AWMA Practice Exam Questions with Correct Answers

AWMA Practice Exam Questions with Correct Answers Baby boomers and older GenXers as compared to millennials and younger Gen Xers- -Are likely to be advised by a millennial adviser -Have financial planning needs that has stayed relatively the same over many years -Have not experienced significant bear markets -Are generally seeking many more technological options in financial planning - AnswerHave financial planning needs that has 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? -Financial risk -Default risk -Reinvestment rate risk -Interest rate risk - Answer-Reinvestment rate risk The relationship between investment strategy and investment policy is one in which -investment strategy is subservient to investment policy. -investment policy is determined by investment strategy. -investment strategy dictates the asset categories to be incorporated into the investment policy. -investment policy is established once the investment strategies to be used are agreed upon. ,investment strategy is subservient to investment policy. - AnswerIf ABC Corporation has net profits of $100,000 and distributes $50,000 as dividends. what is its taxable income? -$50,000 -$0 -$100,000 -$25,000 - Answer-$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? -Make an estimated tax payment before the end of the year. This will make up for any underwithholding. -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. -Make an estimated tax payment in December and another before the January 15 deadline for the fourth quarter. This will make up for any underwithholding. -No exceptions to the underpayment penalty are available. - Answer-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? It represents an asset that may be purchased to fund the employer's unsecured promise to pay deferred amounts to the employee. It offers the advantage of being able to fund a death benefit immediately. It offers the advantage of various settlement options. It offers the advantage of simplified administration since death proceeds are paid directly to an employee's surviving spouse or other beneficiary. -II and IV -I and II -I, II, and III -I and III - Answer-I, II, and III Which statement best explains the unauthorized practice of law? -A non-attorney who discusses with a licensed attorney whether provisions in their client's will are necessary -A non-attorney who advises a client to have their estate plan updated -A non-attorney who advises a client of potential "red flags" in their estate plan -A non-attorney who advises a client to take actions that will affect their property or legal rights - Answer-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 -partners no longer share in both the profits and losses of the firm. -risk taking has increased. -there is greater individual accountability. -profits can be privatized (bonuses) and losses socialized (bailouts). - Answer-there is greater individual accountability. The most important stated life goal of wealthy individuals is -assuring retirement lifestyle. -maintaining good health. -protecting wealth. -leaving an estate to heirs. - Answer-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. % of Portfolio Value Beta Stock A 10% 1.1 Stock B 20% 1.15 Stock C 30% 1.3 Stock D 40% 1.25 What is the weighted-average beta of Wilson's stock portfolio? - Answer-1.23 Which of these is an advantage of equity REITs over mortgage REITs? -Equity REITs have the right to repossess the underlying property if the mortgage REIT fails to make its mortgage payments. -Equity REITs participate in the capital gains of the mortgages, whereas mortgage REITs receive only the coupon payments. -Equity REITs retain the right to the potential appreciation of a property, but mortgage REITs retain the right to only the property's rental income. -Equity REITs can participate in the appreciation of the underlying properties. - AnswerEquity 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? -SARSEP -Cross-tested ESOP -Target benefit plan -Age-weighted profit sharing plan - Answer-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? -$5,000 -$6,000 -$0 -$11,000 - Answer-$5,000 Investment interest expense is deductible up to the amount of net investment income. The fact pattern tells us that the net investment income is $11,000, thus it is the maximum deduction. The actual deduction is limited to the amount of investment interest, which we know is $6,000. The fact that the dividends are included in the net investment income indicates that the taxpayer elected to include them in investment income and is forgoing the preferential capital gain rates associated with qualified dividends.