Ch 1 Practice Test Flashcards
All of the following are major steps in the asset management process except
a. gathering data
b. establishing an asset allocation policy
c. establishing goals
d. making and implementing recommendations
B.
Stefan’s business plan includes the following goals: “I will contact 50 prospective clients and document this activity in the CRM for tracking purposes.”
Which primary element of a good goal is missing? This goal is not:
a. relevant
b. time-framed
c. achievable
d. specific
B.
S.M.A.R.T.
Specific
Measurable
Achievable
Relevant
Time Framed
Which one of the following is NOT an invested asset?
a. 401k account
b. 180-day certificate of deposit
c. Individual brokerage account
d. Real estate investment trust
B.
A certificate of deposit is a cash equivalent and, therefore, should be listed under cash and cash equivalents.
Victoria Gregory’s financial situation is as follows:
Cash $15,000
Short-term debts $23,000
Long-term debts $140,000
Taxes $8,000
Invested assets $45,000
Use assets $192,000
What is her net worth?
a. $112,000
b. $252,000
c. $89,000
d. $81,000
C. $89,000
A - L = NW
Which on of the following statements best describes the income statement?
a. the income statement indicates, as of a definite date, the client’s receipts and disbursements.
b. The income statement indicates, as of a definite date, what an individual owns and owes.
c. The income statement indicates, for a certain period of time, an individuals cash inflows and outflows.
d. the income statement indicates, for a certain period of time, the growth of a clients assets and liabilities.
C.
The income statement describes cash flow for a period of time and contains the components of gross income, from which expenses are subtracted to determine either a surplus or a deficit.
All of the following provide a clearer picture of the clients needs except:
a. succession planning in place for a client involved in ownership of a small business
b. the current rate of inflation
c. anticipated retirement lifestyle
d. bad experiences with particular investments.
B. current rate of inflation
The current rate of inflation does not specifically provide insight in to a clients needs, although the rate of future inflation anticipated by the client will have an impact on the clients future needs.
Which one of the following is considered a ‘foundation’ goal?
a. mortgage payoff
b. emergency fund
c. college funding
d. retirement savings
B. emergency fund
Foundation goal is essential goal for survival in the event of a dramatic life event.
Which one of these is the best written financial goal?
a. acquire $300,000 for retirement
b. make money in the stock market
c. accumulate $15,000 for a boat purchase in two years
d. establish a fund for purchasing a second home in five years
c. accumulate $15,000 for a boat purchase in two years
What is the appropriate date to identify the statement of financial position of a calendar year client for the year 20XX?
a. For the period from Jan 1 to Dec 31, 20XX
b. at Dec 31, 20XX
c. for the period beginning Jan 1, 20XX
d. at Jan 1, 20X1
b. at Dec 31, 20XX
The statement of financial position (balance sheet) is presented as of a specific date in time (i.e., a snapshot).
How are assets valued on a statement of financial position?
a. fair market value
b. replacement value
c. residual value
d. actual cash value
a. fair market value
The fair market value is commonly defined by the IRS as the price that property will bring when offered for sale by a willing seller to a willing buyer, with neither being obliged to buy or sell.
All of these are topics that needs to be clarified before making investment recommendations except:
a. time horizons of the goals
b. the clients goals
c. basis for portfolio review
d. risk parameters of the client
c. basis for portfolio review
All of these are attributes of a good business plan except the plan
a. includes realistic action steps
b. only includes business-related goals
c. is written
d. is shared with someone
b. only includes business-related goals
When the personal circumstances of a client change, which asset management step does the investment professional return to?
a. data gathering
b. monitoring performance
c. implementing recommendations
d. analyzing information
a. data gathering
Which of these is the most important factor in establishing trust with a client?
a. having a pleasant manner
b. demonstrating professionalism and honesty
c. speaking with confidence
d. demonstrating knowledge
b. demonstrating professionalism and honesty
Which one of these is NOT one of the three characteristics of a well-defined goal?
a. dollar amount
b. purpose
c. time frame
d. realistic
d. realistic
The three important characteristics of a well-defined goal are the purpose, specific dollar amount, and the defined time frame.
Which one of these is a mismatch between a client’s time horizon and stated goal?
a. a professional, age 30, begins to contribute to a Roth IRA for her retirement
b. a 55-year-old client with no current retirement savings says that saving for retirement is her top priority; she plans to retire at 65
c. a client with no current savings who has a one-year-old son says that saving for her sons college education is her top priority.
d. a prospective client with a sizable amount of liquid assets wishes to purchase a recreational vehicle within seven years
b. a 55-year-old client with no current retirement savings says that saving for retirement is her top priority; she plans to retire at 65
Ten years is not enough time for this client to amass the capital needed to support a retirement period of 15 to 20 years (or longer).
Managing client expectations is best achieved by
a. educating the client
b. presenting research to the client
c. using past performance to reassure clients
downplaying client concerns
a. educating the client
In the asset management process, who ultimately makes the investment decision?
a. the compliance department
b. the client
c. the adviser
d. the client and adviser equally
b. the client
Which one of these is NOT included in an investment policy statement
a. the level of risk that may be taken
b. which types of securities to include in the portfolio
c. an expected rate of return
d. which securities to include in the portfolio.
d. which securities to include in the portfolio.
Which one of these types of investors is most concerned with losing what they have accumulated in their investment portfolio?
a. a contrarian investor
b. a risk-averse investor
c. a risk tolerant investor
d. a follower investor
b. a risk-averse investor
Risk averse investors are most concerned with losing what they have accumulated in their investment portfolios.
Which one of the following best describes the purpose of an investment policy statement (IPS)
a. to acquaint the investment professional with the client’s financial situation, and to determine the timing of acquisitions and sales
b. to educate the client about the relative performance of different asset classes, and to form a baseline for performance
c. to provide a foundation on which the clients portfolio is constructed, and to provide a bases for review and adaption to changing conditions
d. to select the individual assets, and to make an estimate of their individual rates of return
c. to provide a foundation on which the clients portfolio is constructed, and to provide a bases for review and adaption to changing conditions
Of the following, which one describes a key attribute of an investment policy statement?
a. adviser driven - the investment adviser determines the elements of an investment policy statement with the consent of the client.
b. long term perspective - to take advantage of the positive bias in the markets
c. flexible - decisions on securities are left to the investment professional’s discretion, based on the investment policy statement
d. specific - detail of how to manage the portfolio, including specific securities to be purchased.
b. long term perspective - to take advantage of the positive bias in the markets
time is of critical importance in an investment policy statement because
a. market timing is essential to investment performance
b. it determines the feasibility of the investment professional making recommendations that meet the client’s goals.
c. the current market and economic climates set client expectations for portfolio performance
d. an investor’s life expectancy determines the time horizon for a portfolio.
b. it determines the feasibility of the investment professional making recommendations that meet the client’s goals.
all of these are key elements contained in an investment policy statement except
a. a statement of the client’s risk tolerance level
b. a statement discussing the specific investments to be included in the portfolio
c. a statement regarding the portfolio’s asset allocation
d. a statement of the investment vehicles deemed suitable and unsuitable for the portfolio
b. a statement discussing the specific investments to be included in the portfolio
