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Question 1 of 11
1. Question
What is not true about Life insurance?
Correct
The main risk that death brings to the survivors of an investor is the risk that the income the investor provided will no longer be available to help them meet their everyday liquidity needs. Life insurance is very helpful to the investor in planning for such eventualities. Depending on the contract, life insurance will provide a payment to the investor’s beneficiaries on the investor’s death. Term life insurance provides the highest benefit for the least premium, and is ideal for young people with children. Over the age of 60, however, term life tends to become prohibitively expensive. After investor pass, their assets generally become part of their estate.
Incorrect
The main risk that death brings to the survivors of an investor is the risk that the income the investor provided will no longer be available to help them meet their everyday liquidity needs. Life insurance is very helpful to the investor in planning for such eventualities. Depending on the contract, life insurance will provide a payment to the investor’s beneficiaries on the investor’s death. Term life insurance provides the highest benefit for the least premium, and is ideal for young people with children. Over the age of 60, however, term life tends to become prohibitively expensive. After investor pass, their assets generally become part of their estate.
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Question 2 of 11
2. Question
What are three helpful tools used to help in planning against loss of income caused by disability?
I. Social Security
II. Workers’ compensation
III. Disability insurance
IV. Employers’ compensation
Correct
In the event investors become disabled, they and their dependents may experience a loss of income. There are three helpful tools used to help in planning against loss of income caused by disability: Social Security, workers’ compensation, and disability insurance.
Incorrect
In the event investors become disabled, they and their dependents may experience a loss of income. There are three helpful tools used to help in planning against loss of income caused by disability: Social Security, workers’ compensation, and disability insurance.
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Question 3 of 11
3. Question
What is not true about Workers’ compensation and Social Security?
Correct
In the event investors become disabled, they and their dependents may experience a loss of income. There are three helpful tools used to help in planning against loss of income caused by disability: Social Security, workers’ compensation, and disability insurance. Workers’ compensation and Social Security are government plans that help provide income and medical benefits in the event of an accident (workers’ compensation only covers accidents that occur on the job), but often do not provide adequate replacement of income to ensure that the client’s family does not experience a significant change in lifestyle in the event that they are needed.
Incorrect
In the event investors become disabled, they and their dependents may experience a loss of income. There are three helpful tools used to help in planning against loss of income caused by disability: Social Security, workers’ compensation, and disability insurance. Workers’ compensation and Social Security are government plans that help provide income and medical benefits in the event of an accident (workers’ compensation only covers accidents that occur on the job), but often do not provide adequate replacement of income to ensure that the client’s family does not experience a significant change in lifestyle in the event that they are needed.
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Question 4 of 11
4. Question
What should be considered when determining a client’s financial status?
I. Client’s current expenditures.
II. Debt obligations.
III. Tax situation.
IV. Family balance sheet.
Correct
The financial status of a client is a holistic look at the client’s current financial condition. Items to be considering when determining a client’s financial status should include the client’s current expenditures, debt obligations, tax situation, all sources of income, and family balance sheet.
Incorrect
The financial status of a client is a holistic look at the client’s current financial condition. Items to be considering when determining a client’s financial status should include the client’s current expenditures, debt obligations, tax situation, all sources of income, and family balance sheet.
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Question 5 of 11
5. Question
What should included in the balance sheet as assest?
I. Cash holdings.
II. Real estate.
III. Investment holdings.
IV. Pensions or retirement accounts.
Correct
Assets included in the balance sheet should include cash holdings, real estate, investment holdings, pensions or retirement accounts, the cash value held inside permanent life insurance policies, and valuable personal items such as investment-grade numismatic collections and motor vehicles. The liabilities on the balance sheet should include current liabilities (credit cards, etc.), long- term debt, and any loans against investment products.
Incorrect
Assets included in the balance sheet should include cash holdings, real estate, investment holdings, pensions or retirement accounts, the cash value held inside permanent life insurance policies, and valuable personal items such as investment-grade numismatic collections and motor vehicles. The liabilities on the balance sheet should include current liabilities (credit cards, etc.), long- term debt, and any loans against investment products.
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Question 6 of 11
6. Question
What should be the kept in mind while reviewing a client’s current investments by a financial advisor?
I. It is part of the advisor’s fiduciary responsibility to ensure that the investments are still suitable to the client’s situation and needs.
II. The advisor should review the client’s current holdings and determine if it is best for the client to retain or sell those holdings.
III. The advisor should integrate the suitable holdings into the recommended financial plan.
IV. If the existing holdings are not suitable to the client’s situation, they should be replaced or liquidated accordingly with the client’s best interests.
Correct
When advising a client about general finances, it is very important to have a complete picture of the client’s current standing. The client’s existing investments are an integral part of the client’s current status. Whether or not the advisor sold the existing investments to the client, it is part of the advisor’s fiduciary responsibility to ensure that those investments are still suitable to the client’s situation and needs. The advisor should review the client’s current holdings and determine if it is best for the client to retain or sell those holdings and integrate the suitable holdings into the recommended financial plan. If the existing holdings are not suitable to the client’s situation, they should be replaced or liquidated accordingly with the client’s best interests.
Incorrect
When advising a client about general finances, it is very important to have a complete picture of the client’s current standing. The client’s existing investments are an integral part of the client’s current status. Whether or not the advisor sold the existing investments to the client, it is part of the advisor’s fiduciary responsibility to ensure that those investments are still suitable to the client’s situation and needs. The advisor should review the client’s current holdings and determine if it is best for the client to retain or sell those holdings and integrate the suitable holdings into the recommended financial plan. If the existing holdings are not suitable to the client’s situation, they should be replaced or liquidated accordingly with the client’s best interests.
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Question 7 of 11
7. Question
Why is it necessary to understanding the clients’ tax situation?
I. For providing proper advice regarding their current situation.
II. It dictates how much money should be set aside during the year regarding taxable events.
III. It helps the advisor recommend the most suitable investments to shelter income from taxation.
IV. It helps the advisor choose the appropriate account types for the client to take full advantage of current tax laws as well.
Correct
Understanding clients’ tax situation is critical to providing proper advice regarding their current situation. It dictates how much money should be set aside during the year regarding taxable events such as dividends and capital gains received from investments. It will also help the advisor recommend the most suitable investments to shelter income from taxation. Understanding the client’s tax situation will help the advisor choose the appropriate account types to take full advantage of current tax laws as well. In addition to helping the client obtain the lowest tax bill possible, the advisor is also well positioned to help the client ensure that he or she paying the appropriate amount to prevent incurring a large tax bill and penalties throughout the year.
Incorrect
Understanding clients’ tax situation is critical to providing proper advice regarding their current situation. It dictates how much money should be set aside during the year regarding taxable events such as dividends and capital gains received from investments. It will also help the advisor recommend the most suitable investments to shelter income from taxation. Understanding the client’s tax situation will help the advisor choose the appropriate account types to take full advantage of current tax laws as well. In addition to helping the client obtain the lowest tax bill possible, the advisor is also well positioned to help the client ensure that he or she paying the appropriate amount to prevent incurring a large tax bill and penalties throughout the year.
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Question 8 of 11
8. Question
What should be considered to determine the investor’s risk tolerance?
I. The advisor should consider how much loss the investor is willing to accept.
II. The investor’s cash needs.
III. Investment experience.
IV. Expectations concerning return on investment.
Correct
To determine the investor’s risk tolerance, the advisor should consider how much loss the investor is willing to accept and the investor’s cash (or liquidity) needs, tax situation, time horizon, investment experience, current holdings, expectations concerning return on investment, emotional connection to investments, and acceptance of market oscillations.
Incorrect
To determine the investor’s risk tolerance, the advisor should consider how much loss the investor is willing to accept and the investor’s cash (or liquidity) needs, tax situation, time horizon, investment experience, current holdings, expectations concerning return on investment, emotional connection to investments, and acceptance of market oscillations.
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Question 9 of 11
9. Question
What are the nonfinancial information that should be considered to properly advise the client and meet the client’s suitability requirements?
I. Age.
II. Marital Status.
III. Familial needs pertaining to education and health care.
IV. Job security with the client’s current employer.
Correct
The following is a list of pertinent nonfinancial information that should be considered to properly advise the client and meet the client’s suitability requirements:
• Age
• Marital status
• Familial needs pertaining to education and health care
• Employment and income of family members
• Job security with the client’s current employer
• Age of dependents
• Number of dependents
• Prior experience with investing
• Values and attitudes about investingIncorrect
The following is a list of pertinent nonfinancial information that should be considered to properly advise the client and meet the client’s suitability requirements:
• Age
• Marital status
• Familial needs pertaining to education and health care
• Employment and income of family members
• Job security with the client’s current employer
• Age of dependents
• Number of dependents
• Prior experience with investing
• Values and attitudes about investing -
Question 10 of 11
10. Question
Why experience is one of the most important nonfinancial considerations that can often supersede financial considerations?
I. Experience provides investors with relevant results from prior investing that they may call upon when making new decisions while working with the advisor.
II. Lack of experience on the investor’s part may hinder the investment process.
III. They may not understand or consider some of the implications associated with the risk that they are taking, even though they are flush with capital.
IV. An experienced investor with very little capital may be able to responsibly take on additional risk.
Correct
Experience is one of the most important nonfinancial considerations that can often supersede financial considerations. Experience provides investors with relevant results from prior investing that they may call upon when making new decisions while working with the advisor. Lack of experience on the investor’s part may hinder the investment process. While lack of experience is not necessarily a bad thing, it falls to the advisor to properly guide an investor through the maze of available investments. An attractive balance sheet with lots of assets and few liabilities is of less consideration than an investor who owns that balance sheet but is very inexperienced. They may not understand or consider some of the implications associated with the risk that they are taking, even though they are flush with capital. On the other hand, an experienced investor with very little capital may be able to responsibly take on additional risk that wouldn’t be suitable for an inexperienced investor in the same position.
Incorrect
Experience is one of the most important nonfinancial considerations that can often supersede financial considerations. Experience provides investors with relevant results from prior investing that they may call upon when making new decisions while working with the advisor. Lack of experience on the investor’s part may hinder the investment process. While lack of experience is not necessarily a bad thing, it falls to the advisor to properly guide an investor through the maze of available investments. An attractive balance sheet with lots of assets and few liabilities is of less consideration than an investor who owns that balance sheet but is very inexperienced. They may not understand or consider some of the implications associated with the risk that they are taking, even though they are flush with capital. On the other hand, an experienced investor with very little capital may be able to responsibly take on additional risk that wouldn’t be suitable for an inexperienced investor in the same position.
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Question 11 of 11
11. Question
Which is not a feature of CAPM?
Correct
According to the capital asset pricing model, stocks are priced based on two types of risk, systematic and unsystematic. Given this assumption, the investor should be able to demand higher return for great risk taken, and expect less return for less risk taken. Modern portfolio theory is based on this principal and places emphasis on using CAPM to calculate and control risks and rewards. Portfolio diversification based on the capital asset pricing model theory should theoretically allow the investor to reduce risk while increasing returns. This theory is proven relevant regarding bonds and stocks due to the nature of the relative safety of bonds compared to stocks, and the difference in the potential returns realized.
Incorrect
According to the capital asset pricing model, stocks are priced based on two types of risk, systematic and unsystematic. Given this assumption, the investor should be able to demand higher return for great risk taken, and expect less return for less risk taken. Modern portfolio theory is based on this principal and places emphasis on using CAPM to calculate and control risks and rewards. Portfolio diversification based on the capital asset pricing model theory should theoretically allow the investor to reduce risk while increasing returns. This theory is proven relevant regarding bonds and stocks due to the nature of the relative safety of bonds compared to stocks, and the difference in the potential returns realized.