AWMA Exam 2 Questions with Correct
Answers
Baby boomers and older Gen Xers, as compared to millennials and younger Gen Xers
have financial planning needs that have stayed relatively the same over many years.
Dan has bonds maturing in two weeks. Since he bought the bonds, interest rates have
fallen. To which one these risks are Dan's bonds most likely to be subject?
Reinvestment rate risk
The relationship between investment strategy and investment policy is one in which
investment strategy is subservient to investment policy.
If ABC Corporation has net profits of $100,000 and distributes $50,000 as dividends,
what is its taxable income?
$100,000
Joseph, age 60, is a taxpayer who has a considerable amount of income that is not
subject to withholding. He has not made any estimated payments during the year. At a
planning review session in mid-December, his adviser informs him that he's
approximately $25,000 underwithheld. What course of action might Joseph follow to
avoid an underpayment penalty?
Initiate a $25,000 distribution from his IRA account, and direct that 100% of the distribution
be withheld for federal income tax before year-end. This will make up for any
underwithholding.
Which of these statements accurately describe characteristics of using life insurance for
the informal funding of a nonqualified deferred compensation plan?
,1.) It represents an asset that may be purchased to fund the employer's unsecured
promise to pay deferred amounts to the employee.
2.) It offers the advantage of being able to fund a death benefit immediately.
3.) It offers the advantage of various settlement options.
4.) It offers the advantage of simplified administration since death proceeds are paid
directly to an employee's surviving spouse or other beneficiary.
1,2, and 3
Which statement best explains the unauthorized practice of law?
A non-attorney who advises a client to take actions that will affect their property or
legal rights
Changes that have occurred since investment firms changed from private partnerships
to publicly traded companies include all of these except
there is greater individual accountability.
The most important stated life goal of wealthy individuals is
maintaining good health.
Wilson has a $20,000 portfolio of four different stocks. The distribution of this capital
and the betas of these stocks are shown below.
A 10% 1.1
,B 20% 1.15
C 30% 1.3
D 40% 1.25
Weighted Beta = 1.23
Which of these is an advantage of equity REITs over mortgage REITs?
Equity REITs can participate in the appreciation of the underlying properties.
Susan, age 50, is the sole shareholder of Market Designs Inc., a small consulting firm.
All of the employees of Market Designs are considerably younger than Susan, and
turnover is relatively high. Susan is paid more than three times the salary of the next
highest paid employee and wants to install a retirement plan for the company.
Excluding Susan, the oldest employee is 32. Which type of plan would be most
appropriate, assuming she wants to maximize the contributions for her account and
minimize the cost of the other employees?
Age-weighted profit sharing plan
For the current tax year, Bob, an individual taxpayer filing a joint return, has $6,000 of
investment interest expense and $11,000 of net investment income (interest income and
dividends). How much investment interest expense, if any, may Bob deduct in the
current tax year?
$6,000
Which statement below does not correctly describe a concept related to nonqualified
deferred compensation?
An example of substantial risk of forfeiture provisions would be the employee's loss of rights
to the plan benefits at death or disability.
, Bill has an estate worth $20 million and is unmarried with two children and four
grandchildren. He would like to transfer $16 million to a trust for the benefit of his
children and grandchildren. The trust will be irrevocable, and the trustee may
distribute income to the children for their lives with the remainder to be distributed to
the grandchildren. Which statement correctly analyzes the transfer tax implications of
this arrangement?
The trust is an indirect skip and generation-skipping transfer tax will be due upon a taxable
termination.
Regulation Best Interest does all of the following except
creates new private rights and protections for retail clients, including the right of rescission.
Your client tells you she wants to quickly establish a charitable organization in which
she will be a private donor and have the best tax benefit between a private foundation
and donor-advised fund. Which of these options would you suggest to her?
Donor-advised fund
The risk-free rate is 3%, the market rate of return is 10%, the standard deviation of
XYZ stock is 20, and the beta of XYZ stock is 1.40. Given this information, and using
the capital asset pricing model, what is the expected return of XYZ stock?
12.80%
Which of these describes the type of market directional hedge fund that takes a
corporate governance approach when investing?
Activist
Business owners need adequate liability coverage because they may be sued by
Answers
Baby boomers and older Gen Xers, as compared to millennials and younger Gen Xers
have financial planning needs that have stayed relatively the same over many years.
Dan has bonds maturing in two weeks. Since he bought the bonds, interest rates have
fallen. To which one these risks are Dan's bonds most likely to be subject?
Reinvestment rate risk
The relationship between investment strategy and investment policy is one in which
investment strategy is subservient to investment policy.
If ABC Corporation has net profits of $100,000 and distributes $50,000 as dividends,
what is its taxable income?
$100,000
Joseph, age 60, is a taxpayer who has a considerable amount of income that is not
subject to withholding. He has not made any estimated payments during the year. At a
planning review session in mid-December, his adviser informs him that he's
approximately $25,000 underwithheld. What course of action might Joseph follow to
avoid an underpayment penalty?
Initiate a $25,000 distribution from his IRA account, and direct that 100% of the distribution
be withheld for federal income tax before year-end. This will make up for any
underwithholding.
Which of these statements accurately describe characteristics of using life insurance for
the informal funding of a nonqualified deferred compensation plan?
,1.) It represents an asset that may be purchased to fund the employer's unsecured
promise to pay deferred amounts to the employee.
2.) It offers the advantage of being able to fund a death benefit immediately.
3.) It offers the advantage of various settlement options.
4.) It offers the advantage of simplified administration since death proceeds are paid
directly to an employee's surviving spouse or other beneficiary.
1,2, and 3
Which statement best explains the unauthorized practice of law?
A non-attorney who advises a client to take actions that will affect their property or
legal rights
Changes that have occurred since investment firms changed from private partnerships
to publicly traded companies include all of these except
there is greater individual accountability.
The most important stated life goal of wealthy individuals is
maintaining good health.
Wilson has a $20,000 portfolio of four different stocks. The distribution of this capital
and the betas of these stocks are shown below.
A 10% 1.1
,B 20% 1.15
C 30% 1.3
D 40% 1.25
Weighted Beta = 1.23
Which of these is an advantage of equity REITs over mortgage REITs?
Equity REITs can participate in the appreciation of the underlying properties.
Susan, age 50, is the sole shareholder of Market Designs Inc., a small consulting firm.
All of the employees of Market Designs are considerably younger than Susan, and
turnover is relatively high. Susan is paid more than three times the salary of the next
highest paid employee and wants to install a retirement plan for the company.
Excluding Susan, the oldest employee is 32. Which type of plan would be most
appropriate, assuming she wants to maximize the contributions for her account and
minimize the cost of the other employees?
Age-weighted profit sharing plan
For the current tax year, Bob, an individual taxpayer filing a joint return, has $6,000 of
investment interest expense and $11,000 of net investment income (interest income and
dividends). How much investment interest expense, if any, may Bob deduct in the
current tax year?
$6,000
Which statement below does not correctly describe a concept related to nonqualified
deferred compensation?
An example of substantial risk of forfeiture provisions would be the employee's loss of rights
to the plan benefits at death or disability.
, Bill has an estate worth $20 million and is unmarried with two children and four
grandchildren. He would like to transfer $16 million to a trust for the benefit of his
children and grandchildren. The trust will be irrevocable, and the trustee may
distribute income to the children for their lives with the remainder to be distributed to
the grandchildren. Which statement correctly analyzes the transfer tax implications of
this arrangement?
The trust is an indirect skip and generation-skipping transfer tax will be due upon a taxable
termination.
Regulation Best Interest does all of the following except
creates new private rights and protections for retail clients, including the right of rescission.
Your client tells you she wants to quickly establish a charitable organization in which
she will be a private donor and have the best tax benefit between a private foundation
and donor-advised fund. Which of these options would you suggest to her?
Donor-advised fund
The risk-free rate is 3%, the market rate of return is 10%, the standard deviation of
XYZ stock is 20, and the beta of XYZ stock is 1.40. Given this information, and using
the capital asset pricing model, what is the expected return of XYZ stock?
12.80%
Which of these describes the type of market directional hedge fund that takes a
corporate governance approach when investing?
Activist
Business owners need adequate liability coverage because they may be sued by
