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






2. Restricted and unrestricted funds - characteristics and constraints






3. More stability - higher salary - less upside potential for income - may need fiduciary skill - more focus on client service - less on asset gathering - sec licensing likely not required - call primarily on bank customers






4. Assumption of trustee for assets - standard of prudence applied to whole portfolio rather than individual asset - tradeoff between risk and return - trustee can invest in anything that plays an appropriate role in risk/return profile - diversificati






5. Payoff-expected value






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






7. Who wants significant input on investment selections or who has very few transactions and very little change in circumstances






8. Square root of variance/initial investment






9. 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






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






11. Invest some fixed amount of money at regular intervals - allows to buy more shares when prices are low - not market timing doesn't work - reduces down side risk of putting lump sum in prior to a drop in value






12. Income (dividends - interest - rents) - capital gain/ loss in value






13. Buy low and sell high






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

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15. Understand incentives of journalists - analysts - and companies in trying to make you take action - stay in the market - continue to add to your portfolio - buy and hold works






16. 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






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






18. Private banks - mutual funds - hedge funds - trust companies - brokerages






19. Assumption of trustee for assets - standard of prudence applied to whole portfolio rather than individual asset - tradeoff between risk and return - trustee can invest in anything that plays an appropriate role in risk/return profile - diversificati






20. Never - monthly - quarterly - if more than 5% from target at month's end - if more than 5% from target at quarter's end






21. Asset allocation and diversification






22. Broker/dealer- FINRA - SEC - bank exemption- fed and state regulators - employers - industry associations






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






24. Value of the worst possible outcome - measures maximum potential loss - over a specific time horizon - at a given probability - used widely in the management and regulation of financial institutions






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






26. Fees or expenses - tax consequences






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. 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






29. 1. define your needs and objectives 2. develop investment sections 3. regularly monitor your portfolio 4. validation






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






31. Amount of money you have paid into the house






32. Purpose of the funds to be invested - investment objectives - responsibilities of the investment manager - responsibilities of the client - set allocation policy based on targets or ranges






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






34. Payoff X probability - payoff is the potential return of the investment






35. Rebalance tax deferred accts first to reduce tax consequences - use tax loss harvesting in your taxable accounts prior to dec. 31 - try taking gains in taxable acct after 12/31 - when taking distributions - sell from overweight classes first - when a






36. General economic conditions - tax consequences of change - role of asset w/ in total portfolio - total return including income and principal - other resources - need for liquidity - income - preservation or appreciation of principal






37. Weighted average of the expected returns of its components






38. Broker/dealer- FINRA - SEC - bank exemption- fed and state regulators - employers - industry associations






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 - insurance companies






41. 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






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






43. 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






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






45. Probability theory






46. Risk by keeping investor with pre-determined risk profile






47. 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






48. Sum of probabilities - probability weighted sum of the possible outcomes






49. Commission - fee - salary - hourly fee for service






50. Increases risk and reduces sharpe (return/risk) ratios