AWMA Practice Exam II – Advanced Wealth Management, Portfolio Strategy & Risk Analysis
MCQ Test
Using the capital asset pricing model, what is the expected return for a stock where its beta is
1.20, the risk-free rate is 4%, and the market rate of return is 10%? (Set calculator for four
decimal places to reduce rounding error.)
A)11.2%
B)8.8%
C)10.1%
D)16.0% - correct answer ✔✔A
.04 + 1.2 (.10 − .04) = .04 + .072 = .112 or 11.2%
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 - correct 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 - correct 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. - correct 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. - correct 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. - correct 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.
C)The study found the financial landscape to be complex and confusing for both financial
professionals and investors.
D)The study found that there was confusion over titles and credentials used in the field,
including generic titles such as financial adviser. - correct answer ✔✔B
The study found that the public does not have a good understanding about the different
standards that investment advisers and broker-dealers are held to. In fact, most participants in
the study believed that investment advisers and broker-dealers are held to the same standard,
namely being a fiduciary and looking out for the best interests of their clients.
An important difference with baby boomers, versus the earlier greatest and silent generations is
that
A)as a group, baby boomers have fewer funds to pass to the next generation.
B)baby boomers are working later into life.
C)the greatest and silent generations care more about supporting a present lifestyle.
D)the greatest and silent generations saved more toward retirement. - correct answer ✔✔B
Statistics from PEW Research show that baby boomers are staying in the workforce later than
the silent and greatest generations did.
Question #9 of 80
Question ID: 1334316
Assume you have the following portfolio:
StockWeightBetaBCD40%1.15EFG25%.90HIJ35%1.05
What is the overall weighted beta for this portfolio?
MCQ Test
Using the capital asset pricing model, what is the expected return for a stock where its beta is
1.20, the risk-free rate is 4%, and the market rate of return is 10%? (Set calculator for four
decimal places to reduce rounding error.)
A)11.2%
B)8.8%
C)10.1%
D)16.0% - correct answer ✔✔A
.04 + 1.2 (.10 − .04) = .04 + .072 = .112 or 11.2%
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 - correct 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 - correct 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. - correct 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. - correct 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. - correct 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.
C)The study found the financial landscape to be complex and confusing for both financial
professionals and investors.
D)The study found that there was confusion over titles and credentials used in the field,
including generic titles such as financial adviser. - correct answer ✔✔B
The study found that the public does not have a good understanding about the different
standards that investment advisers and broker-dealers are held to. In fact, most participants in
the study believed that investment advisers and broker-dealers are held to the same standard,
namely being a fiduciary and looking out for the best interests of their clients.
An important difference with baby boomers, versus the earlier greatest and silent generations is
that
A)as a group, baby boomers have fewer funds to pass to the next generation.
B)baby boomers are working later into life.
C)the greatest and silent generations care more about supporting a present lifestyle.
D)the greatest and silent generations saved more toward retirement. - correct answer ✔✔B
Statistics from PEW Research show that baby boomers are staying in the workforce later than
the silent and greatest generations did.
Question #9 of 80
Question ID: 1334316
Assume you have the following portfolio:
StockWeightBetaBCD40%1.15EFG25%.90HIJ35%1.05
What is the overall weighted beta for this portfolio?
