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AAMS Practice Exam - Questions and Answers
Question 1: An employer plans to use corporate-owned life
insurance to informally fund a nonqualified deferred compensation agreement and wants flexibility regarding investment choices. Which one of the following types of life insurance should this employer choose?
CORRECT ANSWER : Variable life insurance
Question 2: The latest economic reports have been gloomy, and
the stock market is in a protracted slump. Most of your regular stock customers are selling out their positions. A new client, Mr.Jones, sees these conditions as a buying opportunity. You would define his investment personality as
CORRECT ANSWER : contrarian
Question 3: As of December 31, 20X1, Bob Larkin has the
following financial data:
Bond fund $17,000 Residence $400,000
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Vested 401(k) plan $95,000 Auto notes $16,000 Residence mortgage $285,000 Auto payments $7,000 Automobiles $45,000 Checking account $8,000 Utilities $4,000
CD $15,000
Stock $125,000 Home equity loan $40,000
What is Bob's net worth?
CORRECT ANSWER : $364,000
Assets = $17,000 + $400,000 + $95,000 + $45,000 + $8,000 + $15,000 + $125,000 = $705,000. Liabilities = $16,000 + $285,000 + $40,000 = $341,000, so net worth is $364,000.Notice that auto notes of $16,000 are included in this calculation, but auto payments of $7,000 is a cash flow item and therefore not included.
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Question 4: For the year ending December 31, 20X2, Ted Jones
has the following financial information:
Salaries $70,000 Auto payments $5,000 Insurance $3,800 Food $8,000 Credit card balance $10,000 Dividends $1,100 Utilities $3,500 Mortgage payments $14,000 Taxes $13,000 Clothing $9,000 Interest income $2,100 Checking account $4,000 Vacations $8,400 Donations $5,800
What is the surplus or (deficit) for Ted?
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CORRECT ANSWER: $2,700
Income = $70,000 + $1,100 + $2,100 = $73,200. Expenses =
$5,000 + $3,800 + $8,000 + $3,500 + $14,000 + $13,000 +
$9,000 + $8,400 + $5,800 = $70,500, so there is a surplus of
$2,700
Question 5: Which one of the following statements comparing
the suitability and fiduciary standards is correct?
CORRECT ANSWER : Legally, suitability disputes are often
resolved in arbitration whereas fiduciary disputes are ultimately resolved in the courts.
Question 6: Which one of the following types of distributions
from a qualified retirement plan may be subject to mandatory 20% withholding?