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Wealth Management Exam

Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Investment banks - financial consultants






2. How far does it stray? - do other client characteristics justify the variance? what changes need to be made to correct? - how long? - - cost in taxes and transaction costs? - worth it to reallocate?






3. Buy low and sell high






4. Weighted average of the expected returns of its components






5. Paid as percentage of assets under management for your advice






6. Unique risks






7. Economy wide risks - consumer spending - economy






8. Who wants ongoing service over financial affairs; should align interests insofar as the wealth management professional wants to see the portfolio grow as much as the client






9. Brokerages - insurance companies






10. 4 yrs qualified investment work experience - completion of cfa program - 3 6hr exams - 2-5 yrs to complete






11. Define investor profile and liquidity needs over time - identify the proportion of each section in line with your risk profile - investor profile - asset allocation






12. Paid for U.S. corp or qualified foreign corp - taxed at 15% for those in tax bracket of 25% or more - taxed at 0% for those in tax bracket less than 25% - holding period requirement






13. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. prospective purchasers should much prefer sinking prices






14. Paid per transaction for your idea






15. Asset allocation and diversification






16. Ordinary income tax rate (high - up to 35%) - capital gains rate (low - 0% or 15%)






17. You would have missed 96% of market's gains






18. Fees or expenses - tax consequences






19. Restricted and unrestricted funds - characteristics and constraints






20. St. dev. - correlation or R2 - VaR- value at risk






21. Probability theory






22. Recovery rate (how much get back if default)

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23. Used to minimize issuer specific risks - principle of holding more than one risk at a time






24. Private banks - mutual funds - retail brokerages - hedge/private equity funds






25. Payoff-expected value






26. Economy wide risks - consumer spending - economy






27. Across and within asset classes - internationally as well as domestically - find investments with low correlation R2 - asset correlation changes over time - for stocks diversify across and within sectors - diversify over time with dollar cost averagi






28. Measure of uncertainty about the future payoff to an investment measured over some time horizon and relative to a benchmark






29. Investment banks - financial consultants






30. Focus on integrated services/ cross selling - may be less pressure to sell than brokerage but more than community bank - blurring lines between brokerage and trust areas






31. Monitoring performance and adherence to policy - reviewing IPS on regular basis






32. Determines broad portfolio composition across asset classes - allocation between stock - bond - and cash determined more than 90% of the variability of returns






33. Bonds: coupon income + changes in price due to changes in interest rates - stocks: dividend yield + growth in earnings + change in p/e






34. Income and capital gain/loss in value - income is passed through to shareholders - gain/loss occurs on the mutual funds shares as well as on the underlying fund portfolio - fund portfolio gains are passed to shareholders; losses are retained in the f






35. Review at least annually to manage gains/losses - clients adding or taking distributions require more frequent monitoring






36. Strategy of reducing idiosyncratic risk by making two investments whose payoffs are unrelated






37. Get paid on hourly basis for advice






38. The theoretical rate of return of an investment with no risk of financial loss - i.e. short dated domestic govt bond (default benchmark)






39. If stocks are chosen carefully to create lowest possible correlation of returns - if those stocks are monitored carefully to assure that they will continue to have uncorrelated returns






40. Brokerages - investment banks - commercial banks - trust departments - large comprehensive accounting firms - independent financial planners - insurance companies






41. Get paid on hourly basis for advice






42. Appropriate credit quality and interest rate risk - no individual corporate issuer more than 5%






43. Representation in domestic and international - large - mid - small cap - no individual stock more than 5% of total portfolio






44. High ethical standards - communication skills - quantitative and analytical skills - attention to detail - work independently - current events - financial matters - client interests






45. Accumulate wealth over time by spending less than they earn - invest 20% of income per year - incomes are about average - advanced degrees






46. Majority of diversification benefit is reached with a portfolio of as few as 15-20 stocks => no more than 5% of stock portfolio in any one company - depends on definition of market






47. If stocks are chosen carefully to create lowest possible correlation of returns - if those stocks are monitored carefully to assure that they will continue to have uncorrelated returns






48. In a fee based environment - base salary typically has a sig. variable component in the form of commissions or bonuses - variable compensation determined by quantitative and qualitative factors - similar to fee arrangement for client






49. Selling loses so you avoid capital gain taxes






50. St. dev. - correlation or R2 - VaR- value at risk







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