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Certified Fund Specialist (CFS) > Part 2-Practice Test Questions > Flashcards

Part 2-Practice Test Questions Flashcards

1
Q

The typical bank loan fund has debt instruments with an average maturity of ___.

A

5.3 years or 5 years according to p. 16 of textbook

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2
Q

What is a SWP?

A

a Systematic Withdrawal Plan

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3
Q

What are the tax consequences of a SWP?

A

shares sold after 1 year of ownership qualify for Long Term Capital Gains (LTCG) taxes

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4
Q

True or False:
Any gift made to a custodial account is revocable as long as the child is still a minor.

A

False https://www.investopedia.com/terms/c/custodialaccount.asp#:~:text=Gifts%20to%20a%20custodial%20account,when%20they%20come%20of%20age.

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5
Q

According to a table in the CFS readings, if a client withdraws 6% of his/her nest egg each year, and the portfolio earns 5% per year, the portfolio will have a zero balance after ___ years.

A

32 years I ALREADY screenshotted and complained about this question to IBF

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6
Q

Form 1099-B is associated with ___.

A

the sale of fund shares

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7
Q

Can an individual or couple carry a capital loss BACKWARD?

A

No, only forward

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8
Q

CEF shares are listed on ___.
They can also be traded in the ___.

A

securities exchanges.
over the counter (OTC) market

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9
Q

When allocating an older client’s portfolio, think of their Social Security payments as a/an ___.

A

fixed-rate annuity??

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10
Q

When analyzing an investment, what variable is very likely to be the most predictable?

A

Cost … I think. Could not find this in the textbook, but online I found this: https://www.morningstar.co.uk/uk/news/149421/how-fund-fees-are-the-best-predictor-of-returns.aspx#:~:text=If%20you’ve%20been%20following,when%20they%20run%20the%20data.

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11
Q

The SEC requires fund prospectuses to show ___

A

before- and after-tax returns P. 193

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12
Q

Crosby bought some stock 360 days before his death. Uma bought some stock 3 days before her death. Victor bought some stock exactly 1 year before his death. The heir to Crosby, Uma, and Victor want to know if any of these inheritances qualify for possible long-term capital gains treatment if shares are sold 1 day after death (of Crosby, Uma, and/or Victor).

A

all 3 holding periods qualify for long-term capital gains treatment BECAUSE inherited property is automatically treated as “long term” for capital gains purposes. P. 201

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13
Q

The maximum tax bracket for earned income is ___.

A

taxpayer’s marginal bracket

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14
Q

There are ___ different types of investment companies.

A

4- ETFs, Open end funds, closed-end funds, and UITs P. 79

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15
Q

True or False:
If a mutual fund shareholder opts to have automatic reinvestment of dividends, such a feature will reduce his/her income taxes (vs. taking the dividends in cash).

A

False https://www.investopedia.com/ask/answers/011215/if-i-reinvest-my-dividends-are-they-still-taxable.asp

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16
Q

From 1940 through 2019, the worst U.S. GDP cumulative loss during a recession was ___.

A

-13.4% or -11.6% according to Washington Post https://www.washingtonpost.com/business/2021/01/28/gdp-2020-economy-recession/

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17
Q

___ of risk in a 60/40 stock/bond portfolio is in the stock portion.

A

90% P.144

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18
Q

With a long-short fund, what is the worst case situation?

A

long positions drop in value and the short positions increase in value. P.21 implies this

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19
Q

On an annual basis, U.S. stocks appreciate ___ of the time.

A

75% of the time P.152

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20
Q

Which sentences are True/False-
Equity REIT dividends qualify for the same tax rate as most U.S. stock dividends. Mortgage REIT dividends qualify for the same tax rate as most U.S. stock dividends.

A

Both sentences are false P.126

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21
Q

An ETN is similar to a/an ___ issued by a corporation.

A

IOU P. 96

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22
Q

Bear markets occur about once every ___ years.

A

4-6 years post WWII.
https://www.hartfordfunds.com/practice-management/client-conversations/managing-volatility/bear-markets.html

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23
Q

The financial services industry uses a ___ annual (real return) as an industry standard for annual withdrawals during retirement.

A

4-5% P. 179

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24
Q

EBITA (Earnings Before Interest, Taxes & Amortization) is sometimes referred to as ___.

A

cash flow
BUT EBITA and cash flow differ in the following ways -https://www.investopedia.com/ask/answers/012015/what-difference-between-cash-flow-and-ebidta.asp

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25
Q

EBITA is not used as commonly as EBITDA, which adds __ to the calculation.

A

depreciation

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26
Q

With a bank loan fund, yields are ___

A

adjusted quarterly P. 15

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27
Q

SIPC does not provide protection for certain assets, including: _

A

(1) commodity futures contracts, (2) limited partnerships, and/or (3) fixed-rate annuities. P.69

28
Q

___ variation in returns reduces long-term annualized returns.

A

Greater …. I think P.145 may imply it and this Investopedia article seems to hint at it too.

https://www.investopedia.com/terms/v/volatility.asp#:~:text=of%20options%20prices.-,Understanding%20Volatility,and%20tends%20to%20be%20steadier.&text=While%20variance%20captures%20the%20dispersion,as%20the%20annualized%20standard%20deviation.

29
Q

Investors who have sufficient assets for the remainder of their lives have no ___ risk.

A

actuarial P.133

30
Q

___ risk is associated with developing countries.

A

Economic

31
Q

What asset category is most associated with bankers’ acceptances?

A

money markets P.41

32
Q

The acronym SWP is associated with ___.

A

mutual funds seems to be the answer the prompt wants (see P. 61-62) (but there are many other vehicles not mentioned in the question options but are still mentioned on P. 62 from what I can gather from this article: https://www.investopedia.com/terms/s/systematicwithdrawalplan.asp

33
Q

About 90% of day-to-day ETF trading is done by ___ with ___ of outstanding shares owned by individuals.

A

institutions; 85% P. 88

34
Q

Depending on the state of residency, how are accounts set up for minor children?

A

UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) P. 54

35
Q

What is a disadvantage of a c/p account?

A

either spouse can leave his/her share to anyone P.54

36
Q

The phrase glide through is most closely associated with ___ funds.

A

target date P. 7

37
Q

Focused funds with a low turnover tend to also have ___.

A

low volatility P. 10

38
Q

Which of the following is a feature of using a SWP?
- small cost to set up and small
- annual costs
-tax inefficiency
-locked in
-complete flexibility

A

complete flexibility P.61

39
Q

What asset category is closely associated with the phrase shadow pricing?

Shadow pricing is the ____.
There is a ___ delay in disclosure.

A

money market funds

actual market value of fund money market fund holdings as opposed to the $1 NAV investors pay for shares. Shadow prices were murky until 2011 when SEC required 2X per year disclosure. 2 month

40
Q

ETNs are ___.

A

prepaid forward futures contracts P. 96

41
Q

In the U.S., CEFs first began trading in ___.

A

1893

42
Q

Is there a strong correlation between inflation and the value of real estate?

A

No? Yes & it’s moderate? P. 109 I’m asking IBF for clarification on this one.

43
Q

Describe the typical money market fund.

A

short-term IOUs P. 35

44
Q

Ben and Cathy set up a joint tenants with rights of survivorship account. Ben invests $20,000 and Cathy invests $10,000. What is the ownership?

A

½ Ben and ½ Cathy

45
Q

Ryan and Catherine set up a Tenants in Common account. Ryan invests $20,000 and Catherine invests $10,000. What is the ownership?

A

2/3 Ryan and 1/3 Catherine

46
Q

The last time U.S. inflation was negative for a calendar year was ___.

A

1954 P. 18

47
Q

True or False:
Banks can pay whatever rate they wish on their money market fund accounts. Principal in a money market fund never decreases; only yields fluctuate.

A

Both are true P. 37

48
Q

___ is the only vehicle allowing its creator to control the estate “from beyond the grave.”

A

A trust P.55

49
Q

Public REITs own ___ of all industrial real estate.

A

1%
P.112

50
Q

In general, compared to government bond funds, a high-yield bond fund has ___ maturity.

A

a higher coupon rate and lower
P. 15

51
Q

In the ideal portfolio whose objective is risk reduction, the investor should seek asset categories that are/have ___.

A

a low or negative correlation coefficient

I think P. 242 hits this home
This article is consistent with this: https://www.investopedia.com/terms/n/negative-correlation.asp#:~:text=A%20diversified%20portfolio%20often%20aims,offset%20by%20gains%20in%20another.

52
Q

T-bills are subject to these risks: ___.

A

(1) opportunity, (2) purchasing power, (3) reinvestment, and/or (4) taxation. P.132

53
Q

The relationship between expected return and expected risk (using efficient portfolios and mean return) is known as ___.

A

Capital Asset Pricing Model (CAPM) P.132

54
Q

Commercial paper has original-issue maturities ranging from ___.

A

30-270 days
P.41

55
Q

True or False:
A mutual fund with a very high turnover rate can be very tax efficient.

A

True P.205

56
Q

With sector funds, you can select from ___ representing ___.

A

several hundred funds / over 45 industry segments.
P. 11ish

57
Q

Tenants in common accounts are___

A

much less popular than JTWROS. P. 54

58
Q

On an annual basis, U.S. stocks appreciate ___ of the time.

A

70-80%

59
Q

Lou and Maude have a c/p account and 3 adult children. What happens to the account if either Lou or Maude die?

A

account receives a 100% step-up in basis
P.54

60
Q

An ETF is a type of ___.

A

investment company
P.88

61
Q

As of 2019, institutions owned ___ of all equity REITs.

A

85%
P. 109

62
Q

Market risk is also known as ___.

A

systematic risk
P. 137

63
Q

The 10 largest individual ETFs account for ___ of all ETF assets.

A

40%
P. 88

64
Q

By far, the most popular type of money market fund is ___.

A

general purpose
P. 38

65
Q

The bid/ask spread of the world’s most popular ETF (symbol SPY) is ___ per share.

A

.01% per share P. 94

66
Q

What is the maximum amount of a money market fund’s portfolio that can be in what is called second-tier paper?

A

5%
P.43

67
Q
A

Certified Fund Specialist (CFS) (19 decks)

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