Asset Allocation Exam Study Guide

Transcription

1 Asset Allocation Exam Study Guide This document contains the questions that will be on the exam. When you have studied the course materials, reviewed the questions in this document, and feel that you are ready to take the exam, return to the login page to take the online exam. A Center for Continuing Education 1465 Northside Drive, Suite 213 Atlanta, Georgia (404) (800) Fax: (404) Revised 05/2012 Page 1

2 Asset Allocation 1. Market risk is: a. the risk that an asset will not increase in value to keep pace with or beat inflation. b. the risk of price fluctuation due to factors such as competition, weather, and industry-wide financial difficulties. c. the risk that a change in interest rates will effect a product s or security s price. d. the risk that the issuing entity of a security or product will be unable to meet its obligations. 2. Which of the following is not generally an advantage of a fixed annuity? a. tax-deferral b. flexible withdrawal and income provisions c. tax-free withdrawals d. guaranteed minimum rate 3. Purchasing-power risk is: a. the risk that an asset will not increase in value to keep pace with or beat inflation. b. the risk of price fluctuation due to factors such as competition, weather, and industry-wide financial difficulties. c. the risk that a change in interest rates will effect a product s or security s price. d. the risk that the issuing entity of a security or product will be unable to meet its obligations. 4. Which of the following statements is incorrect regarding variable life? a. Variable life is a type of whole life policy b. Variable life offers no guaranteed cash values c. Return on cash value within a variable life policy is based on sub-account performance. d. Variable life has a short-term investment horizon. 5. Political risk is: a. the risk of price fluctuation due to factors such as competition, weather, and industry-wide financial difficulties. b. the risk that a change in interest rates will effect a product s or security s price. c. the risk that the issuing entity of a security or product will be unable to meet its obligations. d. none of the above. 6. Equity-income funds are generally less aggressive than: a. small-cap funds. b. world stock funds. c. growth funds. d. all of the above. Revised 05/2012 Page 2

3 7. The predominate risk of products within the growth asset class is generally: a. purchasing-power risk b. default risk c. market risk d. interest-rate risk 8. Defensive stocks: a. are stocks issued by companies making military equipment. b. fluctuate greatly in price during economic downturns. c. fluctuate greatly in price during economic upturns. d. are issued by companies offering products or services whose demand does not fluctuate greatly with economic swings. 9. Mrs. Smith has a six month CD she rolls to a new CD each time it matures. She plans to use the money in this CD in her retirement years, about fifteen years from now. This CD is an example of: a. a short-term product used for a long-term purpose. b. a short-term product used for a short-term purpose. c. diversification. d. asset allocation. 10. A mutual fund company is: a. an investment company which offers shares of pooled securities to the public. b. required to offer both closed and open-end funds. c. limited to offering a maximum of ten different funds. d. regulated by the US Treasury. 11. Which of the following products would not be considered a liquid asset, but would instead be considered a fixed asset? a. checking account b. money market account c. corporate bond d. short-term CD 12. Of the following, which is not an advantage of taking a policy loan rather than surrendering a life policy? a. policy loans are not a taxable distribution, while surrenders are subject to taxation. b. the death benefit is not decreased by a policy loan, as it would be through a distribution, unless the loan is not paid back prior to the death of the insured. c. a policy loan is an interest free loan, whereas a surrender may be subject to back-end charges. d. the policy remains intact through a loan, but policy coverage ceases if the policy is surrendered. Revised 05/2012 Page 3

4 13. Which of the following products is not generally subject to purchasing-power risk? a. bank money market account b. bank savings account c. short-term certificate of deposit d. all of the above products are generally subject to purchasing power risk. 14. Series EE Savings Bonds have a final maturity of years from issue. a. 5 b. 20 c. 30 d Of the following types of municipal bonds, which are backed by the full faith, credit and taxing authority of the issuing municipality. a. special tax bonds. b. general obligation bonds. c. revenue bonds. d. private activity bonds. 16. The greatest risk in the purchase of collectibles as an investment is: a. default risk b. market risk c. interest-rate risk d. political risk 17. Although interest from municipal bonds is generally federally income tax-exempt: a. capital gain distributions are not. b. capital gain distributions are not unless they are reinvested. c. the IRS requires including it in income if a municipal bond fund includes bonds from more than one state. d. dividends from a mutual fund resulting from interest from municipal bonds are not federally tax-exempt. 18. Which of the following is not a type of REIT a. tax-free REIT b. equity REIT c. mortgage REIT d. combination REIT Revised 05/2012 Page 4

5 19. Which of the following products are not backed by the full faith and credit of the US Treasury? a. US Savings Bonds b. Treasury Notes c. Municipal Bonds d. FDIC Insured CDs 20. The primary use of gold in a portfolio is: a. as a hedge to protect a portfolio s overall return. b. to generate high income. c. to provide an asset with a guaranteed return. d. to provide a short-term product with a high return 21. A separate account is: a. considered part of the general assets of the insurance company. b. considered a separate legal entity from the issuing insurance company. c. another term for a sub-account. d. FDIC insured. 22. Of the following products, which generally has the longest recommended investment horizon? a. T-Bill b. short-term CD c. government bond stock fund d. aggressive growth stock fund 23. Bond rating agencies evaluate bonds for risk: a. interest rate b. purchasing power c. default d. market 24. Which of the following is not an advantage of sub-account investing? a. diversification b. guaranteed return c. variety of investment options d. separate account not subject to insurance company creditor claims Revised 05/2012 Page 5

6 25. Of the following, which is not an advantage of accumulating savings within life insurance cash values? a. Earnings grow tax-deferred. b. Life insurance provides a death benefit for beneficiaries. c. Premium payments can be a forced savings program for those who do not have the discipline to save otherwise. d. Cash values are guaranteed by the US Treasury. 26. Interest rate risk is: a. the risk that an asset will not increase in value to keep pace with or beat inflation. b. the risk of price fluctuation due to factors such as competition, weather, and industry-wide financial difficulties. c. the risk that a change in interest rates will effect a product s or security s price. d. the risk that the issuing entity of a security or product will be unable to meet its obligations. 27. Which of the following is not generally an advantage of a variable annuity? a. guaranteed minimum rates within sub-accounts b. opportunity to choose among many differing investment options c. flexible withdrawal and income provisions d. diversification and professional management 28. Default or financial risk is: a. the risk that an asset will not increase in value to keep pace with or beat inflation. b. the risk of price fluctuation due to factors such as competition, weather, and industry-wide financial difficulties. c. the risk that a change in interest rates will effect a product s or security s price. d. the risk that the issuing entity of a security or product will be unable to meet its obligations. 29. Which of the following is not federally income tax advantaged to an individual? a. municipal bond interest b. earnings within a fixed annuity prior to withdrawal c. earnings on life insurance cash values prior to withdrawal d. common stock dividends 30. Which of the following is not a goal of an asset allocation plan, as described in this course? a. Include products which have the appropriate features and characteristics to meet the needs of the portfolio holder. b. Place the appropriate amount of assets in the liquid class to meet short term and emergency needs. c. Reduce volatility in the portfolio by placing non-liquid assets in the appropriate mix of fixed and growth products. d. All of the above are goals of an asset allocation plan as listed in this course. Revised 05/2012 Page 6

7 31. ARM funds: a. invest primarily in adjustable rate mortgage securities b. have the same risks as money market funds, but return higher yields c. are all guaranteed by the full faith and credit of the US government. d. are too risky and should not be purchased. 32. Which of the following characteristics is not an important reason for selecting an asset allocation modeling tool? a. The tool results in a recommendation of more than one product choice to meet customer needs. b. The tool requires sufficiently detailed information to make a recommendation. c. The tool results in a recommendation of products which pay high commissions to the sales person. d. All of the above are important reasons for selecting an asset allocation tool. 33. Mutual funds can have all the following features or characteristics except: a. guaranteed returns b. diversification c. opportunity for growth d. professional management 34. Pre-payment risk: a. is found in most bonds. b. is associated with mortgage securities. c. is found primarily in securities issued outside the US. d. is associated with blue-chip stocks. 35. Preferred stock, like a bond: a. may be callable. b. is sold at a premium or discount. c. has coupons. d. pays a dividend 36. Which of the following products would generally be considered a short-term product? a. gold bullion b. REIT c. growth mutual fund d. treasury bill Revised 05/2012 Page 7

8 37. Of the following, which is generally considered to have the highest default risk? a. FDIC insured CD b. A high-yield corporate bond c. A Treasury Bond d. A blue-chip stock 38. Dollar cost averaging: a. involves investing a fixed amount of money on a regular basis which always results in reducing the average cost of shares over time. b. involves investing a fixed amount of money on a regular basis with the result of reducing the average cost of shares over time if dollar-cost averaging is practiced for at least three years. c. involves investing a fixed amount of money on a regular basis with the aim of reducing the average cost of shares over time. d. involves investing a fixed amount of money on a regular basis in at least three different funds with the aim of reducing the average cost of shares over time. 39. Which of the following is always an advantage of a mutual fund? a. liquidity b. high return c. safety d. principal guarantee 40. Mutual fund asset allocation programs: a. are the best option for clients because they will automatically have a perfect portfolio balance. b. allow tax-free movement among funds. c. include a new sales charge for each transfer among funds in the same family. d. can be a suitable component of a client s overall portfolio 41. Which of the following is not an accurate statement regarding gifting? a. Current income taxation may be reduced by gifting property generating significant current income. b. Future estate taxation may be reduced by gifting property with rapidly increasing value c. A donor may generally gift up to $12,000 per donee annually. d. Gifts between spouses are generally subject to gift taxation. 42. The two primary risks generally found in products within the fixed asset class are: a. default and purchasing power risks b. purchasing power and interest-rate risks c. market and default risks d. default and interest-rate risks Revised 05/2012 Page 8

9 43. The primary use of a REIT is for: a. income b. guaranteed return c. known low returns with guaranteed principal d. long-term growth 44. A sub-account is: a. a pool of securities invested to meet a specified objective. b. not regulated as a security. c. guaranteed to reach a specified rate of return. d. FDIC insured. 45. Transfers among sub-accounts within a variable product: a. are subject to current income taxation. b. are generally exempt from current taxation with the exception of transfers among Variable Life sub-accounts. c. are not recommended. d. are not subject to current income taxation. 46. The variable annuity is regulated as a security because: a. the policyowner bears the preponderance of the investment risk. b. the annuity issuer bears the preponderance of the investment risk. c. the policyowner and annuity issuer share the investment risk. d. individual states have insurance regulations which mandate that the variable annuity be considered a security. 47. Which of the following would not generally be used as an income vehicle? a. T-Bill b. immediate annuity c. Series HH Savings Bond d. municipal bond 48. All of the following statements regarding life insurance policy loans are correct except: a. Policy loans are not treated as a taxable distribution b. Policy loans are treated as a taxable distribution c. All cash value life insurance must allow policy loans. d. If a policy loan is not repaid before the death of the insured, the loan amount will be deducted from death proceeds paid to beneficiaries. Revised 05/2012 Page 9

10 49. Which of the following would not generally be included in the fixed asset class? a. bonds b. common stock c. fixed annuities d. CDs 50. Principal guarantee within an annuity contract means: a. that if the annuity is fully surrendered, no less than the principal will be paid. b. that the surrender charge on partial withdrawals will never be greater than cumulative interest earned. c. that withdrawals taken prior to surrender are not considered part of principal. d. all of the above. Revised 05/2012 Page 10