CFP Asset Allocation Exam Study Guide - … 2 Asset Allocation Final Exam With Key (CFP) 1. The phrase “asset allocation” is best described as a: a. Phrase that is used often today

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CFP Asset Allocation

Exam Study Guide

This document contains the questions that will be on the exam. When you have studied the course materials, reviewed the questions

in this document, and feel that you are ready to take the exam, return to the login page to take the online exam.

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Asset Allocation Final Exam With Key (CFP) 1. The phrase “asset allocation” is best described as a:

a. Phrase that is used often today b. Phrase that is being gradually phased out and being replaced with more

technical terminology c. Phrase that is being gradually phased out and being replaced with more

simplified terminology d. Phrase that has meaning only to a select few individuals

2. Asset allocation is based on the theory of:

a. Diversification b. Arrangement c. Foundational maxims d. Macroeconomics

3. By diversifying among different securities, the overall return on an investor’s

money is statistically likely to be ______ over time than if all the money were placed in one corporation’s stock. a. Higher b. Slightly lower c. Much lower d. More variable

4. Which of the following statements regarding risk and investment portfolios is

true? a. All investment portfolios contain moderate risk. b. All investment portfolios contain significant risk. c. All investment portfolios contain some risk. d. Some investment portfolios do not contain any risk at all.

5. Which of the following entities issue a bond that has a risk of default that is considered to be virtually nonexistent? a. The U.S. government b. A small, undercapitalized corporation c. A large corporation newly reorganized to avoid bankruptcy d. No bond can be issued without moderate risk of default

6. The focus of the evaluation of bond rating agencies is: a. The popularity of a particular bond b. The diversification potential of a bond c. The relative ability of an issuer to meet the specific obligations of the

bond d. The issuer’s relative net worth

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7. What is the correct bond investment grade that should be stated in the shaded box in the table below?

General Industry Description

Moody’s S&P

Investment Grade

Aaa AAA

High Quality Aa AA

Upper Medium Grade A A

Medium Grade Baa BBB

a. Maximum Quality b. Prime c. Leading Grade d. Excellent

8. What is the correct bond investment grade that should be stated in the shaded box

in the table below?

General Industry Description

Moody’s S&P

Below Investment Grade

Ba BB

Speculative B B

Highly Speculative Caa CCC

Lowest Quality C C,D

a. Moderately Speculative b. Sub-Par c. Low Grade d. Under Rating

9. Some professionals refer to components of market risk as:

a. Accidental risk b. Unforeseen risk c. Event risk d. Basic risk

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10. Interest rate risk can impact which of the following products? a. Bonds, only b. Bonds and notes, only c. Equity securities, only d. Bonds, notes and equity securities

11. A bond’s price is $100. The bond has a fixed rate of 7%, and rates fell to 5%. Which of the following is most likely the price of the bond after rates fell? a. $0 b. $50 c. $100 d. $150

12. The price of a bond is important to: a. The investor who does not plan to hold the bond to maturity, only b. The investor who plans to hold the bond to maturity, only c. Any investor, regardless of how long he or she plans to hold the bond d. No investor

13. The _______ the term of a bond or the ___________ the number of years to the bond’s maturity, the more sensitive the bond price to interest rate changes. a. Longer; greater b. Longer; fewer c. Shorter; greater d. Shorter; fewer

14. If interest rates change, the impact on a high quality bond will be ____________ the impact on a low quality, or junk bond. a. Comparable to b. Relatively greater than c. Relatively less than d. Significantly less than

15. Since high quality bonds have low ______ risk, the high quality bond’s price is based primarily on _______. a. Default; its interest rate b. Purchasing power risk; the issuer’s solvency c. Market; the power of its customer base d. Political; the economic state of the nation

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16. A bond’s sensitivity to interest rate changes is impacted by: a. Whether the bond is callable, only b. Whether the coupon is a fixed rate or a floating rate based on an index c. Both whether the bond is callable and whether the coupon is a fixed rate or

a floating rate based on an index d. Neither whether the bond is callable nor whether the coupon is a fixed rate

or a floating rate based on an index

17. In general, products with a fixed rate have what kind of purchasing power risk when compared to those with a variable rate? a. Greater purchasing power risk b. Equal purchasing power risk c. Slightly lower purchasing power risk d. Significantly lower purchasing power risk

18. Common stock prices have, over time, _____________ as inflation indices, such as the Consumer Price Index, have risen. a. Moved upward b. Stayed flat c. Moved downward d. Become nearly negligible

19. A bond is purchased from a company within a developing country and the assassination of the country’s president and the ensuing chaos it brought about caused that bond’s price to plummet. This is an example of what kind of risk? a. Market risk b. Purchasing power risk c. Political risk d. Interest rate risk

20. Pre-payment risk is associated with: a. Mortgage securities b. Common stock c. Variable annuities d. Term life insurance

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21. Mortgage securities can provide a higher rate of return than _____ other government issued securities. a. Many b. Some c. Relatively few d. Very few

22. Exchange rate risk is the risk that the currency in a foreign country will: a. Increase in value relative to other currencies b. Decrease in value relative to other currencies c. Lose tangible backing d. Become obsolete due to the World Trade Organization’s new regulations

23. Asset allocation could be seen as __________the risk reduction principles of diversification. a. Going one step beyond b. Exactly matching c. Falling one step behind d. Falling many steps behind

24. To determine and apply an optimal portfolio mix, asset allocation principles dictate that an asset allocation mix be reviewed at least: a. Monthly b. Quarterly c. Semi-annually d. Annually

25. Various tools based on asset allocation theory exist. Most begin with: a. Identifying the optimal portfolio mix b. A customer profiling process c. The relocation of assets d. Comparing the current portfolio mix with the optimal mix

26. Another name for the liquid portion of a portfolio is: a. Equity b. Cash c. Debt d. Frozen assets

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27. The liquid portion of a portfolio is used for: a. Emergencies, only b. Short-term needs and emergencies c. Long-term needs, only d. Short or long-term needs

28. The liquid portion of a portfolio contains products: a. With guaranteed return, only b. With guaranteed principal, only c. With both guaranteed return and guaranteed principal d. With neither guaranteed return nor guaranteed principal

29. Typically, liquid assets are products with what kind of returns in a portfolio? a. The lowest returns in the portfolio over time b. The highest returns in the portfolio over time c. The most moderate returns in the portfolio over time d. The least predictable returns over time

30. _____ products generally refer to products with a guaranteed or stable return and/or guaranteed or stable principal, and often can generate income. These products are typically subject to interest rate risk and default risk. a. Liquid b. Equity c. Fixed d. Growth

31. The predominant risk exposure to growth products in a portfolio is: a. Interest rate risk b. Default risk c. Political risk d. Market risk

32. Investment products _______ easily fit into one particular class. a. Always b. Usually c. Do not always d. Never

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33. In which of the following asset class would collectibles belong? a. Liquid b. Fixed income c. Liquid or fixed income d. Growth

34. Risk tolerance and investment experience are _____ related.

a. Always b. Often c. Usually not d. Never

35. Investment experience is a _________ of risk tolerance. a. Reflection b. Concrete predictor c. Product d. Deterrent

36. Money is being saved for 10-year old Sam’s college education. Sam will need to use the money when he turns 18 and begins attending a local university. The 8-year period until the money saved will be used is called the: a. Purchase gap b. Waiting phase c. Investment horizon d. General time lapse

37. How many different tools are available to determine an optimal asset allocation mix? a. Many different tools b. Some different tools c. Relatively few different tools d. Very few different tools

38. Which of the following statements regarding the use of illustrations in an asset allocation model is true? a. At least 2 illustrations must always be used as part of the model b. At least 5 illustrations must always be used as part of the model c. If illustrations are used as part of the model, they should use reasonable

rates of returns d. Illustrations may never be used as part of the model

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39. What is the principal method that companies use to determine asset allocation

mix? a. Sophisticated computer programs b. The analytical skills of the managers c. Contracted evaluation companies d. The methods of determining the asset allocation mix vary from company

to company.

40. A short-term capital gain or loss is one that occurs when property held

for_________ is sold. a. 6 months or less b. 1 year or less c. 2 years or less d. 5 years or less

41. Although it is low, even an insured product such as a CD held in a financial institution has some investment risk. An insured CD may have purchasing power risk, for example. Therefore, it is never appropriate to label an investment product as. a. having a guaranteed rate b. insured c. risk-free d. suitable

42. The American Taxpayer Relief Act of 2012 made the 0% to 15% tax rates

permanent for qualified dividends paid to individual taxpayers with taxable income below $400,000; and joint taxpayers with taxable income below: a. $450,000 b. $550,000 c. $700,000 d. $800,000

43. Who is required to report to the shareholders of a mutual fund the type of distributions that the mutual fund company it has made and the corresponding tax information? a. The mutual fund company b. The government of the state the company is located in c. The federal government d. There is no required report to the shareholders of a mutual fund

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44. Liquid portfolio products share the characteristics of relatively ____ market and default risks, and relatively ____ return. a. Low; low b. Low; high c. High; low d. High; high

45. Ideally, the maximum amount of a portfolio placed in liquid assets is the amount needed to cover: a. Emergencies, only b. Short-term spending needs, only c. Emergencies and short-term spending needs d. Long-term spending needs, only

46. In today’s job environment, some experts suggest that an amount equal to ___ months of income should be set aside for emergencies. a. 2 b. 6 c. 12 d. 18

47. How should the asset needs within an asset allocation model be determined? a. The liquid assets needs should be determined first, then the suggested

percentages from the asset allocation model should be used to allocate the remaining assets to meet the needs of growth and income.

b. The income assets needs should be determined first, then the suggested percentages from the asset allocation model should be used to allocate the remaining assets to meet the needs of growth and liquid assets.

c. The growth assets needs should be determined first, then the suggested percentages from the asset allocation model should be used to allocate the remaining assets to meet the needs of liquid assets and income.

d. The liquid, income and growth assets needs should all be determined simultaneously

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48. Which of the following statements regarding short-term CDs is false? a. Short-term CDs are typically issued in thirty, sixty, 180, 270 day

maturities, as well as one, two, three, four and five year periods. b. The minimum deposit to open a short-term CD is always at least $1,000. c. At the end of the CD period, the customer may liquidate the account or

roll the CD over. d. The issuers of CDs have created new varieties in an effort to compete with

mutual funds and other products into which a more sophisticated public is now investing.

49. Rolling a CD means to reinvest in another CD of what maturity period?

a. The same maturity period, only b. The same or different maturity period c. The same or different maturity period, but only if the different maturity

period does not exceed the first maturity period by more than 1 year d. The same or different maturity period, but only if the different maturity

period does not exceed the first maturity period by more than 5 years

50. CDs are typically backed by the Federal Deposit Insurance Corporation (FDIC), up to __________per account registration. a. $10,000 b. $250,000 c. $350,000 d. $700,000

51. CDs insured by the FDIC are considered to have a _______ risk of loss of principal. a. Completely nonexistent b. Very low c. Low to moderate d. Moderate

52. Variable rate CDs have ____ volatility when general market interest rates change. a. Low b. Moderate c. High d. Very high

53. The primary risk of short-term CDs is: a. Market risk b. Interest rate risk c. Purchasing power risk d. Default or financial risk

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54. If a financial institution is covered by FDIC insurance, it will: a. Display an official FDIC sign at the teller window b. Provide each customer and consumer with an FDIC pamphlet c. Be included in the FDIC Internet database open to the public d. Not advertise the coverage

55. In the past, banks and particularly thrifts or savings and loans offered a rate on

short-term CDs that was consistently and _____________ than the rate for longer term CDs. a. Substantially lower b. Slightly lower than c. Substantially higher d. Slightly higher

56. _____ CDs allow interest to be paid out monthly, quarterly, semi-annually or annually. a. All b. Many c. Few d. Very few

57. If a CD is jointly owned, the interest earned is considered to be owned by ________ for federal income tax purposes, unless local laws state otherwise. a. The person of the older age b. The person of the younger age c. The “principal” person d. Both persons

58. Which of the following is not an advantage of using a short-term CD as part of asset allocation? a. Often, small minimum balance requirements b. Ability to draw interest income c. Availability of fixed, known returns d. No penalty for early withdrawal

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59. If checking accounts are interest bearing, they normally require a certain minimum balance, commonly: a. $100 b. $1,000 c. $100,000 d. $500,000

60. If checking accounts are interest bearing, they will pay a rate of return that is often ______________money market funds. a. 2 to 4 basis points higher than b. Equal to c. 2 to 4 basis points lower than d. 6 to 10 basis points lower than

61. What kind of checking accounts often charge fees? a. Interest bearing accounts, only b. Non-interest bearing accounts, only c. Both interest and non-interest bearing accounts d. Neither interest nor non-interest bearing accounts

62. The current trend in fees for checking accounts is toward: a. Introducing fees b. Increasing fees c. Reducing fees d. Eliminating fees

63. Checking accounts earn: a. Moderate returns b. Little return c. No return d. Little or no return

64. The primary risk of checking accounts is: a. Market risk b. Interest rate risk c. Purchasing power risk d. Default or financial risk

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65. The ____ use of a checking account in an investment portfolio is to hold liquid assets. a. Primary b. Secondary c. Only d. Most productive

66. Interest from a checking account is: a. Taxed as ordinary income in the tax year it is received b. Taxed as ordinary income the year after the tax year it is received c. Tax-deferred d. Tax-exempt

67. Which of the following is not an advantage of using a checking account as part of asset allocation? a. Immediate access to cash b. High returns c. Money can be added at any time d. Extra services

68. What is the investment horizon of a checking account?

a. At least 2 years b. At least 5 years c. From 5 to 10 years d. Immediate

69. Savings accounts differ from certificates of deposit in that there is

_______specified period in which money must be held in a savings account. a. A longer b. A slightly shorter c. A much shorter d. No

70. A penalty is applied if money other than interest is withdrawn prior to maturity from: a. A CD, only b. A savings account, only c. Both a CD and a savings account d. Neither a CD nor a savings account

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71. Savings accounts are ________ liquid investments. a. Completely b. Significantly c. Exactly half d. Slightly

72. For years the typical savings account, the passbook account paid a rate of 5%. But when rates tumbled in the 80’s, the 5½% rate was done away with. Today, savings accounts earn a fixed rate. The actual percentage: a. Is usually 5% b. Is usually 1.5% c. Varies from 1.5 to 4% d. Varies from bank to bank

73. The primary risk of savings accounts is: a. Market risk b. Interest rate risk c. Purchasing power risk d. Default or financial risk

74. CDs typically pay what kind of rates when compared to a savings account? a. Higher rates b. Similar rates c. Slightly lower rates d. Much lower rates

75. Savings accounts earn what kind of returns? a. Low returns b. Moderate returns c. Moderate to high returns d. High returns

76. Interest from a savings account is: a. Taxed as ordinary income in the tax year it is received b. Taxed as ordinary income the year after the tax year it is received c. Tax-deferred d. Tax-exempt

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77. What is the investment horizon of a savings account? a. At least 2 years b. At least 5 years c. From 5 to 10 years d. Immediate

78. Money market funds have minimums ranging from:

a. $10 to $50 b. $50 to $200 c. $50 to $5,000 d. $1,000 to $10,000

79. What kind of sales loads do money market funds charge? a. Front-end sales loads b. Back-end sales loads c. Both front and back-end sales loads d. Money market funds do not charge sales loads

80. Money market accounts usually require a minimum balance of ______ which must be maintained to avoid a service charge. a. $25 b. $100 c. $500 d. $1,000

81. Which of the following statements regarding money market accounts is false? a. There are a restricted number of withdrawals allowed, per federal

regulation, on money market accounts. b. Money market accounts are securities products. c. A money market account can be backed by FDIC insurance. d. Financial institutions advertise “market rates” of interest on money market

accounts, although these accounts may pay returns of around two percent or more below those of money market funds.

82. Money market funds are guaranteed in terms of:

a. Principal, only b. Return, only c. Both principal and return d. Neither principal nor return

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83. Money market funds are managed with the objective of keeping the value of each share at: a. $1.00 b. $10.00 c. $100.00 d. $1,000.00

84. If only a few withdrawals will be made from a money market fund monthly, and if checks may be drawn on the money market fund, how does the money market fund compare in liquidity to a money market account? a. The money market fund is more liquid than the money market account b. The money market fund is slightly less liquid than the money market

account c. The money market fund is much less liquid than the money market

account d. The money market fund and the money market account are equal in

liquidity

85. Dollar cost averaging is most effective for a client who: a. Does not intend to hold shares for longer than 3 months b. Does not intend to hold shares for longer than 6 months c. Does not intend to hold shares for longer than 12 months d. Intends to ride the market’s ups and downs

86. What risk-level are money market funds subject to? a. Low risk, only b. Low to moderate risk, only c. High risk, only d. Each type of money market fund can have slightly different levels of risk

87. If a money market fund’s assets are at least ____ invested in federally tax exempt securities, the dividends resulting from these securities are federally income tax-exempt to the shareholder. a. 10% b. 35% c. 50% d. 80%

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88. Which of the following is not a disadvantage of a money market fund? a. Possibility of fees eroding return b. Limits on the number of check written and withdrawals made c. No immediate access to cash d. Exposure to purchasing power risk

89. Which of the following is not an advantage of a money market account?

a. Stable principal b. May have limited or no check writing privileges c. Immediate or near immediate access to cash d. Market returns

90. Treasury bills have a maturity of:

a. 1 year or less b. 3 years or less c. 7 years or less d. 10 years or less

91. Which of the following is not one of the denominations that a T-Bill could be issued in? a. $5,000 b. $15,000 c. $500,000 d. $1 million

92. What is the average interest rate of a T-Bill? a. 5% b. 7.5% c. 2% d. T-Bills do not earn interest

93. What kind of T-Bills does the Treasury auctions weekly? a. 13-week T-Bills, only b. 13 and 26-week T-Bills, only c. 52-week T-Bills, only d. 13, 26 and 52-week T-Bills

94. Individual T-Bill purchasers _____ submit a non-competitive bid for the bills. a. Often b. Occasionally c. Rarely d. Practically never

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95. New issues of T-Bills may be purchased from: a. Brokerage houses, only b. The federal reserve, only c. The federal reserve and certain large banks who act as dealers, only d. Brokerage houses, the federal reserve, and from some large banks who act

as dealers

96. Which of the following is not one of the denominations that a treasury note could be issued in? a. $5,000 b. $100,000 c. $500,000 d. $1 million

97. Treasury notes have a maturity date: a. Of 1 year or less b. Of 5 years or less c. Ranging from 1 to 3 years d. Ranging from 1 to 10 years

98. Treasury notes pay a fixed amount of interest:

a. Monthly b. Quarterly c. Semi-annually d. Annually

99. New issues of T-Notes may be purchased from: a. Brokerage houses, only b. The federal reserve, only c. The federal reserve and certain large banks who act as dealers, only d. Brokerage houses, the federal reserve, and from some large banks who act

as dealers

100. For treasury bills and notes, the risk of default and therefore the likelihood of the inability to fulfill the terms of an issue is considered: a. Nonexistent b. Very low c. Low to moderate d. Moderate

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101. If a T-bill or note is held to maturity, the impact of interest rates on price is:

a. Not of much importance b. Slightly more important than if the bill or note were not held to maturity c. Significantly more important than if the bill or note were not held to

maturity d. So important that T-bills or notes should never be held until maturity

102. Generally, interest from T-Notes is exempt from: a. Local, but not state income taxation b. State, but not local income taxation c. Both local and state income taxation d. Neither local nor state income taxation

103. Ordinary income resulting from T-Bills is generally exempt at: a. Local, but not state levels b. State, but not local levels c. Both local and state levels d. Neither local nor state levels

104. What is the primary risk of T-Notes and T-Bills? a. Market risk b. Interest rate risk c. Purchasing power risk d. Default or financial risk

105. The fixed asset category is an asset class with what kind of risks in comparison to

those risks in the equity class? a. Fewer risks b. Greater risks c. Different risks d. The same risks

106. Which of the following is not one of the denominations that Series EE and I bonds are issued in? a. $50 b. $250 c. $1,000 d. $5,000

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107. The purchase price of which U.S. government bonds is one-half the bond’s denomination? a. EE bonds, only b. I bonds, only c. Both EE and I bonds d. Neither EE nor I bonds

108. Both Series EE and I bonds earn a rate based upon _______ treasury securities. a. 2-year b. 5-year c. 7-year d. 15-year

109. After how many months from issue may Series EE and I bonds be redeemed? a. 3 months b. 6 months c. 9 months d. 12 months

110. Interest is added to Series EE and I bonds every: a. Month b. 2 months c. 6 months d. 8 months

111. Which of the following is not one of the denominations that Series HH bonds are issued in? a. $100 b. $500 c. $1,000 d. $10,000

112. Series HH bonds may only be purchased in exchange for: a. Series E bonds b. Series EE bonds c. Either Series E or Series EE bonds d. Series I bonds

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113. Series HH bonds pay interest: a. Monthly b. Quarterly c. Semi-annually d. Annually

114. Which of the following risks is considered to be zero when applied to savings bonds? a. Default risk, only b. Market risk, only c. Both default and market risk, only d. Purchasing power risk, only

115. Under what program is money deducted, after tax, from salary and converted to Series EE or I bonds in denominations of $100 or greater? a. The Payroll Savings Plan b. The General Fund Program c. The Investment Remuneration Strategy d. The Savers Incentive Program

116. A tax-break may be available when Series EE and Series I bonds are used to pay for college tuition if the bond owner is at least age ____ by the first day of the month in which the bonds were purchased. a. 17 b. 18 c. 21 d. 24

117. Series HH bonds have a maturity of: a. 5 years b. 10 years c. 20 years d. 30 years

118. Interest on Series EE and I bonds is taxable upon the bond’s final maturity date: a. Only if the bond is redeemed b. Only if the bond is not redeemed c. Only if the bond is not redeemed and the bond owner does not file for an

extension d. Regardless of whether the bond is redeemed or not

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119. How does the purchasing power risk in short-term government securities compare

to that in longer-term issues? a. It is higher b. It is comparable c. It is slightly lower d. It is much lower

120. Treasury Inflation-Protected Securities are offered as any of the following, except: a. 5-year securities b. 10-year securities c. 20-year securities d. 30-year securities

121. Treasury Inflation-Protection Securities pay interest every: a. Month b. 3 months c. 6 months d. 12 months

122. Non-IRA Treasury Inflation-Protected Securities are taxed on: a. The interest paid out, only b. The inflation adjustment on a semi-annual basis, only c. The inflation adjustment on an annual basis, only d. Both the interest paid out and the inflation adjustment on an annual basis

123. Treasury notes and bonds are often used by persons looking for: a. Fixed income and stable return b. Variable income, but a stable return c. Fixed income, but a variable return d. Variable income and variable return

124. T-bonds have been issued in many different maturities, commonly ________ years today. a. 5 b. 10 c. 20 d. 30

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125. The ____________ of a life policy is equal to the total cash value in the policy, less any surrender charges and outstanding policy loans, plus any “paid up additions” accumulated dividends, and prepaid premium. a. Net surrender value b. Gross surrender value c. Complete surrender value d. Estimated surrender value

126. For life policies with cash values issued in 1985 or later, distributions made within the first _____ years of policy issue, which also cause a reduction in death benefit, are taxed as though gain is received first. a. 3 b. 8 c. 15 d. 22

127. The risk of default of contractual obligations by an insurance company is generally: a. Low b. Moderate c. Somewhat high d. Very high

128. Preferred stock dividends may qualify for preferential tax treatment as qualified dividends, with a maximum tax rate of 15% for those in a tax bracket of ___% or higher, or 0% for those in the 10% or ___% tax brackets. a. 28 b. 25 c. 33 d. 35

129. Which of the following life insurance rating agencies rates an insurer’s claims paying ability and uses different letters to rate subscribing versus non-subscribing companies? a. A.M. Best Company b. Standard & Poors Insurance Rating Services c. Moody’s Investor Service d. Fitch Ratings

130. When a life insurance policy owner wants to use his or her life insurance for an emergency or to fulfill a savings goal, what is normally recommended?

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a. A policy loan b. A policy distribution c. Either a policy loan or a distribution d. Neither a policy loan nor a policy distribution

131. In a level premium life insurance policy, one which requires level premiums throughout the life of the policy, cash values do not show much growth: a. In the early years of the policy b. In the middle years of the policy c. In the later years of the policy d. Throughout the life of the policy

132. If distributions are made from life insurance policies with cash values issued prior to ______, distributions are taxed under the “cost recovery first” rule. a. 1979 b. 1985 c. 1991 d. 1998

133. Which of the following is not a disadvantage of life insurance with guaranteed cash values? a. Life insurance can be an expensive way to save b. Distributions normally cause a proportionate reduction in death benefit c. Distributions may be taxable d. The death benefit is subject to income tax payable by beneficiaries

134. How many corporate bonds are listed on the exchanges when compared with the

number of equities listed on the exchanges? a. There are more corporate bonds listed b. There are approximately the same number of corporate bonds listed c. There are a slightly fewer corporate bonds listed d. There are significantly fewer corporate bonds listed

135. Corporate bonds pay interest: a. Quarterly, only b. Semi-annually, only c. Annually, only d. Quarterly, semi-annually or annually

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136. Unsecured bonds are bonds which are not backed by collateral, but are backed by the corporation issuing the bond. Unsecured bonds are known as: a. Limitations b. Debentures c. Junior securities d. Receivers

137. Equipment Trust Certificates are issued primarily by corporations in what industry? a. The medical industry b. The transportation industry c. The construction industry d. The defense industry

138. Equipment trust certificates are considered: a. Relatively low-risk b. Moderate-risk c. Moderate to high-risk d. Relatively high-risk

139. The two principle types of risk corporate bonds are subject to are: a. Interest rate risk and default risk b. Purchasing power risk and default risk c. Market risk and purchasing power risk d. Interest rate risk and market risk

140. Corporate bonds are used: a. As short-term savings vehicles, only b. As long-term savings vehicles, only c. As short or long-term savings vehicles d. In 2 to 8 year terms, only

141. Corporate bonds are issued in: a. 5 or 10-year maturities b. 5, 10 or 15-maturities, only c. 5, 10, 15 or 20-year maturities, only d. Virtually any maturity

142. Corporate bonds generally have returns ________ Treasury bills, notes or bonds. a. Higher than

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b. Equal to c. Slightly lower than d. Much lower than

143. Municipal bonds are generally issued in what kind of denominations? a. $100 b. $1,000 c. $5,000 d. $10,000

144. Municipal bond interest payments are generally paid: a. Quarterly b. Semi-annually c. Annually d. Bi-annually

145. The risk of default in a revenue bond: a. Is always very high b. Is usually low c. Is nonexistent d. Varies

146. The risk of default in a housing authority bond: a. Is always very high b. Is usually low c. Is nonexistent d. Varies

147. Which of the following statements relating to insured municipal bonds is false? a. Bond rating agencies will assign a higher credit rating to an insured

municipal bond issue than for the same issue had it been uninsured. b. The interest rate of the insured bond issue will generally be lower than if

the issue were uninsured. c. Yields on insured issues are generally competitive with other high quality

municipal bond issues. d. All professionals encourage the necessity of insurance for municipal

bonds.

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148. If a municipal bond is issued within a state with income tax, the interest income is typically exempt from: a. State taxation, only b. Federal taxation, only c. Both state and federal taxation d. Neither state nor federal taxation

149. Municipal bonds are: a. Short-term investments, only b. Long-term investments, only c. Both short-term and long-term investments d. Both short-term and long-term investments, but only if the term is between

2 and 8 years

150. A married couple may make a split gift and jointly gift $_______ per donee and fall within the annual exclusion amount if they are married at the time of making the gift and the spouses jointly consent to making the gift. a. $28,000 b. $26,000 c. $24,000 d. $14,000

151. Preferred stock is placed in what asset class? a. Fixed asset class b. Equity class c. Liquid class d. Either equity or liquid class

152. Convertible preferred stock can be converted to common stock at a certain price. The price where the value of the preferred stock is equal to the price of the common stock is known as the: a. “Parity price” b. “Equivalence price” c. “Gross price” d. “Uniform price”

153. The two primary types of risk preferred stock is subject to are: a. Interest rate risk and default risk b. Purchasing power risk and default risk c. Market risk and purchasing power risk d. Interest rate risk and market risk

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154. Preferred stock is ________ purchased by large institutional investors. a. Always only b. Often c. Rarely d. Never

155. Mutual fund companies offer shares from: a. Open-end funds, only b. Closed-end funds, only c. Both open and closed-end funds d. Both open and closed-end funds, only if the company is not FDIC insured

156. What is the price received if mutual fund shares are liquidated? a. The Gross Asset Value b. The Net Asset Value c. The Receivable Value d. The Liability Value

157. If the current share price of a mutual fund is $10.00, and $1.00 of income was earned per share over the past twelve months, the yield would be: a. 0% b. 0.1% c. 1% d. 10%

158. The total return of a mutual fund is expressed as a percentage of the share price: a. Excluding loads b. Including loads c. Excluding loads or including loads d. Excluding loads if the percentage is greater than 15% of the share price,

but including loads if the percentage is 15% or less of the share price

159. Mutual funds are managed by: a. The individual investor b. A pool of individual investors c. Professional fund managers d. The U.S. government

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160. Mutual funds are found in which of the following risk levels? a. Low risk to moderate risk b. Moderate risk c. Aggressive risk d. Low to aggressive risk

161. How may a shareholder receive income from a mutual fund? a. As dividend distributions, only b. As regular systematic withdrawals, only c. As dividend distributions or as regular withdrawals, only d. As dividend distributions, as regular withdrawals, or as liquidated shares

whenever desired

162. The yield on municipal bonds issued in states with high income tax tend to be _______those of states where state income tax is not a consideration. a. Lower than b. Equal to c. Slightly higher than d. Much higher than

163. Single state municipal bond funds ______ hold a small percentage of municipal bonds from outside the state. a. Always b. May c. Rarely d. Never

164. A national municipal bond fund ______ more diversification than a single state issue. a. Always provides b. Can provide c. Usually does not provide d. Never provides

165. What kinds of municipal bond funds are available with portfolios comprised of insured municipal funds? a. Single state funds, only b. National state funds, only c. Both single state and national funds d. Neither single state nor national funds

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166. What kind of mutual funds include UITs? a. Open-end mutual funds, only b. Closed-end mutual funds, only c. Both open and closed-end mutual funds d. Both open and closed-end mutual funds, but only in select states

167. How does the portfolio of a UIT change over time? a. It grows to include more issues b. It shrinks to include less issues c. It changes unpredictably d. It does not change

168. Income from a UIT is paid on what basis? a. A monthly basis, only b. A quarterly basis, only c. A semi-annual or annual basis, only d. A monthly, quarterly, semi-annual or annual basis

169. Unit Investment Trusts come what kind of issues? a. Short-term, only b. Intermediate-term, only c. Short or intermediate-term, only d. Short, intermediate and long-term

170. The two primary types of risk municipal bond funds are subject to are: a. Interest rate risk and default risk b. Purchasing power risk and default risk c. Market risk and purchasing power risk d. Interest rate risk and market risk

171. Which of the following is not an advantage of a municipal bond fund? a. Highly liquid, whereas an individual municipal bond may not be b. The minimum to open a mutual fund may be lower than the purchase price

of an individual municipal bond c. Guarantee of principal and return d. Income

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172. Government bond mutual funds that seek current income only will allow investment in options and futures to a _________those funds including the objective of capital preservation. a. Greater degree than b. Comparable degree to c. Slightly lesser degree than d. Much lesser degree than

173. Government bond mutual funds may be comprised of what kind of bonds?

a. Short-term, only b. Intermediate-term, only c. Short or intermediate-term, only d. Short, intermediate or long-term

174. GNMA funds are funds largely comprised of __________securities. a. Principal b. Pass-through c. Payment d. Probable

175. ARM funds were often positioned as a low-risk alternative to what kind of funds when first introduced in the mid-1980’s and early ’90’s? a. Money market funds b. Government bond mutual funds c. Municipal bond funds d. Mortgage funds

176. US Treasury bond funds may be comprised of what kind of bonds? a. Short-term, only b. Intermediate-term, only c. Short or intermediate-term, only d. Short, intermediate or long-term

177. The major risk found in a US Treasury bond fund is: a. Default risk b. Purchasing power risk c. Interest rate risk d. Market risk

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178. Government bond funds are often used for: a. Income, only b. Short-term savings goals, only c. Income and for short-term savings goals d. Income and for long-term savings goals

179. If a government bond fund were considered aggressive, the suggested investment horizon would be: a. 1 to 4 years b. 5 to 8 years c. 7 to 12 years d. 10 to 15 years

180. Which of the following statements regarding high yield corporate bond funds is false? a. These bond funds are generally invested in corporate bonds issued by

financially stable companies. b. The risk of default in high yield funds is reflected in the potential for

higher returns. c. The funds often allow, by prospectus, a percentage of the fund assets to be

in common or preferred stock as well. d. Some funds also invest in futures and options.

181. Which of the following statements regarding high quality corporate bond funds is false? a. High quality corporate bond funds generally invest in investment grade

corporate debt along with treasuries and government agency securities. b. The risk of default in a high quality corporate bond fund is usually very

high. c. Corporate bond funds can be found with portfolios comprised of short

term, intermediate term or long-term bonds. d. The average maturity of the portfolio will impact the relative interest rate

risk of a high quality corporate bond fund.

182. Generally, the risk levels of a general corporate bond fund are: a. High b. Moderate to low c. Low d. Dependent on the specific portfolio of the fund

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183. A short-term world bond fund will generally consist of bonds with ____________ a short-term domestic (US government or US corporate) bond fund. a. Greater risk than b. The same risk as c. Slightly less risk than d. Much less risk than

184. When compared to purchasing common stock from the same issuer, a convertible bond will typically provide _________ potential for growth. a. Less b. The same c. Slightly more d. Much more

185. The relative risk of a corporate bond is _______ that of the corporation’s common stock. a. Lower than b. The same as c. Slightly higher than d. Much higher than

186. Convertible bond funds can have which of the following objectives? a. Current income, only b. Total return, only c. Total return and/or capital preservation, only d. Current income, total return, and/or capital preservation

187. The composition of convertible bond funds: a. Is primarily low quality securities b. Is primarily high quality securities c. Is usually high quality securities with a small percentage of low quality

securities d. Varies from extremely high quality securities to low quality

188. Which of the following is not an advantage of a convertible bond fund? a. Liquidity b. Extremely limited exposure to either default or interest rate risk c. Diversification and professional management d. Wide variety of funds with varying objectives

189. Fixed annuities generally pay a rate guaranteed for continuous ______ periods.

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a. 6-month b. 1-year c. 2-year d. 5-year

190. ______ annuities today include a waiver of surrender charges for withdrawals made in conjunction with certain stays in a hospital or long-term care facility. a. All b. Many c. Some d. Few

191. Surrender charges are assessed for certain withdrawals made from annuities within a certain time frame. The time frame, or surrender period, is generally from: a. 6 months to 1 year b. 1 to 3 years c. 5 to 7 years d. 6 to 12 years

192. Fixed annuities can be converted to an irrevocable income annuity in a process called: a. Annuitization b. Exchange c. Translation d. Fixation

193. Annuity income contracts which begin paying income within ____ months of purchase are known as “immediate annuities.” a. 3 b. 6 c. 9 d. 12

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194. Which of the following statements regarding fixed annuities is false? a. Since annuities are life insurance products, the standards of the NAIC and

state regulation also cover them. b. Fixed annuities offer a guaranteed minimum rate, which may be governed

by state regulation. c. Fixed annuities never offer guaranteed current interest rates d. Some policies guarantee that principal will be returned upon full

surrender, even if surrender charges apply which would have invaded principal.

195. If withdrawals are made from annuities prior to age 59 1/2, an additional tax of _____ is levied on the interest portion of the withdrawal. a. 6% b. 10% c. 15% d. 20%

196. When a withdrawal is made from annuity contributions made after August 14, ____ it is taxed as though income is distributed prior to principal. a. 1982 b. 1988 c. 1995 d. 1999

197. Once a fixed annuity contract is annuitized, annuity payments are taxed as part principal, part interest. The IRS has specific rules regarding the calculation of the taxable and non-taxable portions of an annuity payment. The IRS calculation determines the ________ used to calculate the portion of each payment which is non-taxable. a. Taxability factor b. Exclusion ratio c. Investment determiner d. Face value calculation

198. Variable annuity income options are _________fixed annuity income options. a. More flexible than b. As flexible as c. Slightly less flexible than d. Significantly less flexible than

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199. Income from a variable annuity can _____ be taken as regular, systematic withdrawals as an alternative to annuitization payments. a. Always b. Often c. Rarely d. Never

200. The separate account of a variable annuity _______ registered as an investment company. a. Must be b. Should be c. Usually does not need to be d. Never needs to be

201. If Mr. Smith owns 1,000 units of the ABC Annuity Special Growth Account, and each unit is worth $1.00, his account value is: a. $10 b. $100 c. $1,000 d. $10,000

202. _____ variable annuities include a guaranteed death benefit. a. All b. Many c. Some d. Few

203. What kind of bond sub-accounts are not found in variable annuities? a. Government bond sub-accounts b. Corporate bond sub-accounts c. World bond sub-accounts d. Municipal bond sub-accounts

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204. Which of the following statements regarding the fixed account option of a variable annuity is false? a. A fixed account is not a sub-account within the variable annuity separate

account. b. A fixed account is required to be registered under the Securities Act of

1933 or under the Investment Company Act of 1940. c. The fixed account offers a guaranteed rate for a specified time period and

a minimum guaranteed rate. d. Often exchanges or transfers from the fixed account are limited when

compared to the frequency of transfers allowed from the sub-accounts.

205. Some variable annuity contracts incorporate a “Market Value Adjustment” for withdrawals from the fixed account. If current, new money rates are ______ the rate the fixed account is paying at surrender or withdrawal, the annuity will be given a positive cash value adjustment, resulting in a higher surrender value than if no MVA was calculated. a. Higher than b. Equal to c. Lower than d. More than 3% lower than

206. The values in bond sub-accounts of what kind of annuities are exposed to the default risk of the insurance company? a. Variable annuities, only b. Fixed annuities, only c. Both variable and fixed annuities d. Neither variable nor fixed annuities

207. Variable annuities are considered what kind of investments? a. Short-term, only b. Intermediate-term, only c. Short or intermediate-term, only d. Long-term, only

208. How many death benefit options does Variable Universal Life offer? a. 1 death benefit option b. 2 death benefit options c. 3 death benefit options d. 5 or more death benefit options

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209. Variable Life offers how many death benefit options? a. 1 death benefit option b. 2 death benefit options c. 3 death benefit options d. 5 or more death benefit options

210. Variable universal life policies _____ offer more flexible withdrawal options than whole life policies. a. Always b. Often c. Occasionally d. Never

211. Which of the following statements regarding the uses of variable life (VL) and variable universal life (VUL) bond sub-accounts cash values is false? a. Policy loans may be taken from VL and VUL, so cash values can be used

for emergencies, or long-term goals like purchase of a home, college tuition, or for retirement.

b. The sub-accounts provide the owner with the opportunity for growth in cash values beyond the guaranteed returns of ordinary life.

c. VL and VUL, like mutual funds, should be used by those willing to accept fluctuation in value and risk of loss of principal.

d. Like mutual funds, VL and VUL do not offer tax-deferred growth.

212. The growth asset class ____________ in scope. a. May be the largest asset class b. May be the smallest asset class c. Is the smallest asset class d. Is the most moderate asset class

213. Common stocks are issued by _____ types of corporations a. All b. Many c. Moderately few d. Very few

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214. Growth stocks are stocks issued by companies who are considered to have a propensity for __________expansion. a. Any b. At least marginal c. Substantial d. Impending

215. Which of the following statements regarding “Blue-Chip” stocks is false? a. “Blue-Chip” stocks share characteristics of the high-valued chips in the

game of poker. b. “Blue-Chip” stocks are common stocks from companies who have proven

themselves over time to be of high value. c. The companies that issue “Blue-Chip” stocks are dominant market players

with consistent above-average growth. d. A “Blue-Chip” company rarely has a long record of dividend payments.

216. Companies with income stock are typically ______ financially. a. Strong b. Weak c. Declining d. Recovering

217. Which of the following would not be considered to belong to a cyclical industry? a. Appliances b. Houses c. Gasoline d. Cars

218. Generally, international stocks are how aggressive of an investment when compared to domestic common stocks. a. More aggressive b. As aggressive c. Slightly less aggressive d. Significantly less aggressive

219. Stock issues within the US that may negatively impact the US stock market ________ have a negative impact in a foreign market. a. Always b. Usually c. Never d. May never

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220. Most common stocks are used primarily for: a. Long-term growth b. Short-term growth c. Income d. Capital appreciation

221. Holding a common stock for __________increases the risk that principal will be lost and return may be poor. a. The short-term b. An intermediate-term c. An intermediate or long-term d. The long-term

222. Common stock provides guarantees of: a. Principal, only b. Returns, only c. Both principal and returns d. Neither principal nor returns

223. The universe of equity funds is more diverse than that of bond mutual funds in: a. Objective, only b. Portfolio composition, only c. Both objective and portfolio composition d. Neither objective nor portfolio composition

224. The primary objective of an aggressive growth equity mutual fund is:

a. Long-term growth b. Short-term growth c. Income d. Capital appreciation

225. Portfolios of aggressive growth equity mutual funds normally hold ____ amounts of stocks from small and midsize companies. a. Very small b. Small c. Moderate d. Large

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226. Which of the following may be heavily utilized in aggressive growth equity mutual funds? a. Options, only b. Futures, only c. Both options and futures d. Neither options nor futures

227. Generally, the objective of small cap equity mutual funds is: a. Long-term growth b. Short-term growth c. Income d. Capital appreciation

228. Generally, what kind of overall risk do small cap equity mutual funds have? a. High-risk b. Moderate-risk c. Low-risk d. Small cap funds vary in overall risk

229. Growth and income equity mutual funds are generally considered ________ growth funds. a. Less risky than b. As risky as c. Slightly more risky than d. Significantly more risky than

230. Equity income funds generally return what kind of yields when compared to a corporate bond fund? a. Lower yields b. Comparable yields c. Slightly higher yields d. Significantly higher yields

231. World stock equity mutual funds include what kind of funds? a. International stock funds, only b. Global stock funds, only c. Both International and Global stock funds d. Neither International nor Global stock funds

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232. Which of the following statements regarding sector equity mutual funds is false? a. Sector funds are funds which invest in stocks within certain sectors and

depending on the sector invested in, the fund may have the objective of capital appreciation or current income.

b. Sector funds are generally used as hedging instruments in a portfolio, hedges against purchasing power risk, against interest rate risks, or against general market risks.

c. Sector funds tend to be volatile, since their exposure to sector swings is high.

d. Sector funds are meant for the short-term investor.

233. Which of the following statements regarding balanced equity mutual funds is false? a. Balanced funds are both bond and equity funds. b. The objective of a balanced fund is generally to achieve long-term growth

or capital appreciation and earn current income while conserving principal.

c. Balanced funds generally have more opportunity for growth than an equity fund.

d. Through the diversification of their portfolios, default risk, market risk, interest rate risk and purchasing power risk can all potentially be reduced through a balanced fund.

234. Equity mutual funds provide guarantees of: a. Principal, only b. Returns, only c. Both principal and returns d. Neither principal nor returns

235. How many types of equity mutual funds have price fluctuation? a. All types b. Most types c. Some types d. Few types

236. _____ equity mutual funds which offer systematic withdrawal programs are able to generate hypotheticals which illustrate historical returns assuming the desired withdrawal amount. a. All b. Most c. Some d. Few

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237. Which of the following is not one of the key elements of importance for a client to understand regarding a mutual fund purchased for income? a. Account values will fluctuate; they may lose all or a portion of what was

invested. b. The yield and return on the fund is not guaranteed. c. Generally, the return on the investment is not a reflection of the risks the

client is assuming. d. If income is taken via distribution of dividends, the amount of the check

will vary based on the yield of the account and the number of days in the period for which the check is payable.

238. The least aggressive equity mutual fund requires a holding period of at least: a. 1 year b. 5 years c. 10 years d. 15 years

239. Dividends from equity mutual fund assets that are distributed to shareholders ____taxed as ordinary income to shareholders. Interest income ____ taxed as ordinary income. a. are; is b. are not; is c. are; is not d. are not; is not

240. Short-term capital gains from an equity mutual fund’s assets are: a. Taxed as ordinary income b. Tax-deferred c. Tax-exempt d. Either tax-deferred or tax-exempt

241. _________ is the price for which the property would be bought or sold if neither the buyer or seller were under any compulsion to buy or sell and both buyer and seller had reasonable knowledge of any relevant facts. a. Fair Market Value b. Controlled Worth c. Vacuum Price d. Original Cost

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242. In 2013, lifetime gifts of up to ________ above the annual exclusion amount are excluded from gift taxation. a. $14,000 b. $200,000 c. $5,250,000 d. $2.5 million

243. Which of the following statements regarding risk characteristics of REITs is false? a. The risks of the real estate market can all impact a REITs return -- those of

interest rate risk, default risk on the part of lessees or mortgagees. b. There are no guarantees of principal in a REIT. c. There are guarantees of return in a REIT. d. REITs vary greatly in terms of risk level.

244. How many dividends from a REIT are taxable as income to the shareholder? a. All dividends b. Most dividends c. Few dividends d. No dividends

245. The price of gold tends to ____ when stocks, bonds and cash fall or weaken in value. a. Rise b. Remain stable c. Fall slightly d. Reacts unpredictably

246. Gold mining companies around the world issue common stocks, or depository receipts. As the value of gold prices rise, the value of these securities: a. Rises b. Remains stable c. Falls d. Reacts unpredictably

247. A _______ is a contract between a buyer and seller to buy a specified amount of a commodity at a specified price on a specified date. a. Pledge b. Match c. Future d. Prospect

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248. Which of the following statements most accurately describes the gold market? a. The gold market can be very volatile. b. The gold market is relatively predictable. c. The gold market is safe for even the most cautious investor. d. The gold market is a poor investment choice for any investor.

249. What is the investment term of gold? a. Short-term b. Intermediate-term c. Short or intermediate-term d. Long-term

250. Investment in gold has guarantees of: a. Principal, only b. Returns, only c. Both principal and returns d. Neither principal nor returns

251. Market risk is: a. the risk that an asset will not increase in value to keep pace with or beat

inflation. b. the risk of price fluctuation due to factors such as competition, weather,

and industry-wide financial difficulties. c. the risk that a change in interest rates will effect a product’s or security’s

price. d. the risk that the issuing entity of a security or product will be unable to

meet its obligations.

252. Which of the following is not generally an advantage of a fixed annuity? a. tax-deferral b. flexible withdrawal and income provisions c. tax-free withdrawals d. guaranteed minimum rate

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253. Purchasing-power risk is: a. the risk that an asset will not increase in value to keep pace with or beat





254. Which of the following statements is incorrect regarding variable life? a. Variable life is a type of whole life policy b. Variable life offers no guaranteed cash values c. Return on cash value within a variable life policy is based on sub-account

performance. d. Variable life has a short-term investment horizon.

255. Political risk is: a. the risk of price fluctuation due to factors such as competition, weather,

and industry-wide financial difficulties. b. the risk that a change in interest rates will effect a product’s or security’s

price. c. the risk that the issuing entity of a security or product will be unable to

meet its obligations. d. none of the above.

256. Equity-income funds are generally less aggressive than: a. small-cap funds. b. world stock funds. c. growth funds. d. all of the above.

257. The predominate risk of products within the growth asset class is generally: a. purchasing-power risk b. default risk c. market risk d. interest-rate risk

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258. Defensive stocks: a. are stocks issued by companies making military equipment. b. fluctuate greatly in price during economic downturns. c. fluctuate greatly in price during economic upturns. d. are issued by companies offering products or services whose demand does

not fluctuate greatly with economic swings.

259. Mrs. Smith has a six month CD she rolls to a new CD each time it matures. She plans to use the money in this CD in her retirement years, about fifteen years from now. This CD is an example of: a. a short-term product used for a long-term purpose. b. a short-term product used for a short-term purpose. c. diversification. d. asset allocation.

260. A mutual fund company is:

a. an investment company which offers shares of pooled securities to the public.

b. required to offer both closed and open-end funds. c. limited to offering a maximum of ten different funds. d. regulated by the US Treasury.

261. Which of the following products would not be considered a liquid asset, but would instead be considered a fixed asset? a. checking account b. money market account c. corporate bond d. short-term CD

262. Of the following, which is not an advantage of taking a policy loan rather than surrendering a life policy? a. policy loans are not a taxable distribution, while surrenders are subject to

taxation. b. the death benefit is not decreased by a policy loan, as it would be through

a distribution, unless the loan is not paid back prior to the death of the insured.

c. a policy loan is an interest free loan, whereas a surrender may be subject to back-end charges.

d. the policy remains intact through a loan, but policy coverage ceases if the policy is surrendered.

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263. Which of the following products is not generally subject to purchasing-power risk? a. bank money market account b. bank savings account c. short-term certificate of deposit d. all of the above products are generally subject to purchasing power risk.

264. Series EE Savings Bonds have a final maturity of ___________ years from issue. a. 5 b. 20 c. 30 d. 10

265. Of the following types of municipal bonds, which are backed by the full faith, credit and taxing authority of the issuing municipality. a. special tax bonds. b. general obligation bonds. c. revenue bonds. d. private activity bonds.

266. The greatest risk in the purchase of collectibles as an investment is: a. default risk b. market risk c. interest-rate risk d. political risk

267. Although interest from municipal bonds is generally federally income tax-exempt: a. capital gain distributions are not. b. capital gain distributions are not unless they are reinvested. c. the IRS requires including it in income if a municipal bond fund includes

bonds from more than one state. d. dividends from a mutual fund resulting from interest from municipal

bonds are not federally tax-exempt.

268. Which of the following is not a type of REIT? a. tax-free REIT b. equity REIT c. mortgage REIT d. combination REIT

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269. Which of the following products are not backed by the full faith and credit of the US Treasury? a. US Savings Bonds b. Treasury Notes c. Municipal Bonds d. FDIC Insured Cds

270. The primary use of gold in a portfolio is:

a. as a hedge to protect a portfolio’s overall return. b. to generate high income. c. to provide an asset with a guaranteed return. d. to provide a short-term product with a high return

271. A separate account is: a. considered part of the general assets of the insurance company. b. considered a separate legal entity from the issuing insurance company. c. another term for a sub-account. d. FDIC insured.

272. Of the following products, which generally has the longest recommended investment horizon? a. T-Bill b. short-term CD c. government bond stock fund d. aggressive growth stock fund

273. Bond rating agencies evaluate bonds for ___________________________ risk: a. interest rate b. purchasing power c. default d. market

274. Which of the following is not an advantage of sub-account investing? a. diversification b. guaranteed return c. variety of investment options d. separate account not subject to insurance company creditor claims

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275. Of the following, which is not an advantage of accumulating savings within life insurance cash values? a. Earnings grow tax-deferred. b. Life insurance provides a death benefit for beneficiaries. c. Premium payments can be a “forced” savings program for those who do

not have the discipline to save otherwise. d. Cash values are guaranteed by the US Treasury.

276. Interest rate risk is: a. the risk that an asset will not increase in value to keep pace with or beat





277. Which of the following is not generally an advantage of a variable annuity? a. guaranteed minimum rates within sub-accounts b. opportunity to choose among many differing investment options c. flexible withdrawal and income provisions d. diversification and professional management

278. Default or financial risk is: a. the risk that an asset will not increase in value to keep pace with or beat





279. Which of the following is not federally income tax advantaged to an individual? a. municipal bond interest b. earnings within a fixed annuity prior to withdrawal c. earnings on life insurance cash values prior to withdrawal d. common stock dividends

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280. Which of the following is not a goal of an asset allocation plan, as described in this course? a. Include products which have the appropriate features and characteristics to

meet the needs of the portfolio holder. b. Place the appropriate amount of assets in the liquid class to meet short

term and emergency needs. c. Reduce volatility in the portfolio by placing non-liquid assets in the

appropriate mix of fixed and growth products. d. All of the above are goals of an asset allocation plan as listed in this

course.

281. ARM funds a. invest primarily in adjustable rate mortgage securities b. have the same risks as money market funds, but return higher yields c. are all guaranteed by the full faith and credit of the US government. d. are too risky and should not be purchased.

282. Which of the following characteristics is not an important reason for selecting an asset allocation modeling tool? a. The tool results in a recommendation of more than one product choice to

meet customer needs. b. The tool requires sufficiently detailed information to make a

recommendation. c. The tool results in a recommendation of products which pay high

commissions to the sales person. d. All of the above are important reasons for selecting an asset allocation

tool.

283. Mutual funds can have all the following features or characteristics except: a. guaranteed returns b. diversification c. opportunity for growth d. professional management

284. Pre-payment risk:

a. is found in most bonds. b. is associated with mortgage securities. c. is found primarily in securities issued outside the US. d. is associated with blue-chip stocks.

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285. Preferred stock, like a bond: a. may be callable. b. is sold at a premium or discount. c. has coupons. d. pays a dividend

286. Which of the following products would generally be considered a short-term product? a. gold bullion b. REIT c. growth mutual fund d. treasury bill

287. Of the following, which is generally considered to have the highest default risk? a. FDIC insured CD b. A high-yield corporate bond c. A Treasury Bond d. A blue-chip stock

288. Dollar cost averaging:

a. involves investing a fixed amount of money on a regular basis which always results in reducing the average cost of shares over time.

b. involves investing a fixed amount of money on a regular basis with the result of reducing the average cost of shares over time if dollar-cost averaging is practiced for at least three years.

c. involves investing a fixed amount of money on a regular basis with the aim of reducing the average cost of shares over time.

d. involves investing a fixed amount of money on a regular basis in at least three different funds with the aim of reducing the average cost of shares over time.

289. Which of the following is always an advantage of a mutual fund? a. liquidity b. high return c. safety d. principal guarantee

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290. Mutual fund asset allocation programs: a. are the best option for clients because they will automatically have a

perfect portfolio balance. b. allow tax-free movement among funds. c. include a new sales charge for each transfer among funds in the same

family. d. can be a suitable component of a client’s overall portfolio

291. Which of the following is not an accurate statement regarding gifting? a. current income taxation may be reduced by gifting property generating

significant current income. b. future estate taxation may be reduced by gifting property with rapidly

increasing value c. a donor may generally gift up to $14,000 per donee annually. d. gifts between spouses are generally subject to gift taxation.

292. The two primary risks generally found in products within the fixed asset class are: a. default and purchasing power risks b. purchasing power and interest-rate risks c. market and default risks d. default and interest-rate risks

293. The primary use of a REIT is for: a. income b. guaranteed return c. known low returns with guaranteed principal d. long-term growth

294. A sub-account is: a. a pool of securities invested to meet a specified objective. b. not regulated as a security. c. guaranteed to reach a specified rate of return. d. FDIC insured.

295. Transfers among sub-accounts within a variable product: a. are subject to current income taxation. b. are generally exempt from current taxation with the exception of transfers

among Variable Life sub-accounts. c. are not recommended. d. are not subject to current income taxation.

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296. The variable annuity is regulated as a security because:

a. the policyowner bears the preponderance of the investment risk. b. the annuity issuer bears the preponderance of the investment risk. c. the policyowner and annuity issuer share the investment risk. d. individual states have insurance regulations which mandate that the

variable annuity be considered a security.

297. Which of the following would not generally be used as an income vehicle? a. T-Bill b. immediate annuity c. Series HH Savings Bond d. municipal bond

298. All of the following statements regarding life insurance policy loans are correct except: a. Policy loans are not treated as a taxable distribution b. Policy loans are treated as a taxable distribution c. All cash value life insurance must allow policy loans. d. If a policy loan is not repaid before the death of the insured, the loan

amount will be deducted from death proceeds paid to beneficiaries.

299. Which of the following would not generally be included in the fixed asset class? a. bonds b. blue chip stock fund c. fixed annuities d. CDs

300. Principal guarantee within an annuity contract means: a. that if the annuity is fully surrendered, no less than the principal will be

paid. b. that the surrender charge on partial withdrawals will never be greater than

cumulative interest earned. c. that withdrawals taken prior to surrender are not considered part of

principal. d. that, upon each policy anniversary, the annuity value will never be less

than the amount contributed, less withdrawals and charges, multiplied by 2%.

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CFP Asset Allocation Exam Study Guide - … 2 Asset Allocation Final Exam With Key (CFP) 1. The phrase “asset allocation” is best described as a: a. Phrase that is used often today