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






2. High income upside potential - low base salary - greater requirement to sell in many cases - including cold call - cutting edge investment thinking - products - and support - SEC licensing required - potential long term commitment required






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






4. 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






5. 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






6. Restricted and unrestricted funds - characteristics and constraints






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






8. Weighted average of the expected returns of its components






9. Culture/philosophy - money - risk/reward - career trajectory - other support roles






10. Paid per transaction for your idea






11. 0 company could fail






12. 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






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

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14. 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






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






16. Unique risks






17. 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






18. Brokerages - insurance companies






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






20. 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






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






22. 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






23. 3 yrs qualified work experience - complete cfp courses and exams - financial planning - employee benefits planning - investment planning - risk management - retirement planning






24. 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






25. Unique risks






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






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






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






29. Don't want stocks highly correlated if trying to diversify






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






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






32. Client is unwilling to make appropriate trades due to tax impact or sentimental attachment - wealth management is unable to determine correlations between stocks - trading them through time (actively managing account)






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






34. Restricted and unrestricted funds - characteristics and constraints






35. 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






36. Take account of the bank's strategy - product - recommendations - ideas and investment themes - apply allocation rules - investment proposal






37. 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






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






39. Weighted average of the expected returns of its components






40. 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?






41. 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






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

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43. Payoff-expected value






44. Selling loses so you avoid capital gain taxes






45. 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






46. Take account of the bank's strategy - product - recommendations - ideas and investment themes - apply allocation rules - investment proposal






47. Bringing portfolio back to our allocation policy when market forces or life events changed the mix






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






49. 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






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







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