Practice Exam

1. The following primary investor personality type may be described as one who is actively involved in his or her own personal finances; their risk tolerance is typically high; and they are often subject to the following: affinity bias, outcome bias, overconfidence, self-control bias, and illusion of control. • accumulators • followers • preservers • independents

1. The following primary investor personality type may be described as one who is actively involved in his or her own personal finances; their risk tolerance is typically high; and they are often subject to the following: affinity bias, outcome bias, overconfidence, self-control bias, and illusion of control. accumulators

10. Each of the following are common attributes, results or ramifications of confirmation bias with the exception of which below? I. seek information that challenges their beliefs II. overaction to new and conflicting data or information III. overly concentrated portfolios that hold disproportionate amounts of company stock IV. narrow focus on select technical indicators • I. only • I. and II. only • III. only • II. and IV. only

10. Each of the following are common attributes, results or ramifications of confirmation bias with the exception of which below? I. seek information that challenges their beliefs II. overaction to new and conflicting data or information III. overly concentrated portfolios that hold disproportionate amounts of company stock IV. narrow focus on select technical indicators I. and II. only

100. A _____________________ is a debt obligation which by its terms specifically provides that the debt and any outstanding balance owed on the note will be cancelled automatically if the seller dies before the note's maturity date. In order to compensate the seller for the risk of the note being cancelled, the amount due to the seller under the terms of the SCIN must include a ____________ which could be in the form of either an increased purchase price or an increased interest rate. This inclusion in the note will also reflect the fact that something was bargained for and help establish that the sale was bona fide and for full and adequate consideration. • private annuity / discount • self-cancelling installment note (SCIN) / risk premium • private annuity / risk premium • self-cancelling installment note (SCIN) / discount

100. A _____________________ is a debt obligation which by its terms specifically provides that the debt and any outstanding balance owed on the note will be cancelled automatically if the seller dies before the note's maturity date. In order to compensate the seller for the risk of the note being cancelled, the amount due to the seller under the terms of the SCIN must include a ____________ which could be in the form of either an increased purchase price or an increased interest rate. This inclusion in the note will also reflect the fact that something was bargained for and help establish that the sale was bona fide and for full and adequate consideration. self-cancelling installment note (SCIN) / risk premium

11. April and Patrick approach their wealth advisor specifically for help with negotiation, resolution and refereeing. April uses her role in the family to justify power and control while Patrick feels appreciative but somewhat vulnerable. Which of the following family roles (relationships) commonly struggles with these challenges? • first generation couples both of whom are natives to wealth • second generation siblings native to the land of wealth • second generation cross-class couples • first generation siblings who are both immigrants to wealth

11. April and Patrick approach their wealth advisor specifically for help with negotiation, resolution and refereeing. April uses her role in the family to justify power and control while Patrick feels appreciative but somewhat vulnerable. Which of the following family roles (relationships) commonly struggles with these challenges? second generation cross-class couples

12. You have just finished interviewing a potential new client and learned the following during your meeting with him: he follows momentum oscillators, he does not understand the benefits of rebalancing, and he believes we are most likely living in a new paradigm as it relates to the economy and financial markets. This individual exhibits which of the following biases? • recency bias • framing bias • optimism bias • outcome bias

12. You have just finished interviewing a potential new client and learned the following during your meeting with him: he follows momentum oscillators, he does not understand the benefits of rebalancing, and he believes we are most likely living in a new paradigm as it relates to the economy and financial markets. This individual exhibits which of the following biases? recency bias

13. The failure, by a CPWA certificant, to respond to a disciplinary petition by the Institute within the period allowed shall be deemed a ____________ by the Hearing Panel resulting in the immediate __________ of the certificant's right to use the marks. • breach / suspension • violation / suspension • default / termination • challenge / termination

13. The failure, by a CPWA certificant, to respond to a disciplinary petition by the Institute within the period allowed shall be deemed a ____________ by the Hearing Panel resulting in the immediate __________ of the certificant's right to use the marks. default / termination

14. One of your clients owns a small services company and has made tens of millions of dollars over the last 5 years. You manage the profit sharing plan for his 12-employee closely held business and a multimillion dollar after-tax portfolio for this client as well. He does however manage investments on his own that roughly equal the amount of money that you manage for him. This client trades more often than most, and the money he manages on his own would not be considered by most as well-diversified. Which of the following biases is your client probably experiencing? • outcome bias • mental accounting • illusion of control • cognitive dissonance

14. One of your clients owns a small services company and has made tens of millions of dollars over the last 5 years. You manage the profit sharing plan for his 12-employee closely held business and a multimillion dollar after-tax portfolio for this client as well. He does however manage investments on his own that roughly equal the amount of money that you manage for him. This client trades more often than most, and the money he manages on his own would not be considered by most as well-diversified. Which of the following biases is your client probably experiencing? illusion of control

15. Which of the following below does NOT represent one of the four primary types of family meetings? • wealth and values conversation • ownership and inheritance conversation • conflict resolution • investment strategies and performance

15. Which of the following below does NOT represent one of the four primary types of family meetings? investment strategies and performance

16. Which of the following is not one of four common categories used by behavioral researchers to help describe and explain availability bias? • retrievability • resonance • narrow range of expectations • categorization

16. Which of the following is not one of four common categories used by behavioral researchers to help describe and explain availability bias? narrow range of expectations

17. Which of the following is NOT a proper use of the CPWA® marks? • Jake Peters is a CPWA® advisor. • Amy Parsons holds the CPWA® certification. • Bobby Johnson, CERTIFIED PRIVATE WEALTH ADVISOR® • Missy Smith is a CPWA® professional.

17. Which of the following is NOT a proper use of the CPWA® marks? Bobby Johnson, CERTIFIED PRIVATE WEALTH ADVISOR®

18. According to the Institute's Disciplinary Rules and Procedures, the Professional Review Board (PRB) has discretion to take any of the following action(s) - with the exception of which action below - in the event that a preponderance of the evidence submitted at the hearing establishes that grounds for disciplinary action exist. • public or private censure • terminate or suspend the right to the use of the marks • other action determined to be appropriate to remedy the conduct • revoke the use of insurance or investment licenses as allowed by states

18. According to the Institute's Disciplinary Rules and Procedures, the Professional Review Board (PRB) has discretion to take any of the following action(s) - with the exception of which action below - in the event that a preponderance of the evidence submitted at the hearing establishes that grounds for disciplinary action exist. revoke the use of insurance or investment licenses as allowed by states

19. According to research, effective measurement of outcomes is performed in less than ____ of all formal family wealth education plans. • 80% • 40% • 20% • 60%

19. According to research, effective measurement of outcomes is performed in less than ____ of all formal family wealth education plans. 20%

2. The Institute requires how many hours of continuing education covering the topic of ethics over what amount of time for each renewal period? • 2 hours each year • 1 hour each year • 2 hours over 2 years • 1 hour over 2 years

2. The Institute requires how many hours of continuing education covering the topic of ethics over what amount of time for each renewal period? 2 hours over 2 years

20. Which of the following behavioral biases is most likely to lead individuals to deny or discount the value of compounding, dollar-cost averaging, and/or maintaining a disciplined investment strategy? • cognitive dissonance bias • self-control bias • overconfidence bias • mental accounting bias

20. Which of the following behavioral biases is most likely to lead individuals to deny or discount the value of compounding, dollar-cost averaging, and/or maintaining a disciplined investment strategy? self-control bias

21. A loss of up to _________ (for those married filing jointly) may be taken for qualified Section 1244 stock. Additional losses are treated as ____________. In order to qualify as Section 1244 stock, all money and other property received for stock, contributions to capital, or paid-in-surplus must not have exceeded ________. • $50,000 / ordinary losses / $500,000 • $100,000 / capital losses / $1,000,000 • $500,000 / capital losses / $10,000,000 • $1,000,000 / ordinary losses / $10,000,000

21. A loss of up to _________ (for those married filing jointly) may be taken for qualified Section 1244 stock. Additional losses are treated as ____________. In order to qualify as Section 1244 stock, all money and other property received for stock, contributions to capital, or paid-in-surplus must not have exceeded ________. $100,000 / capital losses / $1,000,000

22. Which of the following transactions would NOT be considered a wash sale? • You sell an S&P 500 Index ETF at a loss and then purchase an S&P 500 Index mutual fund within two weeks. • Selling a stock at a loss and then purchasing an actively-managed mutual fund that also owns that stock 21 days later. • Client sells a stock at a loss in her taxable account and then repurchases the same stock in her IRA one week later. • Buying a call option on a stock that was sold at a loss just 14 days earlier.

22. Which of the following transactions would NOT be considered a wash sale? Selling a stock at a loss and then purchasing an actively-managed mutual fund that also owns that stock 21 days later.

23. Which of the following descriptions of IRC Section 1031 like-kind exchanges is NOT true or accurate? • Both properties must be similar enough to qualify as "like-kind." Like-kind property is property of the same nature, character or class. • While a like-kind exchange does not have to be a simultaneous swap of properties, you must meet two-time limits, or the entire gain will be taxable. These limits cannot be extended for any circumstance or hardship except in the case of presidentially declared disasters. • Taxpayers engaging in deferred exchanges should but rarely use exchange facilitators under exchange agreements pursuant to rules provided in the income tax regulations. • Real property and personal property can both qualify as exchange properties under Section 1031; but real property can never be like-kind to personal property.

23. Which of the following descriptions of IRC Section 1031 like-kind exchanges is NOT true or accurate? Taxpayers engaging in deferred exchanges should but rarely use exchange facilitators under exchange agreements pursuant to rules provided in the income tax regulations.

24. Regarding the taxation of self-cancelling installment notes (SCINs) and private annuities (PAs), the following statement is most accurate... • Other than for one final payment, for private annuities all income tax recognition ends upon the transferor's death. • An advantage of the private annuity is the potential to avoid estate taxes at the transferor's death. • The possibility of gift tax liability due upon the creation of a private annuity is minimized by the rules and constraints placed on the agreement. • If the transferor exceeds life expectancy, all future payments are treated as long-term capital gains.

24. Regarding the taxation of self-cancelling installment notes (SCINs) and private annuities (PAs), the following statement is most accurate... Other than for one final payment, for private annuities all income tax recognition ends upon the transferor's death.

25. For 2018, there is a limit to the amount of qualified residence interest that is deductible for loans taken after 12-15-2017. The aggregate amount of acquisition indebtedness may not exceed ¬¬¬¬¬¬¬¬¬¬¬¬_________ and the aggregate amount of home equity indebtedness may not exceed _________; interest attributable to debt over these limits is nondeductible personal interest. These amounts are halved for a married individual filing a separate return. • $750,000 / $0 • $500,000 / $100,000 • $100,000 / $1,000,000 • $1,000,000 / $100,000

25. For 2018, there is a limit to the amount of qualified residence interest that is deductible for loans taken after 12-15-2017. The aggregate amount of acquisition indebtedness may not exceed ¬¬¬¬¬¬¬¬¬¬¬¬_________ and the aggregate amount of home equity indebtedness may not exceed _________; interest attributable to debt over these limits is nondeductible personal interest. These amounts are halved for a married individual filing a separate return. $750,000 / $0

26. Each of the following statements are true or accurate except for: • Ken has a photography company that was set up as a sole proprietorship. Ken files a Schedule C with his IRS Form 1040 each year to reflect revenue, expenses and income from that business. • Kyle runs an accounting practice and established a multi-partner LLC, to be taxed as a partnership, through which the practice is managed. Kyle, the managing member, files a Form 1065 on behalf of the LLC each year. • Kris learns that he has received a distribution including Unrelated Business Taxable Income (UBTI) this year. UBTI may be reported on the 990-T and/or the Schedule K-1. • Karl set up an S-corporation for his services company. Karl's S-corporation files a Form 1065 each year to report revenue, expenses and income.

26. Each of the following statements are true or accurate except for: Karl set up an S-corporation for his services company. Karl's S-corporation files a Form 1065 each year to report revenue, expenses and income.

27. Thomas was stuck in the alternative minimum tax (AMT) scheme last year and you both think he'll likely be again this year as well. Each of the following strategies could work to help Thomas minimize or possibly avoid AMT this year except for which below? • defer retirement plan contributions • reduce exposure to private activity bonds • employ tandem exercise of qualified and non-qualified stock options • time charitable deductions

27. Thomas was stuck in the alternative minimum tax (AMT) scheme last year and you both think he'll likely be again this year as well. Each of the following strategies could work to help Thomas minimize or possibly avoid AMT this year except for which below? defer retirement plan contributions

28. The basis in a partnership _________ by ordinary business income, capital gains and dividend income; and __________ from ordinary business loss, capital loss and cash distributions. If a partner is allocated income (taxable), but receives no cash distribution of that income, the partner is _____________ in the partnership. • decreases / increases / reducing his basis • decreases / decreases / increasing his basis • increases / decreases / increasing his basis • increases / increases / reducing his basis

28. The basis in a partnership _________ by ordinary business income, capital gains and dividend income; and __________ from ordinary business loss, capital loss and cash distributions. If a partner is allocated income (taxable), but receives no cash distribution of that income, the partner is _____________ in the partnership. increases / decreases / increasing his basis

29. The Smith's family limited partnership generated $330,000 of income this year. Dr. Stacy and Mr. Bill Smith are the general partners, each owning 1% of the partnership where the children and grandchildren, all limited partners, own the remaining 98% in aggregate. Which of the following is accurate as it relates to the current income and its ultimate distribution? • Distributions must be made pro-rata. • Stacy and Bill may determine the amount and allocation of the distribution at their discretion. • All partners must receive annual distributions at least to the extent of basis on a pro-rata basis before any non-pro-rata distributions may be made. • The so-called Kiddie Tax does not apply to distributions made from the FLP to their children or grandchildren under the statutory age in which those distributions are considered unearned income.

29. The Smith's family limited partnership generated $330,000 of income this year. Dr. Stacy and Mr. Bill Smith are the general partners, each owning 1% of the partnership where the children and grandchildren, all limited partners, own the remaining 98% in aggregate. Which of the following is accurate as it relates to the current income and its ultimate distribution? Stacy and Bill may determine the amount and allocation of the distribution at their discretion.

3. Various research indicates that individuals of wealth would like to discuss financial matters with their children and heirs more frequently than is the case in reality. Approximately __________ of families actually do have these conversations compared to _________ of wealthy individuals who admit they would feel comfortable doing so? • three-quarters / ninety percent • two-thirds / three-quarters • one-third / two-thirds • one-half / three-quarters

3. Various research indicates that individuals of wealth would like to discuss financial matters with their children and heirs more frequently than is the case in reality. Approximately __________ of families actually do have these conversations compared to _________ of wealthy individuals who admit they would feel comfortable doing so? one-third / two-thirds

30. Steve is sole shareholder of a corporation that has $50,000 in current accumulated earnings and profits. His basis in the stock is $5,000. The corporation distributes $70,000, which is not compensation. ________ is treated as dividends and taxed as ordinary income, _________ is treated as a return of capital investment (basis is reduced to zero) and ________ is treated as capital gain. • $5,000 / $20,000 / $70,000 • $50,000 / $5,000 / $15,000 • $70,000 / $0 / $0 • $20,000 / $15,000 / $5,000

30. Steve is sole shareholder of a corporation that has $50,000 in current accumulated earnings and profits. His basis in the stock is $5,000. The corporation distributes $70,000, which is not compensation. ________ is treated as dividends and taxed as ordinary income, _________ is treated as a return of capital investment (basis is reduced to zero) and ________ is treated as capital gain. $50,000 / $5,000 / $15,000

31. Jack gave his daughter, Ellen, a limited partnership interest in a real estate activity. Suspended losses amounted to $30,000. Jack's adjusted basis at the time of the gift was $40,000 (fair market value was greater than $40,000). What is Ellen's basis in the property? • $10,000 • $30,000 • $40,000 • $70,000

31. Jack gave his daughter, Ellen, a limited partnership interest in a real estate activity. Suspended losses amounted to $30,000. Jack's adjusted basis at the time of the gift was $40,000 (fair market value was greater than $40,000). What is Ellen's basis in the property? $70,000

32. Which of the following statements about the phaseout of itemized deductions is accurate under 2017 or 2018 -2019 law as stated below? • The 2017 reductions apply to individuals and trusts but not estates. • Itemized deductions that would otherwise be allowed in 2017 are reduced by the lesser of three percent of the amount of the taxpayer's AGI in excess of the threshold amount of 50% of the itemized deductions otherwise allowed. • The thresholds for the phaseout are $313,800 for married taxpayers filing jointly in 2017 but are suspended from 2018-2025. • The following types of deductions are not included in the itemized phase-out deduction limits: medical expenses, investment interest expense, casualty and theft losses, allowable wagering losses, certain charitable deductions, and miscellaneous deductions.

32. Which of the following statements about the phaseout of itemized deductions is accurate under 2017 or 2018 -2019 law as stated below? The thresholds for the phaseout are $313,800 for married taxpayers filing jointly in 2017 but are suspended from 2018-2025.

33. Which of the following is NOT accurate when describing Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) accounts? I. Account is opened in the name of the child and his/her tax ID number is used. II. Income from an UTMA or UGMA is not subject to the "kiddie tax rules." III. Based on amount, the income may be: untaxed, included in child's taxable income, or included in parent's taxable income. IV. Income from an UTMA or UGMA does not impact AMT liability. • I. and III. only • II. and IV. only • III. and II. only • IV. and I. only

33. Which of the following is NOT accurate when describing Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) accounts? I. Account is opened in the name of the child and his/her tax ID number is used. II. Income from an UTMA or UGMA is not subject to the "kiddie tax rules." III. Based on amount, the income may be: untaxed, included in child's taxable income, or included in parent's taxable income. IV. Income from an UTMA or UGMA does not impact AMT liability. II. and IV. only

34. Mike donates long-term gain property worth $800,000 to a qualified public charity. Mike's adjusted gross income is $2,000,000. Mike's basis in the property for tax purposes is $700,000. What is the maximum deduction Mike can take this year based on these facts? • $600,000 • $700,000 • $800,000 • $1,000,000

34. Mike donates long-term gain property worth $800,000 to a qualified public charity. Mike's adjusted gross income is $2,000,000. Mike's basis in the property for tax purposes is $700,000. What is the maximum deduction Mike can take this year based on these facts? $700,000

35. Which of the following regarding the taxation of first-tier beneficiary distributions is NOT accurate? • They are taxed on income actually or constructively distributed to the extent of the trust's or estate's distributable next income. • Currently distributable income must be distributed in the same tax year as earned. • Includes any amount that may be paid out of income or corpus to the extent it is paid out of income for that tax year. • First-tier beneficiaries may not avoid tax liability by assigning or disclaiming their entire interest.

35. Which of the following regarding the taxation of first-tier beneficiary distributions is NOT accurate? First-tier beneficiaries may not avoid tax liability by assigning or disclaiming their entire interest.

36. Current ordinary income rates are 40%, capital gains rates are 20%, and Tom's marginal tax rate on income from retirement accounts will be 40% this year. Tom's retirement investment portfolio receives qualified dividends of $200,000 this year. Tom is pleased as he has asked you to build his portfolio investing in equities, but particularly those that deliver consistent dividends in this, his IRA rollover account. Tom will receive a taxable distribution from this account of $300,000 this year. What will Tom pay in taxes on his distribution this year? • $120,000 • $60,000 • $80,000 • $100,000

36. Current ordinary income rates are 40%, capital gains rates are 20%, and Tom's marginal tax rate on income from retirement accounts will be 40% this year. Tom's retirement investment portfolio receives qualified dividends of $200,000 this year. Tom is pleased as he has asked you to build his portfolio investing in equities, but particularly those that deliver consistent dividends in this, his IRA rollover account. Tom will receive a taxable distribution from this account of $300,000 this year. What will Tom pay in taxes on his distribution this year? $120,000

37. Your client sold property to a buyer who paid her $400,000 cash and assumed an existing mortgage of $150,000. The property had cost $250,000 and she had made improvements of $50,000. Depreciation of $100,000 has been claimed and selling expenses were $20,000. What is the amount of gain? • $200,000 • $250,000 • $330,000 • $350,000

37. Your client sold property to a buyer who paid her $400,000 cash and assumed an existing mortgage of $150,000. The property had cost $250,000 and she had made improvements of $50,000. Depreciation of $100,000 has been claimed and selling expenses were $20,000. What is the amount of gain? $330,000

38. What are the tax consequences of an Incentive Stock Option (ISO)? • Depending on circumstances, capital gains are recognized at either the grant date or exercise date. • The bargain element (difference between value at exercise and option price) is added back for AMT purposes. • Disregarding AMT, if certain rules are met, the employee is taxed at more favorable ordinary income tax rates when he/she sells the stock. • Capital gains are recognized upon the sale of an ISO equal to the sales price - the value of the stock at the date of grant.

38. What are the tax consequences of an Incentive Stock Option (ISO)? The bargain element (difference between value at exercise and option price) is added back for AMT purposes.

39. Place the following steps in order for calculating AMT. I. Preliminary AMT - Tax Credits = Tentative AMT II. Taxable Income +/− AMT Adjustments + AMT Preference Items = AMTI ("alternative minimum taxable income") III. AMTI − Exemption Amount (subject to phase out) = AMT Base IV. Tentative AMT − Regular Tax = AMT Due V. AMT Base × AMT Rate(s) - Preliminary AMT • I., II., V., III., IV. • II., III., V., I., IV. • V., II., III., IV., I. • III., II., I., IV., V.

39. Place the following steps in order for calculating AMT. I. Preliminary AMT - Tax Credits = Tentative AMT II. Taxable Income +/− AMT Adjustments + AMT Preference Items = AMTI ("alternative minimum taxable income") III. AMTI − Exemption Amount (subject to phase out) = AMT Base IV. Tentative AMT − Regular Tax = AMT Due V. AMT Base × AMT Rate(s) - Preliminary AMT II., III., V., I., IV.

4. Which of the following is NOT one of the 9 "principles" listed in the Institute's Code of Professional Responsibility? • Maintain a high level of ethical conduct. • Provide clients information needed to make informed decisions. • Disclose the existence of all potential conflicts of interest and relevant financial and non-financial relationships, direct and/or indirect. Take appropriate action to document, resolve or manage any such conflicts. • Respond to client inquiries and instructions appropriately, promptly, completely, and truthfully.

4. Which of the following is NOT one of the 9 "principles" listed in the Institute's Code of Professional Responsibility? Disclose the existence of all potential conflicts of interest and relevant financial and non-financial relationships, direct and/or indirect. Take appropriate action to document, resolve or manage any such conflicts.

40. Over the past year you earned a nominal rate of interest of 8 percent on your money. The inflation rate was 4 percent over the same period. The exact actual growth rate of your purchasing power was... • 4.20% • 4.00% • 3.85% • 4.85%

40. Over the past year you earned a nominal rate of interest of 8 percent on your money. The inflation rate was 4 percent over the same period. The exact actual growth rate of your purchasing power was... 3.85%

41. Umbrella liability insurance policies typically.... I. cover bodily injury, property damage and personal injury liability II. only pay damages above the required property and casualty insurance coverage amounts III. only cover the policyholder(s) IV. include coverage for aircraft and watercraft • I and II only • II and III only • III and IV only • VI and I only

41. Umbrella liability insurance policies typically.... I. cover bodily injury, property damage and personal injury liability II. only pay damages above the required property and casualty insurance coverage amounts III. only cover the policyholder(s) IV. include coverage for aircraft and watercraft I and II only

42. The following term is used to identify specifically when capital has been released or given to a company or project and impacts performance measurement going forward. • venture capital • the vintage year concept • business cycle • crowdfunding

42. The following term is used to identify specifically when capital has been released or given to a company or project and impacts performance measurement going forward. the vintage year concept

43. This options-based hedge involves selling (writing) an out of the money call and buying an out of the money put on an underlying asset that has embedded gains. This strategy intends to lock in profits by buying downside protection while calls are sold to generate income to help pay for this downside protection. Properly executed, these strategies preserve capital and the holding period of low cost basis stock. • straddles • strangles • collars • diagonal spread

43. This options-based hedge involves selling (writing) an out of the money call and buying an out of the money put on an underlying asset that has embedded gains. This strategy intends to lock in profits by buying downside protection while calls are sold to generate income to help pay for this downside protection. Properly executed, these strategies preserve capital and the holding period of low cost basis stock. collars

44. Which of the following assets is "often available" but generally "least attractive" in fulfilling the claim of a creditor? • equity in a secondary residence • cash value of a life insurance policy • distributions from a family limited partnership • jointly held assets between husband and wife

44. Which of the following assets is "often available" but generally "least attractive" in fulfilling the claim of a creditor? distributions from a family limited partnership

45. As diversification increases, the unsystematic risk of a portfolio approaches ____________. • 1 • 0 • n-1 * n • -1

45. As diversification increases, the unsystematic risk of a portfolio approaches ____________. 0

46. Which of the following is true of studies following the performance of socially responsible investing? • Socially responsible funds outperform equity market indexes on a pre-tax basis. • Actively managed socially responsible funds outperform passively managed socially responsible funds. • Performance attribution due to size and style are more significant than screening for social responsibility. • Socially responsible funds underperform their respective indexes by one percent or more in over most periods studied.

46. Which of the following is true of studies following the performance of socially responsible investing? Performance attribution due to size and style are more significant than screening for social responsibility.

47. Which of the following statements is/are accurate as they relate to asset location and tax-efficient investing? I. It is generally more profitable to buy bonds in the taxable account and stocks in the tax-deferred account. II. The impact of a 150 basis point a year tax-drag on a $1 million portfolio over 20 years could cost the account over $1 million in value over that time. • I. only • II. only • both are accurate • neither is accurate

47. Which of the following statements is/are accurate as they relate to asset location and tax-efficient investing? I. It is generally more profitable to buy bonds in the taxable account and stocks in the tax-deferred account. II. The impact of a 150 basis point a year tax-drag on a $1 million portfolio over 20 years could cost the account over $1 million in value over that time. II. only

48. Which of the following strategies is NOT a mean-variance optimization method for measuring risk-adjusted investment performance? I. Treynor ratio II. coefficient of variation III. information ratio IV. time-weighted return V. dollar-weighted return VI. Sortino ratio VII. Jensen's alpha VIII. value-at-risk • I., II., IV., and VIII. only • II., IV., V., and VIII. only • III., V., VII., and II. only • IV., V., VIII. and I. only

48. Which of the following strategies is NOT a mean-variance optimization method for measuring risk-adjusted investment performance? I. Treynor ratio II. coefficient of variation III. information ratio IV. time-weighted return V. dollar-weighted return VI. Sortino ratio VII. Jensen's alpha VIII. value-at-risk II., IV., V., and VIII. only

49. Charlie is concerned about the downside risk in her $5,000,000 trust fund. This is all the money she has and is counting on it lasting her for another 20 years. Based on the current investment method you're using to manage and allocate assets within the trust, she would like to know how much money she may lose in the next bear market and roughly what percentage chance there is that she will experience that loss. What metric are you most likely to use in helping Charlie understand this concern? • value-at-risk • information ratio • standard deviation • tracking error

49. Charlie is concerned about the downside risk in her $5,000,000 trust fund. This is all the money she has and is counting on it lasting her for another 20 years. Based on the current investment method you're using to manage and allocate assets within the trust, she would like to know how much money she may lose in the next bear market and roughly what percentage chance there is that she will experience that loss. What metric are you most likely to use in helping Charlie understand this concern? value-at-risk

5. Which of the following family dynamics are often demonstrated between first and second-generation wealth? I. Parents often allow children too much freedom. II. Children often suffer from low self-esteem. III. Parents often neglect their family relationships. IV. Children often develop relationships outside their social circles. • III. and II. • III. and IV. • I. and IV. • I. and II.

5. Which of the following family dynamics are often demonstrated between first and second-generation wealth? I. Parents often allow children too much freedom. II. Children often suffer from low self-esteem. III. Parents often neglect their family relationships. IV. Children often develop relationships outside their social circles. III. and II.

50. The following statements describe the "relative wealth measure" tax-efficiency ratio. Fill in the blanks to complete each statement. The _________ the better where zero indicates little or no tax impact. The relative wealth measure works well in ___________ markets. This metric is very useful in analyzing tax-efficiency in ______________. • lower / upward sloping / mutual funds • lower / downward sloping / hedge funds • higher / all kinds of / separately managed accounts • higher / upward sloping / hedge funds

50. The following statements describe the "relative wealth measure" tax-efficiency ratio. Fill in the blanks to complete each statement. The _________ the better where zero indicates little or no tax impact. The relative wealth measure works well in ___________ markets. This metric is very useful in analyzing tax-efficiency in ______________. higher / all kinds of / separately managed accounts

51. While calculating and understanding ______________ may be a good place to start in terms of identifying funds that are more or less likely to be generating taxable gains over a period of time. There are, however, clearly better methods for determining taxability and tax-efficiency such as ______________ and _______________. • the capital gains realization rate / portfolio turnover rate / the consultant capture ratio • portfolio turnover / the consultant capture ratio / relative wealth measure • the accountant's ratio / relative wealth ratio / portfolio turnover rate • relative wealth measure / portfolio turnover / the capital gains realization rate

51. While calculating and understanding ______________ may be a good place to start in terms of identifying funds that are more or less likely to be generating taxable gains over a period of time. There are, however, clearly better methods for determining taxability and tax-efficiency such as ______________ and _______________. portfolio turnover / the consultant capture ratio / relative wealth measure

52. Which of the following statements is not accurate? • A creditor's claim may be attached to partnership distributions through a charging order. • Qualified plan assets are generally fully protected from the claims of creditors although there are a few exceptions including from the claims of the U.S. government. • The protection of traditional and Roth IRA accounts from the claims of creditors may be limited under bankruptcy law. • Protection of the entire amount of equity in one's "primary residence" is generally fully protected from the claims of creditors based on state and case law.

52. Which of the following statements is not accurate? Protection of the entire amount of equity in one's "primary residence" is generally fully protected from the claims of creditors based on state and case law.

53. The __________ is identical to the __________ except that it uses downside semi-standard deviation (the standard deviation of the negative asset returns) instead of standard deviation (which includes the deviations of both positive and negative returns), and is better used when analyzing portfolios with high volatility. • Sharpe Ratio / Sortino Ratio • Sharpe Ratio / Treynor Ratio • Treynor Ratio / Sortino Ratio • Sortino Ratio / Sharpe Ratio

53. The __________ is identical to the __________ except that it uses downside semi-standard deviation (the standard deviation of the negative asset returns) instead of standard deviation (which includes the deviations of both positive and negative returns), and is better used when analyzing portfolios with high volatility. Sortino Ratio / Sharpe Ratio

54. Liability-driven investing seeks to improve funding status and probabilities by managing risk and return of the net assets and expected liabilities of the portfolio. Each of the following, with the exception of __________, is an appropriate and common investment strategy for liability-driven methods given this approach's focus on managing risk. • mean-variance optimization strategies • technical analysis • risk-parity strategies • factor-based investing

54. Liability-driven investing seeks to improve funding status and probabilities by managing risk and return of the net assets and expected liabilities of the portfolio. Each of the following, with the exception of __________, is an appropriate and common investment strategy for liability-driven methods given this approach's focus on managing risk. technical analysis

55. This measure of tax-efficiency is helpful in the weighing of short-term capital gains realized compared to all capital gains realized; and, therefore, it is a fund manager's attention (or lack thereof) to tax ramifications of his or her trading decisions. This metric is not considered one of the more complete measures of tax-efficiency but can be of help in analyzing tax-awareness of investment managers. • accountant's ratio • consultant capture ratio • relative wealth measure • portfolio turnover rate

55. This measure of tax-efficiency is helpful in the weighing of short-term capital gains realized compared to all capital gains realized; and, therefore, it is a fund manager's attention (or lack thereof) to tax ramifications of his or her trading decisions. This metric is not considered one of the more complete measures of tax-efficiency but can be of help in analyzing tax-awareness of investment managers. accountant's ratio

56. Alan is looking for an investment strategy that can take advantage of mean variance optimization techniques, considers risk characteristics and analysis of different asset classes and strategies, allows for active decision-making, seeks to optimize risk/reward specifically regarding the portfolio's market or beta risk, and benefits from the possibility of low correlations. Alan should consider ______________. • strategic asset allocation • factor-based investing • tactical asset allocation • risk-parity strategies

56. Alan is looking for an investment strategy that can take advantage of mean variance optimization techniques, considers risk characteristics and analysis of different asset classes and strategies, allows for active decision-making, seeks to optimize risk/reward specifically regarding the portfolio's market or beta risk, and benefits from the possibility of low correlations. Alan should consider ______________. factor-based investing

Due to a fire, Sophia lost a set of jewelry which cost $150,000 twenty years ago and was currently valued at $325,000. The insurance company processed her claim and sent a check for $315,500. What type of coverage did Sophia have? • coverage D under homeowner's policy • scheduled replacement value • actual cash value coverage • HO-4 personal property coverage

57. Due to a fire, Sophia lost a set of jewelry which cost $150,000 twenty years ago and was currently valued at $325,000. The insurance company processed her claim and sent a check for $315,500. What type of coverage did Sophia have? scheduled replacement value

58. This investment method is sometimes criticized for its approach to separate out investment objectives which often leads to different and distinct strategies being implemented for different objectives within the portfolio (e.g., mental accounting). • liability-driven investing • goal-driven strategies • dynamic asset allocation • market timing and technical analysis

58. This investment method is sometimes criticized for its approach to separate out investment objectives which often leads to different and distinct strategies being implemented for different objectives within the portfolio (e.g., mental accounting). goal-driven strategies

59. The _______________ method is the default accounting method used by some brokerages and custodians but can be detrimental to investors. _______________ and ____________ are often the preferred choices for calculating gains and losses in a portfolio but are not always applicable or allowed. • first-in-first-out (FIFO) / Average cost method / last-in-last-out (LILO) • average cost / Specific lot identification / highest-in-first-out (HIFO) • last-in-last-out (LILO) / First-in-first-out (FIFO) / average cost • highest-in-first-out (HIFO) / Last-in-last-out (LILO) / average cost

59. The _______________ method is the default accounting method used by some brokerages and custodians but can be detrimental to investors. _______________ and ____________ are often the preferred choices for calculating gains and losses in a portfolio but are not always applicable or allowed. average cost / Specific lot identification / highest-in-first-out (HIFO)

6. Each of the following, except for which below, could/should be considered both a risk or concern and a potential benefit for families considering the establishment of a family-office? • centralization of services • performance • privacy • cost

6. Each of the following, except for which below, could/should be considered both a risk or concern and a potential benefit for families considering the establishment of a family-office? cost

60. The following sector represents a greater weighting than any other in most of the commodity indexes that are not equally weighted by design. • agriculture • energy • metals • real estate

60. The following sector represents a greater weighting than any other in most of the commodity indexes that are not equally weighted by design. energy

61. Which of the following does not accurately describe a typical "angel investor" scenario? • They typically do not have a geographic preference for where they invest. • They often like to advise management. • They do not typically seek control. • They seek return on investment of multiple-times their original investment.

61. Which of the following does not accurately describe a typical "angel investor" scenario? They typically do not have a geographic preference for where they invest.

62. List the entities below by order of those offering most to least control over the business: I. limited liability company (LLC) II. partnership III. sole-proprietor IV. c-corporation • III., II., I., IV. • IV., I., II., III. • I., IV., III., II. • II., III., I., IV.

62. List the entities below by order of those offering most to least control over the business: I. limited liability company (LLC) II. partnership III. sole-proprietor IV. c-corporation III., II., I., IV.

63. Each of the following characteristics accurately describes registered restricted stock except for.... • retains some value for employees even if price declines • can involve risks for employees if 83(b) election made • cannot carry dividend or voting rights • company cannot take a tax deduction for the value of the gain employees realize with 83(b) election

63. Each of the following characteristics accurately describes registered restricted stock except for.... cannot carry dividend or voting rights

64. Which of the following are true regarding the advantages and disadvantages of offshore asset protection strategies? I. Many countries (not including the U.S.) require plaintiffs to post a security bond. II. Many countries impose a "loser-pay" system for civil cases. III. Creating and managing an offshore asset protection may be time-consuming and costly. IV. Establishing specific types of off-shore trusts can be an effective way for U.S. citizens to protect assets and avoid paying taxes. V. The U.S. government has little right or power to enforce judgments and attach assets on behalf of its own claims in most foreign jurisdictions. • I, II and III only • II, III and IV only • III, IV and V only • V, I and II only

64. Which of the following are true regarding the advantages and disadvantages of offshore asset protection strategies? I. Many countries (not including the U.S.) require plaintiffs to post a security bond. II. Many countries impose a "loser-pay" system for civil cases. III. Creating and managing an offshore asset protection may be time-consuming and costly. IV. Establishing specific types of off-shore trusts can be an effective way for U.S. citizens to protect assets and avoid paying taxes. V. The U.S. government has little right or power to enforce judgments and attach assets on behalf of its own claims in most foreign jurisdictions. I, II and III only

65. How are non-qualified stock options taxed? I. Ordinary income is realized upon grant. II. Capital gains/losses are realized upon grant. III. Ordinary income is realized upon exercise. IV. Capital gains/losses are realized upon exercise. V. Ordinary income is realized upon sale. VI. Capital gains/losses are realized upon sale. • I, III and VI only • II, IV and VI only • III and VI only • IV and V only

65. How are non-qualified stock options taxed? I. Ordinary income is realized upon grant. II. Capital gains/losses are realized upon grant. III. Ordinary income is realized upon exercise. IV. Capital gains/losses are realized upon exercise. V. Ordinary income is realized upon sale. VI. Capital gains/losses are realized upon sale. III and VI only

66. SEC Rule 10b5-1 establishes that a prearranged plan for stock sales can create an affirmative defense against a claim of violation of the inside information prohibition, regardless of when the sale occurs, even if inside information in fact exists when the sale actually occurs. Several key requirements apply: • The contract, instructions, or written plan must be established _________ the executive became aware of the material inside information. • The contract, instructions, or plan must either • specify the _____________________; or • provide a written formula for determining those parameters; and • not permit any subsequent discretion by the executive over how, when, or whether to execute the plan. • The executive/director ___________ enter into or alter a corresponding or hedging position regarding the same stock. • at least 90-days before / amount, price, and date / may under certain predefined circumstances • at least 60-days before / price and date / does not • at least 30-days before / price and date / may under certain predefined circumstances • before / amount, price, and date / does not

66. SEC Rule 10b5-1 establishes that a prearranged plan for stock sales can create an affirmative defense against a claim of violation of the inside information prohibition, regardless of when the sale occurs, even if inside information in fact exists when the sale actually occurs. Several key requirements apply: • The contract, instructions, or written plan must be established _________ the executive became aware of the material inside information. • The contract, instructions, or plan must either • specify the _____________________; or • provide a written formula for determining those parameters; and • not permit any subsequent discretion by the executive over how, when, or whether to execute the plan. • The executive/director ___________ enter into or alter a corresponding or hedging position regarding the same stock. before / amount, price, and date / does not

67. Which of the following trusts would be most appropriate for your client who would like to transfer assets to multiple generations, claim the GSTT exemption on gifts made to this trust, protect assets from the claims of their heirs' future creditors, keep the assets in the U.S., and allow for special powers of appointment to be held by beneficiaries allowing additional flexibility? • dynasty trust • revocable living trust • foreign asset protection trust • grantor trust

67. Which of the following trusts would be most appropriate for your client who would like to transfer assets to multiple generations, claim the GSTT exemption on gifts made to this trust, protect assets from the claims of their heirs' future creditors, keep the assets in the U.S., and allow for special powers of appointment to be held by beneficiaries allowing additional flexibility? dynasty trust

68. Each of the following statements about a "cashless option exercise" is accurate except for: • Reg T rules permit broker-dealers to advance funds to an executive in order to pay for the exercise of an option. • The process involves the broker paying the issuer the exercise price on the date required by the plan and selling enough stock to be acquired on exercise of the option to pay for the exercise price and required withholding plus a safety margin of 10%. • The broker uses the proceeds of the sale to pay the exercise price and the withholding taxes to the issuer and then pays the balance to the executive. • The exercise date is considered the purchase date for the stock issuable upon exercise and the sale date for that stock.

68. Each of the following statements about a "cashless option exercise" is accurate except for: The process involves the broker paying the issuer the exercise price on the date required by the plan and selling enough stock to be acquired on exercise of the option to pay for the exercise price and required withholding plus a safety margin of 10%.

69. Michael would love to see the company he's built live for generations to come. He's told you that he feels this is his legacy. He's considering selling his closely held business to his children or perhaps several key employees if the kids are not interested. Which of the following strategies are likely most appropriate for these kinds of transfers in ownership? I. Installment sales II. Recapitalization III. Stock Appreciation Rights IV. Private annuities V. Private auctions • I., III., and V. • II., III., and IV. • I., III., and IV. • II., IV., and V.

69. Michael would love to see the company he's built live for generations to come. He's told you that he feels this is his legacy. He's considering selling his closely held business to his children or perhaps several key employees if the kids are not interested. Which of the following strategies are likely most appropriate for these kinds of transfers in ownership? I. Installment sales II. Recapitalization III. Stock Appreciation Rights IV. Private annuities V. Private auctions I., III., and IV.

7. Which of the following are included for calculating gross income? I. alimony received II. pension distributions III. prizes and awards IV. gifts and inheritances V. qualified muni-bond interest VI. qualified scholarships • I. and IV. only • I., II. and III. only • II. and VI. only • III., V., and II. only

7. Which of the following are included for calculating gross income? I. alimony received II. pension distributions III. prizes and awards IV. gifts and inheritances V. qualified muni-bond interest VI. qualified scholarships I., II. and III. only

70. Which of the following strategies is commonly used for meeting both liquidity and diversification needs of a client who owns a significant concentrated stock position? This strategy monetizes a concentrated position without selling the shares up front (uses contract to sell in the future) and thus diversifies a large position while deferring taxes when done within appropriate limits. • zero premium collar • prepaid variable forward • collar with a purpose loan • Charitable Remainder Trust

70. Which of the following strategies is commonly used for meeting both liquidity and diversification needs of a client who owns a significant concentrated stock position? This strategy monetizes a concentrated position without selling the shares up front (uses contract to sell in the future) and thus diversifies a large position while deferring taxes when done within appropriate limits. prepaid variable forward

71. Fred receives 8,000 stock options, with a fair market value of $1.2 million, considered to be qualified incentive stock options from his employer. Thirty-six months later he exercises half of the options when the price of the stock is $200 per share. Two and one-half years later he sells the options he exercised for $250 per share. What are the tax ramifications of Fred's actions? • $200,000 AMT preference item; $400,000 long-term capital gain • no AMT impact; $200,000 short-term capital gain • $1.2m AMT preference item; $400,000 short-term capital gain • $600,000 AMT preference item; $200,000 long-term capital gain

71. Fred receives 8,000 stock options, with a fair market value of $1.2 million, considered to be qualified incentive stock options from his employer. Thirty-six months later he exercises half of the options when the price of the stock is $200 per share. Two and one-half years later he sells the options he exercised for $250 per share. What are the tax ramifications of Fred's actions? $200,000 AMT preference item; $400,000 long-term capital gain

72. Betty Sue has a large position in ABC stock which she originally purchased in 1986. The stock is currently trading at $50 per share and Betty Sue's cost basis is only $3 share. She is growing concerned over having such a significant amount of her net worth in 1 volatile stock as she nears retirement. However, she does not want to realize the capital gain by simply selling. What would be the most tax-advantageous hedging solution for Betty Sue to limit her downside risk? • prepaid variable forward contract • equity swap with a collar • single contract cashless collar • purchase a put option

72. Betty Sue has a large position in ABC stock which she originally purchased in 1986. The stock is currently trading at $50 per share and Betty Sue's cost basis is only $3 share. She is growing concerned over having such a significant amount of her net worth in 1 volatile stock as she nears retirement. However, she does not want to realize the capital gain by simply selling. What would be the most tax-advantageous hedging solution for Betty Sue to limit her downside risk? equity swap with a collar

73. Each of the following statements accurately describes a supplemental executive retirement plan (SERP) except: • A SERP is a nonqualified retirement plan. • Payments under a SERP are taxed as ordinary income to the employee in the year they are received. • SERPs are funded by both the employer and employee. • Retirement benefits provided under SERPS are generally determined using either a defined benefit or defined contribution approach.

73. Each of the following statements accurately describes a supplemental executive retirement plan (SERP) except: SERPs are funded by both the employer and employee.

74. Which of the following statements about limited partnerships is NOT accurate? • Limited partners are offered protection of their personal assets held outside the partnership. • Limited partners may not demand dissolution of the partnership based on investment underperformance. • Partners may receive a share of the profit or other compensation as outlined in the partnership agreement. • A charging order is the exclusive remedy for a creditor judgment to satisfy a debt out of a judgment debtor's partnership interest.

74. Which of the following statements about limited partnerships is NOT accurate? A charging order is the exclusive remedy for a creditor judgment to satisfy a debt out of a judgment debtor's partnership interest.

75. What are the consequences when there is a disqualifying disposition of shares acquired through an incentive stock option (ISO)? • The employer loses a tax deduction. • The employee loses preferential tax treatment upon the sale of those shares. • The employee's unexercised ISO shares are forfeited. • The employer receives a tax deduction equal to the capital gain recognized by the employee.

75. What are the consequences when there is a disqualifying disposition of shares acquired through an incentive stock option (ISO)? The employee loses preferential tax treatment upon the sale of those shares.

76. Section 16 of the 1934 Act is designed to minimize the unfair use of inside information, which is information that is not available to the public. This is accomplished through the interaction of Section 16(a), which defines the term "insider" and states that an insider must promptly disclose all transactions in company stock, and Section 16(b), which states that any profits made by an insider from transactions involving a purchase and sale of company stock within any ___________ period must be returned to the company. Any combination of purchase and sale within this period will result in a violation of Section 16(b), known as the _______________ violation, regardless of how long the shares being sold have been held or whether the executive in fact possessed material non-public information. The amount of profit earned will be calculated by the method producing the _______ recovery for the company. • six-month / short-swing trading / highest • twelve-month / insider-information rules / highest • six-month / insider-information rules / most reasonable • twelve-month / short-swing trading / most reasonable

76. Section 16 of the 1934 Act is designed to minimize the unfair use of inside information, which is information that is not available to the public. This is accomplished through the interaction of Section 16(a), which defines the term "insider" and states that an insider must promptly disclose all transactions in company stock, and Section 16(b), which states that any profits made by an insider from transactions involving a purchase and sale of company stock within any ___________ period must be returned to the company. Any combination of purchase and sale within this period will result in a violation of Section 16(b), known as the _______________ violation, regardless of how long the shares being sold have been held or whether the executive in fact possessed material non-public information. The amount of profit earned will be calculated by the method producing the _______ recovery for the company. six-month / short-swing trading / highest

77. Grantor trusts, both foreign and domestic, may provide asset protection for the trust's grantor. Each of the following are potential benefits of a grantor trust except: • tax favored treatment of trust income • control and flexibility • option to include spendthrift provisions in the trust document • protection of pre-marital assets

77. Grantor trusts, both foreign and domestic, may provide asset protection for the trust's grantor. Each of the following are potential benefits of a grantor trust except: tax favored treatment of trust income

78. Proceeds and benefits from life insurance policies are typically well protected from creditors in most states. In the following situations, however, proceeds and benefits including cash value are not protected, with the exception of which event below. • Insured voluntarily assigns policy as collateral for debt. • Insured changes beneficiary beyond exemption parameters in his or her state. • Insured establishes insurance policy in an effort to protect assets after the event in question takes place. • Insured designates beneficiary prior to becoming insolvent.

78. Proceeds and benefits from life insurance policies are typically well protected from creditors in most states. In the following situations, however, proceeds and benefits including cash value are not protected, with the exception of which event below. Insured designates beneficiary prior to becoming insolvent.

79. Your client's objective is to exercise in order to sell and reap current profits. Which of the following strategies makes the most sense? • Client is not confident of required future stock price to calculate break-even price to justify further delay in exercise; client should delay exercise and sell later. • Client is not confident of required future stock price to calculate break-even price to justify further delay in exercise; client should exercise and sell now. • Client is confident of required future stock price to calculate break-even price to justify further delay in exercise; client is not confident of required future stock price beyond break-even; client should exercise now and hold for 12 months. • Client is confident of required future stock price to calculate break-even price and the required future stock price; client should delay exercise and sell later.

79. Your client's objective is to exercise in order to sell and reap current profits. Which of the following strategies makes the most sense? Client is not confident of required future stock price to calculate break-even price to justify further delay in exercise; client should exercise and sell now.

8. Which of the following scenarios accurately depicts an investor who shows signs of affinity bias. I. Cheryl has just invested in a popular ESG fund but did not do careful due diligence on the fund's management, operations, or performance history before investing. II. Bobby has invested in a number of investment and insurance products and services that he doesn't fully understand but did so because the financial advisor recommending them also advises players on the Dallas Cowboys. III. Max believes in the benefits of diversification and holds a blend of value and growth funds that represents his home country as well as those of emerging markets. Max however does not believe in active management. IV. Danielle believes that her company will continue to be the leader in the technology sector and one of the best investments available, but she recognizes the benefits of asset allocation and diversification; therefore, she only has a small percentage of her funds invested in her own company stock. • IV. and I. only • I. and II. only • III. and IV. only • II. and III. only

8. Which of the following scenarios accurately depicts an investor who shows signs of affinity bias. I. Cheryl has just invested in a popular ESG fund but did not do careful due diligence on the fund's management, operations, or performance history before investing. II. Bobby has invested in a number of investment and insurance products and services that he doesn't fully understand but did so because the financial advisor recommending them also advises players on the Dallas Cowboys. III. Max believes in the benefits of diversification and holds a blend of value and growth funds that represents his home country as well as those of emerging markets. Max however does not believe in active management. IV. Danielle believes that her company will continue to be the leader in the technology sector and one of the best investments available, but she recognizes the benefits of asset allocation and diversification; therefore, she only has a small percentage of her funds invested in her own company stock. I. and II. only

80. Your client has been granted shares (classified as "restricted stock") of her company. She expects to be at the company for a long time, particularly since she is a co-founder. Her marginal tax rate is not yet in the highest bracket and she expects the share price to rise dramatically in the next 3-5 years. What strategy might you discuss with her based on the circumstances described? • cashless exercise • pyramid - stock swap • Section 83(b) election • cashless collar

80. Your client has been granted shares (classified as "restricted stock") of her company. She expects to be at the company for a long time, particularly since she is a co-founder. Her marginal tax rate is not yet in the highest bracket and she expects the share price to rise dramatically in the next 3-5 years. What strategy might you discuss with her based on the circumstances described? Section 83(b) election

81. Each of the following may be good reasons for your 40-year-old client to pay tax now or begin paying taxes now on a qualified lump-sum retirement plan distribution except: • when the distribution is relatively small • when a substantial portion of a distribution consists of highly appreciated employer securities • when 10-year forward averaging and capital gains treatment apply • when your client believes ordinary income tax rates may be significantly lower in retirement

81. Each of the following may be good reasons for your 40-year-old client to pay tax now or begin paying taxes now on a qualified lump-sum retirement plan distribution except: when your client believes ordinary income tax rates may be significantly lower in retirement

82. The following plan includes a benefit limitation at age 65, the lesser of $220,000 or 100 percent of compensation averaged over the three highest-earning consecutive years; there are no individual accounts; and various formulas are used to determine the employee's benefit: • individual 401(k) plan • profit sharing plan (PSP) • defined benefit plan • cash balance plan

82. The following plan includes a benefit limitation at age 65, the lesser of $220,000 or 100 percent of compensation averaged over the three highest-earning consecutive years; there are no individual accounts; and various formulas are used to determine the employee's benefit: defined benefit plan

83. Under certain circumstances, stock redemptions in closely held businesses where the stock was held for many years but where the remaining stockholders are related to the party whose stock has been redeemed will generate what kind of taxation or consequence? • tax deferral • ordinary income • long-term capital gains • tax-free exchange

83. Under certain circumstances, stock redemptions in closely held businesses where the stock was held for many years but where the remaining stockholders are related to the party whose stock has been redeemed will generate what kind of taxation or consequence? ordinary income

84. Each of the following accurately describes which strategy below? Prevents exposure to the claims of entity creditors. Provides for a potential step-up in outside basis. Made between business owners and not with the entity itself. May be cumbersome to coordinate funding between many shareholders. • redemption agreement • key-man policy • cross-purchase plan • split-dollar arrangement

84. Each of the following accurately describes which strategy below? Prevents exposure to the claims of entity creditors. Provides for a potential step-up in outside basis. Made between business owners and not with the entity itself. May be cumbersome to coordinate funding between many shareholders. cross-purchase plan

85. A qualified retirement plan must provide that the payment of benefits under the plan will begin, unless the participant elects otherwise, no later than the 60th day after the latest of the close of the plan year in which: • the participant attains the earlier of age ______ or the normal retirement age specified in the plan; • the participant marks the 10th anniversary of enrollment in the plan; or • the participant ________________________ • 55 / terminates service with the employer • 50 / elects early retirement • 65 / terminates service with the employer • 60 / elects early retirement

85. A qualified retirement plan must provide that the payment of benefits under the plan will begin, unless the participant elects otherwise, no later than the 60th day after the latest of the close of the plan year in which: • the participant attains the earlier of age ______ or the normal retirement age specified in the plan; • the participant marks the 10th anniversary of enrollment in the plan; or • the participant ________________________ 65 / terminates service with the employer

86. Which of the following statements about rollovers and penalty taxes on retirement account distributions is/are accurate? I. There is a 10% penalty for all distributions made prior to age 59.5. II. There is a 50% penalty tax on insufficient distributions. III. Qualified transfers or rollovers must be completed within 30 days. • I. and II. • II. only • III. only • I. and III.

86. Which of the following statements about rollovers and penalty taxes on retirement account distributions is/are accurate? I. There is a 10% penalty for all distributions made prior to age 59.5. II. There is a 50% penalty tax on insufficient distributions. III. Qualified transfers or rollovers must be completed within 30 days. II. only

87. What type of property would be least effective for funding a private annuity? • depreciated securities • interest in a family partnership • appreciated real estate • stock in the family corporation

87. What type of property would be least effective for funding a private annuity? depreciated securities

88. Charlotte thinks she and her husband Russ probably need around $200,000 each year in retirement, in today's value, to maintain their standard of living throughout retirement. You have discussed the fact that most retirees ultimately spend less through the years as they age, but Charlotte wants to have enough set aside so that they are able to spend $200,000 each year even if they choose not to. Charlotte expects inflation to rise from today's rates and average 3.5% annually over the rest of their lifetime and believes that due to your skill as her wealth manager, you'll be able to get an average net return of around 9% annually. Charlotte and Russ have already saved $1,500,000 toward this goal (which you manage today). They would like to retire in 15 years and expect to live 25 years in retirement. Based on these facts and expectations, how much do Charlotte and Russ need to add to their savings between now and retirement in order to meet this goal? • zero • $2,556,671 • $2,733,253 • $1,066,809

88. Charlotte thinks she and her husband Russ probably need around $200,000 each year in retirement, in today's value, to maintain their standard of living throughout retirement. You have discussed the fact that most retirees ultimately spend less through the years as they age, but Charlotte wants to have enough set aside so that they are able to spend $200,000 each year even if they choose not to. Charlotte expects inflation to rise from today's rates and average 3.5% annually over the rest of their lifetime and believes that due to your skill as her wealth manager, you'll be able to get an average net return of around 9% annually. Charlotte and Russ have already saved $1,500,000 toward this goal (which you manage today). They would like to retire in 15 years and expect to live 25 years in retirement. Based on these facts and expectations, how much do Charlotte and Russ need to add to their savings between now and retirement in order to meet this goal? zero

89. Each of the following is a common detriment to using Monte Carlo analysis or simulations except: • taxes are not taken into account. • results are heavily dependent on assumptions. • extreme events don't distort the model's results. • input assumes normal distribution.

89. Each of the following is a common detriment to using Monte Carlo analysis or simulations except: taxes are not taken into account.

9. CPWA licensees must disclose each of the following to their clients: I. written complaints made against them over the last 5 years II. direct and indirect compensation received III. relevant financial arrangements IV. business relationships that create potential conflicts of interest • III, IV and I only • II, III and IV only • I, II and III only • IV, I and II only

9. CPWA licensees must disclose each of the following to their clients: I. written complaints made against them over the last 5 years II. direct and indirect compensation received III. relevant financial arrangements IV. business relationships that create potential conflicts of interest II, III and IV only

90. Fill in the blanks of the formula below representing a company's terminal or expected value: present value of _________ calculated over a future period's cash flow income/______________ = terminal value • revenue / earnings • book value / market value • EBITDA / capitalization rate • EPS / retained earnings

90. Fill in the blanks of the formula below representing a company's terminal or expected value: present value of _________ calculated over a future period's cash flow income/______________ = terminal value EBITDA / capitalization rate

91. Which is NOT a common method for setting a price under a buy-sell agreement? • arbitration • fixed price • appraisal • formula

91. Which is NOT a common method for setting a price under a buy-sell agreement? arbitration

92. In order for the gain not to be recognized for tax purposes when a shareholder sells stock to an ESOP, the shares must be considered _____________ securities; immediately after the sale, the ESOP owns at least ____ percent of the total value of all outstanding stock (other than certain nonvoting, nonconvertible preferred stock) or each class of outstanding employer stock (other than certain nonvoting, nonconvertible preferred stock); and qualified replacement securities are purchased by the seller within a 15-month period beginning three months before the sale date. • registered / 30 • qualified / 30 • registered / 50 • qualified / 50

92. In order for the gain not to be recognized for tax purposes when a shareholder sells stock to an ESOP, the shares must be considered _____________ securities; immediately after the sale, the ESOP owns at least ____ percent of the total value of all outstanding stock (other than certain nonvoting, nonconvertible preferred stock) or each class of outstanding employer stock (other than certain nonvoting, nonconvertible preferred stock); and qualified replacement securities are purchased by the seller within a 15-month period beginning three months before the sale date. qualified / 30

93. Nonqualified deferred compensation programs generally are NOT subject to which of the following requirements? • vesting, disclosure, funding, coverage • vesting, legal, funding, coverage • vesting, disclosure, tax, coverage • vesting, disclosure, funding, fraud

93. Nonqualified deferred compensation programs generally are NOT subject to which of the following requirements? vesting, disclosure, funding, coverage

94. Distributions from qualified retirement accounts may be subject to early withdrawal penalty unless: I. Over age 59 ½ II. College expenses for IRA owner or a dependent III. Properly rolled over (as a direct rollover or within 30 days) IV. For qualified plans only: Separation from service after age 50 V. Substantially equal periodic payments • I, II and V only • III, IV and I only • IV, V and I only • V, II, and III only

94. Distributions from qualified retirement accounts may be subject to early withdrawal penalty unless: I. Over age 59 ½ II. College expenses for IRA owner or a dependent III. Properly rolled over (as a direct rollover or within 30 days) IV. For qualified plans only: Separation from service after age 50 V. Substantially equal periodic payments I, II and V only

95. The following qualified retirement plan consists of two parts: (1) a salary deferral contribution with a limit of 100 percent of compensation up to $18,500 or $24,500 if age 50 or older, and (2) a profit sharing contribution limit of up to 25 percent of W-2 wages for corporations and up to 20% of net earnings for sole proprietorships and partnerships. • individual 401(k) plan • profit sharing plan (PSP) • defined benefit plan • cash balance plan

95. The following qualified retirement plan consists of two parts: (1) a salary deferral contribution with a limit of 100 percent of compensation up to $18,500 or $24,500 if age 50 or older, and (2) a profit sharing contribution limit of up to 25 percent of W-2 wages for corporations and up to 20% of net earnings for sole proprietorships and partnerships. individual 401(k) plan

96. Jessica is named sole beneficiary and recipient of all distributions for a trust her grandfather established for her benefit. She would like to know how much the trust will be paying her over the 25-year distribution period established in the trust document. The expected annual investment return is 6% and payments are to be made to Jessica at the end of each calendar quarter. The trust will draw on a current, beginning value of $2 million to make distributions. How much should Jessica expect to receive per each distribution payment? • $156,453 • $154,964 • $39,113 • $38,741

96. Jessica is named sole beneficiary and recipient of all distributions for a trust her grandfather established for her benefit. She would like to know how much the trust will be paying her over the 25-year distribution period established in the trust document. The expected annual investment return is 6% and payments are to be made to Jessica at the end of each calendar quarter. The trust will draw on a current, beginning value of $2 million to make distributions. How much should Jessica expect to receive per each distribution payment? $38,741

97. All of the following statements describe the tax treatment rules for closely held business stock redemptions except: • The portion of the distribution not in excess of the corporation's current and accumulated earnings and profits is treated as a dividend and taxed as ordinary income. • The portion of the distribution in excess of the corporation's current and accumulated earnings and profits is treated as a non-taxable return of capital to the extent of the shareholder's basis. • The portion of the distribution not treated as a dividend that exceeds the shareholder's basis in his or her stock is taxed as a capital gain. • The portion of the distribution that exceeds the shareholder's adjusted basis and was held longer than 12 months is taxed as long-term capital gain and if held less than 12 months is taxed as ordinary income.

97. All of the following statements describe the tax treatment rules for closely held business stock redemptions except: The portion of the distribution that exceeds the shareholder's adjusted basis and was held longer than 12 months is taxed as long-term capital gain and if held less than 12 months is taxed as ordinary income.

98. The following items may have specific IRC limitations or adverse tax ramifications that could impact the valuation of a closely held business and should be carefully scrutinized before an offer is made or accepted. I. cross-purchase agreements II. net operating losses III. EBITDA IV. depreciated assets • I and II only • II and IV only • III and I only • IV and III only

98. The following items may have specific IRC limitations or adverse tax ramifications that could impact the valuation of a closely held business and should be carefully scrutinized before an offer is made or accepted. I. cross-purchase agreements II. net operating losses III. EBITDA IV. depreciated assets II and IV only

99. Which of the following accurately describe required minimum distributions (RMD)? I. Must be taken by April 1st of the year following the year in which owner/participant turns 70 ½ II. No ability to change beneficiaries III. Full distribution must be taken no later than 5 years after client's death if no beneficiary named. IV. Calculating the RMD: Prior Year-End Acct Value / Table Factor = RMD V. Penalty for not taking RMD is 10% of required amount not taken plus applicable taxes. • I, III and IV only • II, III and V only • III, IV and V only • IV, I, and II only

99. Which of the following accurately describe required minimum distributions (RMD)? I. Must be taken by April 1st of the year following the year in which owner/participant turns 70 ½ II. No ability to change beneficiaries III. Full distribution must be taken no later than 5 years after client's death if no beneficiary named. IV. Calculating the RMD: Prior Year-End Acct Value / Table Factor = RMD V. Penalty for not taking RMD is 10% of required amount not taken plus applicable taxes. I, III and IV only