the client - ✔✔C) long-term perspective-to take
advantage of the positive bias in the markets
✔✔Time is of critical importance in an investment policy statement because
A) it determines the feasibility of the investment professional making recommendations
that meet the client's goals.
B) the current market and economic climates set client expectations for portfolio
performance.
C) market timing is essential to investment performance.
D) an investor's life expectancy determines the time horizon for a portfolio. - ✔✔A) it
determines the feasibility of the investment professional making recommendations that
meet the client's goals.
✔✔All of these are key elements contained in an investment policy statement except
A) a statement of the investment vehicles deemed suitable and unsuitable for the
portfolio.
B) a statement discussing the specific investments to be included in the portfolio.
C) a statement of the client's risk tolerance level.
D) a statement regarding the portfolio's asset allocation. - ✔✔B) a statement discussing
the specific investments to be included in the portfolio.
✔✔The asset management process can be used to adjust to changes in a client's
financial situation by
A) increasing the probability of consistently outperforming the market.
B) increasing the effect of volatility.
C) negating the need to make periodic reallocations.
D) helping the client to ignore market "noise." - ✔✔D) helping the client to ignore market
"noise."
, ✔✔Sara White bought a stock that has subsequently dropped 50%. She plans to hold
on to the stock in the hopes of getting back to even. What investor behavior is Sara
most likely exhibiting?
A) Rationalization
B) Loss aversion
C) Fear of regret
D) Overconfidence - ✔✔B) Loss aversion
✔✔The investment policy statement (IPS) would most likely need a revision if which of
these events occurred?
A) The client took an early retirement from their company.
B) All of these events would require a revision in the IPS.
C) The client went through a divorce.
D) The client inherited a large sum of money. - ✔✔B) All of these events would require
a revision in the IPS.
✔✔Making an irrational decision based on information that should have no influence on
the decision at hand is known as
A) mental accounting.
B) confirmation bias.
C) hindsight bias.
D) anchoring. - ✔✔D) anchoring.
✔✔Which behavioral mistake is defined as a misunderstanding that an investor has in
relating nominal rates of return to real (inflation-adjusted) rates of return?
A) money illusion
B) representativeness
C) recency
D) mental accounting - ✔✔A) money illusion
✔✔Which of the following is NOT an example of a discontinuous change?
A) receiving a 10% raise at work
B) being laid off
C) winning the lottery
D) receiving a surprise inheritance - ✔✔A) receiving a 10% raise at work
✔✔Which one of the following is NOT an example of systematic risk?
A) Business risk
B) Purchasing power risk
C) Reinvestment risk
D) Interest rate risk - ✔✔A) Business risk
GRADED A+
✔✔What is the appropriate date to identify the statement of financial position of a
calendar-year client for the year 20XX?
A) At December 31, 20XX
B) For the period beginning January 1, 20XX
C) For the period from January 1 to Decemebr 31, 20XX
D) At January 1, 20X1 - ✔✔A) At December 31, 20XX
✔✔How are assets valued on a statement of financial position?
A) Residual value
B) Actual cash value
C) Replacement value
D) Fair market value - ✔✔D) Fair market value
✔✔All of these are topics that needs to be clarified before making investment
recommendations except
A) the client's goals.
B) risk parameters of the client.
C) basis for portfolio review.
D) time horizons of the goals. - ✔✔C) basis for portfolio review.
✔✔All of these are attributes of a good business plan except the plan
A) is written.
B) only includes business-related goals.
C) includes realistic action steps.
D) is shared with someone. - ✔✔B) only includes business-related goals.
✔✔When the personal circumstances of a client change, which asset management step
does the investment professional return to?
A) Analyzing information
B) Monitoring performance
C) Implementing recommendations
D) Data gathering - ✔✔D) Data gathering
✔✔Which of these is the most important factor in establishing trust with a client?
A) Speaking with confidence
B) Demonstrating professionalism and honesty
C) Having a pleasant manner
D) Demonstrating knowledge - ✔✔B) Demonstrating professionalism and honesty
✔✔Which one of these is NOT one of the three characteristics of a well-defined goal?
A) Dollar amount
,B) Purpose
C) Realistic
D) Time frame - ✔✔C) Realistic
✔✔Which one of these is a mismatch between a client's time horizon and stated goal?
A) A client with no current savings who has a one-year-old son says that saving for her
son's college education is her top priority.
B) A 55-year-old client with no current retirement savings says that saving for retirement
is her top priority; she plans to retire at age 65.
C) A prospective client with a sizable amount of liquid assets wishes to purchase a
recreational vehicle within seven years.
D) A professional, age 30, begins to contribute to a Roth IRA for her retirement. - ✔✔B)
A 55-year-old client with no current retirement savings says that saving for retirement is
her top priority; she plans to retire at age 65.
✔✔Managing client expectations is best achieved by
A) downplaying client concerns.
B) presenting research to the client.
C) educating the client.
D) using past performance to reassure clients. - ✔✔C) educating the client.
✔✔In the asset management process, who ultimately makes the investment decision?
A) The client
B) The client and adviser equally
C) The compliance department
D) The adviser - ✔✔A) The client
✔✔Which one of these is NOT included in an investment policy statement?
A) Which securities to include in the portfolio
B) An expected rate of return
C) The level of risk that may be taken
D) Which types of securities to include in the portfolio - ✔✔B) An expected rate of return
✔✔Which one of these types of investors is most concerned with losing what they have
accumulated in their investment portfolio?
A) A risk tolerant investor
B) A contrarian investor
C) A follower investor
D) A risk-averse investor - ✔✔D) A risk-averse investor
✔✔Which one of the following best describes the purpose of an investment policy
statement (IPS)?
A) to select the individual assets, and to make an estimate of their individual rates of
return
,B) to educate the client about the relative performance of different asset classes, and to
form a baseline for performance
C) to provide a foundation on which the client's portfolio is constructed, and to provide a
basis for review and adaptation to changing conditions
D) to acquaint the investment professional with the client's financial situation, and to
determine the timing of acquisitions and sales - ✔✔C) to provide a foundation on which
the client's portfolio is constructed, and to provide a basis for review and adaptation to
changing conditions
✔✔Of the following, which one describes a key attribute of an investment policy
statement?
A) specific-detail of how to manage the portfolio, including specific securities to be
purchased
B) flexible-decisions on securities are left to the investment professional's discretion,
based on the investment policy statement
C) long-term perspective-to take advantage of the positive bias in the markets
D) adviser driven-the investment adviser determines the elements of an investment
policy statement with the consent of the client - ✔✔C) long-term perspective-to take
advantage of the positive bias in the markets
✔✔Time is of critical importance in an investment policy statement because
A) it determines the feasibility of the investment professional making recommendations
that meet the client's goals.
B) the current market and economic climates set client expectations for portfolio
performance.
C) market timing is essential to investment performance.
D) an investor's life expectancy determines the time horizon for a portfolio. - ✔✔A) it
determines the feasibility of the investment professional making recommendations that
meet the client's goals.
✔✔All of these are key elements contained in an investment policy statement except
A) a statement of the investment vehicles deemed suitable and unsuitable for the
portfolio.
B) a statement discussing the specific investments to be included in the portfolio.
C) a statement of the client's risk tolerance level.
D) a statement regarding the portfolio's asset allocation. - ✔✔B) a statement discussing
the specific investments to be included in the portfolio.
✔✔The asset management process can be used to adjust to changes in a client's
financial situation by
A) increasing the probability of consistently outperforming the market.
B) increasing the effect of volatility.
C) negating the need to make periodic reallocations.
D) helping the client to ignore market "noise." - ✔✔D) helping the client to ignore market
"noise."
, ✔✔Sara White bought a stock that has subsequently dropped 50%. She plans to hold
on to the stock in the hopes of getting back to even. What investor behavior is Sara
most likely exhibiting?
A) Rationalization
B) Loss aversion
C) Fear of regret
D) Overconfidence - ✔✔B) Loss aversion
✔✔The investment policy statement (IPS) would most likely need a revision if which of
these events occurred?
A) The client took an early retirement from their company.
B) All of these events would require a revision in the IPS.
C) The client went through a divorce.
D) The client inherited a large sum of money. - ✔✔B) All of these events would require
a revision in the IPS.
✔✔Making an irrational decision based on information that should have no influence on
the decision at hand is known as
A) mental accounting.
B) confirmation bias.
C) hindsight bias.
D) anchoring. - ✔✔D) anchoring.
✔✔Which behavioral mistake is defined as a misunderstanding that an investor has in
relating nominal rates of return to real (inflation-adjusted) rates of return?
A) money illusion
B) representativeness
C) recency
D) mental accounting - ✔✔A) money illusion
✔✔Which of the following is NOT an example of a discontinuous change?
A) receiving a 10% raise at work
B) being laid off
C) winning the lottery
D) receiving a surprise inheritance - ✔✔A) receiving a 10% raise at work
✔✔Which one of the following is NOT an example of systematic risk?
A) Business risk
B) Purchasing power risk
C) Reinvestment risk
D) Interest rate risk - ✔✔A) Business risk
