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Question 1 of 10
1. Question
Which of the following statements is true regarding Charges in a contract?
Correct
Charges in a contract
When a policyholder purchases a variable life insurance policy from an insurance company, the contract is priced in large part based upon expected mortality across the insurer’s book of business. Mortality costs are policy charges imposed against a policy’s cash value to compensate the insurer for taking the risk that mortality may occur sooner than projected.Incorrect
Charges in a contract
When a policyholder purchases a variable life insurance policy from an insurance company, the contract is priced in large part based upon expected mortality across the insurer’s book of business. Mortality costs are policy charges imposed against a policy’s cash value to compensate the insurer for taking the risk that mortality may occur sooner than projected. -
Question 2 of 10
2. Question
Which of the following statements is false regarding Settlement options?
Correct
Settlement options
The policyholder of a variable life insurance policy has a number of settlement options. The most common eventual settlement of a variable life insurance policy is through the death of the insured. In this instance, the death benefits specified by the policy are payable tax-free to the policyholder’s beneficiary(ies). Another alternative for the policy owner is to surrender the policy. With a surrender, the policyholder receives an amount equivalent to the cash value of the policy, adjusted for any enhancements or surrender charges, and forfeits all rights to any future death benefits from the policy.Incorrect
Settlement options
The policyholder of a variable life insurance policy has a number of settlement options. The most common eventual settlement of a variable life insurance policy is through the death of the insured. In this instance, the death benefits specified by the policy are payable tax-free to the policyholder’s beneficiary(ies). Another alternative for the policy owner is to surrender the policy. With a surrender, the policyholder receives an amount equivalent to the cash value of the policy, adjusted for any enhancements or surrender charges, and forfeits all rights to any future death benefits from the policy. -
Question 3 of 10
3. Question
Which of the following statements is true regarding Cash value?
Correct
Cash value
Upon the issuance of a variable life insurance policy, the premium deposit is charged with any applicable sales loads and premium expenses and is allocated in the subaccounts specified by the policyholder. The cash value of the policy will grow based upon the performance of the selected subaccount(s), less any mortality charges, investment management fees, administrative expenses, and cost of insurance charges, which are all typically applied monthly or quarterly.Incorrect
Cash value
Upon the issuance of a variable life insurance policy, the premium deposit is charged with any applicable sales loads and premium expenses and is allocated in the subaccounts specified by the policyholder. The cash value of the policy will grow based upon the performance of the selected subaccount(s), less any mortality charges, investment management fees, administrative expenses, and cost of insurance charges, which are all typically applied monthly or quarterly. -
Question 4 of 10
4. Question
Which of the following statements is true regarding Whole life insurance?
Correct
Whole life insurance
A whole life insurance policy requires a fixed premium payment over a given period of time (i.e., 10 years or through age 90) and in return provides for a level death benefit over the life of the contract. The cash value of the contract increases according to a rate specified in the contract at the time of issue and the insurance company, not the insured, is at risk of investing the assets in such a way as to make a profitable return on the funds.Incorrect
Whole life insurance
A whole life insurance policy requires a fixed premium payment over a given period of time (i.e., 10 years or through age 90) and in return provides for a level death benefit over the life of the contract. The cash value of the contract increases according to a rate specified in the contract at the time of issue and the insurance company, not the insured, is at risk of investing the assets in such a way as to make a profitable return on the funds. -
Question 5 of 10
5. Question
Which of the following statements is true regarding Universal life insurance?
Correct
Universal life insurance
A universal life policy differs from a whole life policy primarily through the flexibility of premium payments. Additionally, any amount paid into the policy as premium is credited with interest based upon a rate set by the insurer and also is debited with cost of insurance charges based upon the insured’s demographic information and the amount of net amount at risk (excess of death benefit over cash value). The death benefits can be much higher for a given level of premium than in a whole life contract, but the charges taken from policy values will be higher.Incorrect
Universal life insurance
A universal life policy differs from a whole life policy primarily through the flexibility of premium payments. Additionally, any amount paid into the policy as premium is credited with interest based upon a rate set by the insurer and also is debited with cost of insurance charges based upon the insured’s demographic information and the amount of net amount at risk (excess of death benefit over cash value). The death benefits can be much higher for a given level of premium than in a whole life contract, but the charges taken from policy values will be higher. -
Question 6 of 10
6. Question
Which of the following statements is false regarding Taking a loan from a life insurance policy?
Correct
Taking a loan from a life insurance policy
Life insurance policies typically contain provisions that allow the policyholder to take a loan against the policy up to a certain percentage of the policy’s cash value (often 90%). The life insurance policy will specify the amount of the interest that will accrue on the loan balance, which will be due at the next policy anniversary. Additionally, the policy will specify a rate of interest to be credited on the borrowed cash value that will be some spread below the loan interest rate.Incorrect
Taking a loan from a life insurance policy
Life insurance policies typically contain provisions that allow the policyholder to take a loan against the policy up to a certain percentage of the policy’s cash value (often 90%). The life insurance policy will specify the amount of the interest that will accrue on the loan balance, which will be due at the next policy anniversary. Additionally, the policy will specify a rate of interest to be credited on the borrowed cash value that will be some spread below the loan interest rate. -
Question 7 of 10
7. Question
Which of the following statements is true regarding Risks with purchasing domestic corporate bonds?
Correct
Risks with purchasing domestic corporate bonds
An investor purchasing domestic corporate bonds will face a number of risks. Two of the most important of these risks include interest rate risk and reinvestment risk. The interest rate risk in this circumstance arises from the fact that the investor would be subject to a reduction in the value of the security if market interest rates rise. Additionally, the investor would be subject to reinvestment risk if market interest rates fall as their receipt of coupon payments could not be reinvested at previously prevailing rates.Incorrect
Risks with purchasing domestic corporate bonds
An investor purchasing domestic corporate bonds will face a number of risks. Two of the most important of these risks include interest rate risk and reinvestment risk. The interest rate risk in this circumstance arises from the fact that the investor would be subject to a reduction in the value of the security if market interest rates rise. Additionally, the investor would be subject to reinvestment risk if market interest rates fall as their receipt of coupon payments could not be reinvested at previously prevailing rates. -
Question 8 of 10
8. Question
Which of the following statements is true regarding Risk with purchasing an emerging markets equity mutual fund?
Correct
Risk with purchasing an emerging markets equity mutual fund
An investor purchasing an emerging markets equity security will face a number of risks. Two of the most important of these risks include social and political risk and currency exchange risk. Due to the less stable nature of many governments within emerging markets, emerging markets equities typically require a higher level of expected returns to compensate investors for the additional level of risk to the security. The real risk of political instability is that changes in the government structure or in the government’s attitude toward business and international integration could negatively impact the price of a security.Incorrect
Risk with purchasing an emerging markets equity mutual fund
An investor purchasing an emerging markets equity security will face a number of risks. Two of the most important of these risks include social and political risk and currency exchange risk. Due to the less stable nature of many governments within emerging markets, emerging markets equities typically require a higher level of expected returns to compensate investors for the additional level of risk to the security. The real risk of political instability is that changes in the government structure or in the government’s attitude toward business and international integration could negatively impact the price of a security. -
Question 9 of 10
9. Question
Which of the following statements is true regarding Risks with purchasing a market neutral hedge fund?
Correct
Risks with purchasing a market neutral hedge fund that is priced monthly
An investor purchasing a market neutral hedge fund will face a number of risks. Two of the most important of these risks include liquidity risk and business risk. With any security that is priced monthly, it can be difficult for investors to adequately liquidate their position if there are substantial changes in either the position of the fund or if the investor’s personal situation changes such that liquidity is required. Additionally, with a liquidity restriction it may be more likely that multiple investors will choose to exit the fund at the same time, thus driving down the price each investor will receive for their share of the security.Incorrect
Risks with purchasing a market neutral hedge fund that is priced monthly
An investor purchasing a market neutral hedge fund will face a number of risks. Two of the most important of these risks include liquidity risk and business risk. With any security that is priced monthly, it can be difficult for investors to adequately liquidate their position if there are substantial changes in either the position of the fund or if the investor’s personal situation changes such that liquidity is required. Additionally, with a liquidity restriction it may be more likely that multiple investors will choose to exit the fund at the same time, thus driving down the price each investor will receive for their share of the security. -
Question 10 of 10
10. Question
Which of the following statements is false regarding Risk with purchasing an equity security in a multinational conglomerate?
Correct
Risk with purchasing an equity security in a multinational conglomerate
An investor purchasing an equity security in a multinational conglomerate will face a number of risks. Two of the most important of these risks include currency exchange risk and business risk. Currency exchange risk will play a role in determining the required return for this security because all revenue derived from foreign operations will be subject to translation before inclusion in the financial statements, which are denominated in the home currency. Depending upon the countries in which the company operates and the expected currency exchange risk for those countries against the home currency, investors may require an additional expected return.Incorrect
Risk with purchasing an equity security in a multinational conglomerate
An investor purchasing an equity security in a multinational conglomerate will face a number of risks. Two of the most important of these risks include currency exchange risk and business risk. Currency exchange risk will play a role in determining the required return for this security because all revenue derived from foreign operations will be subject to translation before inclusion in the financial statements, which are denominated in the home currency. Depending upon the countries in which the company operates and the expected currency exchange risk for those countries against the home currency, investors may require an additional expected return.