AWMA Exam Practice Questions with Correct Answers

AWMA Exam Practice Questions with Correct Answers What are the 4 rules in terms of investing in a small firm? - Answer-Time frame of at least 3-5 years, diversify among 20-30 different issues, avoid turnover of 30% annually, and sell if and when 40% of company's shares become owned by institutional investors. What is a characteristic of an unfunded excess benefit plan? - Answer-The plan generally need not comply with either the disclosure or reporting requirements of ERISA. Unfunded excess benefit plans need not comply with ERISA disclosure or filing requirements. What is a correct statement regarding federal transfer taxation of the transfer of wealth? - Answer-The generation-skipping transfer tax (GSTT) can be applied to transfers of wealth between parties who are not related to each other. 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. According to the investment pyramid, what sequence is correct in terms of increasing safety of principal (least to most safety of principal)? - Answer-*futures contracts, balanced mutual funds, EE bonds In terms of increased safety of principal, of the four sequences given, the investment pyramid in the study materials shows futures contracts (least safety), balanced mutual funds, EE bonds (most safety with principal guaranteed by the U.S. government) is the correct sequence. Three years ago, Kerri received a gift of 1,000 shares of Mica Inc. common stock from her parents. The fair market value of the stock on the date of the gift was $20,000. Kerri's parents purchased the stock several years earlier for $40,000. She sold this stock for $31,000 last week. What is the amount of gain or loss, if any, from Kerri's stock sale? - Answer-$0 Where the fair market value on the date of gift is less than the donor's adjusted basis, and the asset is sold at a price between the fair market value on the date of gift and the donor's adjusted basis, there is no gain or loss recognized on the sale.