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AAMS ALL MODULES QUESTIONS AND ANSWERS
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AAMS ALL MODULES QUESTIONS AND ANSWERS
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AAMS ALL MODULES QUESTIONS AND ANSWERSAn employer plans to use corporate-owned life insurance to informally fund a
nonqualified deferred compensation agreement and wants flexibility regarding
investment choices. Which one of the following types of life insurance should this
employer choose? - Answers -Variable life insurance
The latest economic reports have been gloomy, and the stock market is in a protracted
slump. Most of your regular stock customers are selling out their positions. A new client,
Mr. Jones, sees these conditions as a buying opportunity. You would define his
investment personality as - Answers -contrarian
As of December 31, 20X1, Bob Larkin has the following financial data:
Bond fund $17,000
Residence$400,000
Vested 401(k) plan$95,000
Auto notes$16,000
Residence mortgage$285,000
Auto payments$7,000
Automobiles$45,000
Checking account$8,000
Utilities$4,000
CD$15,000
Stock$125,000
Home equity loan$40,000
What is Bob's net worth? - Answers -$364,000
Assets = $17,000 + $400,000 + $95,000 +$45,000 + $8,000 + $15,000 + $125,000 =
$705,000. Liabilities = $16,000 + $285,000 + $40,000 = $341,000, so net worth is
$364,000. Notice that auto notes of $16,000 are included in this calculation, but auto
payments of $7,000 is a cash flow item and therefore not included.
For the year ending December 31, 20X2, Ted Jones has the following financial
information:
Salaries$70,000
Auto payments$5,000
Insurance$3,800
Food$8,000
Credit card balance$10,000
Dividends$1,100
Utilities$3,500
Mortgage payments$14,000
Taxes$13,000
,Clothing$9,000
Interest income$2,100
Checking account$4,000
Vacations$8,400
Donations$5,800
What is the surplus or (deficit) for Ted? - Answers -$2,700
Income = $70,000 + $1,100 + $2,100 = $73,200. Expenses = $5,000 + $3,800 + $8,000
+ $3,500 + $14,000 + $13,000 + $9,000 + $8,400 + $5,800 = $70,500, so there is a
surplus of $2,700
Which one of the following statements comparing the suitability and fiduciary standards
is correct? - Answers -Legally, suitability disputes are often resolved in arbitration
whereas fiduciary disputes are ultimately resolved in the courts.
Which one of the following types of distributions from a qualified retirement plan may be
subject to mandatory 20% withholding? - Answers -indirect rollover
Which one of the following statements regarding a qualified plan is correct? - Answers -
The employer's deduction is available in the year that a contribution is made.
All of the following should be agreed upon between the client and the investment
professional when making recommendations based on an investment policy statement
EXCEPT - Answers -specific investments.
Which of the following has a direct bearing on which investments are appropriate for
achieving a goal? - Answers -the investor's time horizon
One purpose of an investment policy statement is to - Answers -provide guidelines
around which the portfolio is to be constructed and managed.
Which of the following are elements of any investment policy statement?
I. the client's investment goal
II. suitable and unsuitable investment vehicles
III. an acceptable risk level
IV. a provision for periodic review - Answers -D)
I, II, III, and IV
As the investment policy statement formulation moves to policy implementation, the -
Answers -A)
investment professional takes a leading role.
An investor notices that technology stocks are in a strong bull market and wants to take
advantage of it. Even though valuations are at record high levels, he buys a technology
,stock that a brokerage firm is recommending. Which one of the following is the investor
demonstrating? - Answers -C)
rationalization
One change in a client's situation that would require an adjustment in the asset
management process would be - Answers -a sudden early retirement from employment.
Dan has bonds maturing in two weeks. Since he bought the bonds, interest rates have
fallen. Dan's bonds are most likely subject to which one of the following risks? -
Answers -reinvestment risk
Jim 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% 1.10
Stock B 20% 1.15
Stock C 30% 1.30
Stock D 40% 1.25
What is the weighted-average beta of Jim's stock portfolio? - Answers -1.23
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? - Answers -
12.80%
Assume the following asset classes have the correlations to long-term corporate bonds
shown below:
Treasury bills: .01
Gold: -.25
Large stocks: .31
Small stocks: .26
Which one of the following provides the most diversification benefit to a portfolio
consisting of long-term corporate bonds? - Answers -Gold
Nancy has $10,000 to invest at the beginning of each of five years, at a fixed annual
rate of 8%. How much will her money be worth in five years? - Answers -$63,359
An investor who would like to know how a portfolio manager performed relative to how
the manager was expected to perform on a risk-adjusted basis would use which one of
the following indicators? - Answers -Jensen's alpha
Asset allocation can best be defined as the process of - Answers -distributing portfolio
investments among various investment categories.
, Based on historic performance data in the course, which class of assets has provided
the greatest pretax total return since 1926? - Answers -A)
small-cap stocks
Investment professional Ted Conway has just received the latest long-term total return
data for different asset classes. He sees that common stocks returned 10%
compounded with a standard deviation of 14.0; T-bills turned in a 4% return with a
standard deviation of 3.0. What is the expected return of a portfolio of 80% stocks and
20% T-bills? - Answers -(.80 x .10) + (.20 x .04) = .08 + .008 = 8.8%
Which one of the following is a characteristic of mortgage-backed securities? - Answers
-Quoted yields are based upon anticipated prepayments of the underlying mortgages.
According to research reports from your firm, CodeHead Software's earnings for this
year are estimated to be $2.00 and next year are estimated to be $2.25 per share. The
current P/E ratio of similar software vendors is 15, but CodeHead typically sells at a
10% premium to these other vendors. What stock price would you estimate for
CodeHead next year? - Answers -It sells at a 10% premium so the P/E of the industry,
15, has to be increased by 10%. 10% of 15 = 1.5, which added to 15 = 16.5. Then
taking next year's earnings of $2.25 × 16.5 = $37.125 or $37.13.
Henry owns a 10-year bond with a coupon rate of 4.85% (paid semiannually). If the
comparable yield for this quality bond is currently 5.5%, what should be the intrinsic
value of his bond? - Answers -A)
$930.51
B)
$847.03
C)
$950.51
D)
$929.67
Which of these correctly lists characteristics of the downturn period of a business cycle?
- Answers -falling interest rates, increased unemployment, lower lending activities
Tactical asset allocation is utilized to - Answers -move assets from those that appear
overvalued to those that appear undervalued.
The relationship between investment strategy and investment policy is one in which -
Answers -investment strategy is compliant with the investment policy.
Susan Benson has adopted a value averaging strategy of increasing her account's
value by $5,000 each month. How many shares (rounded to the nearest whole share)
should she purchase in the second month, given the information provided below? -
Answers -550
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