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AWMA EXAM PRACTICE QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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AWMA EXAM PRACTICE QUESTIONS AND ANSWERS WITH SOLUTIONS 2024
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AWMA EXAM PRACTICE QUESTIONSAND ANSWERS WITH SOLUTIONS 2024
What are the 4 rules in terms of investing in a small firm? - ANSWER Time frame of at least 3-5 years,
diversify among 20-30 different issues, avoid turnover of 30% annually, and sell if and when 40% of
company's shares become owned by institutional investors.
What is a characteristic of an unfunded excess benefit plan? - ANSWER The plan generally need not
comply with either the disclosure or reporting requirements of ERISA.
Unfunded excess benefit plans need not comply with ERISA disclosure or filing requirements.
What is a correct statement regarding federal transfer taxation of the transfer of wealth? - ANSWER The
generation-skipping transfer tax (GSTT) can be applied to transfers of wealth between parties who are
not related to each other.
If the transferor and transferee are not related to each other in any way, the GSTT can still apply if the
transferee is more than 37.5 years younger than the transferor. The gift tax is tax exclusive. Direct
payment of tuition expenses is exempt from gift tax and GSTT, but is not exempt from estate tax. The
marital deduction merely delays application of the gift or estate tax until the recipient spouse dies.
According to the investment pyramid, what sequence is correct in terms of increasing safety of principal
(least to most safety of principal)? - ANSWER *futures contracts, balanced mutual funds, EE bonds
In terms of increased safety of principal, of the four sequences given, the investment pyramid in the
study materials shows futures contracts (least safety), balanced mutual funds, EE bonds (most safety
with principal guaranteed by the U.S. government) is the correct sequence.
Three years ago, Kerri received a gift of 1,000 shares of Mica Inc. common stock from her parents. The
fair market value of the stock on the date of the gift was $20,000. Kerri's parents purchased the stock
several years earlier for $40,000. She sold this stock for $31,000 last week. What is the amount of gain or
loss, if any, from Kerri's stock sale? - ANSWER $0
Where the fair market value on the date of gift is less than the donor's adjusted basis, and the asset is
sold at a price between the fair market value on the date of gift and the donor's adjusted basis, there is
no gain or loss recognized on the sale.
What trust will not entitle the grantor to take an annual exclusion upon funding the trust? - ANSWER
*Bypass trust in which income is paid at the discretion of the trustee
, For gifts to a trust to be entitled to the annual exclusion, income must be payable on a mandatory basis
(Section 2503(b)), the beneficiaries must be given a general power of appointment (such as a Crummey
power) over the trust assets, or the trust must conform to the requirements of Section 2503(c). A bypass
trust that gives the trustee discretion over income is not entitled to the annual exclusion.
When suggesting portfolio assets for a millennial investor, which would best suit that age group in
general? - ANSWER *36% equities, 22% fixed income, 21% real estate, 21% alternative investments
Investors under 40 are more likely to choose real estate and alternative investments and less likely to
choose equities and fixed income investments, as compared to investors 40 and over.
What indicator would a contrarian investor interpret as a bullish indicator? - ANSWER *bullish specialist
sentiment
Specialists are considered "smart money" and, therefore, if they are bullish a contrarian investor would
follow their sentiment.
Your client, John Westfall, is age 72. He has started taking required minimum distributions from his
401(k), which has grown to over $3 million. He currently has no IRA account. His RMDs are mostly an
annoyance, as he doesn't need the funds to cover his living expenses, and he doesn't want to leave too
much of an inheritance to his children. What planning option might you discuss with John? - ANSWER
*John could roll over a portion of the funds from his 401(k) to an IRA, and then execute a qualified
charitable distribution from his IRA to his alma mater, the University of Notre Dame.
Because John is over age 70½, he may utilize a QCD. However, the distribution must be made to a 50%
organization—churches, schools, Red Cross, governmental units, etc. The contribution may not go to a
30% organization—veteran's groups, fraternal organizations, etc. The distribution must be from an IRA,
and it is perfectly acceptable for the IRA funds to come from a rollover. *
Bill is a participant in his company's stock bonus plan that was established two years ago when the
company contributed 1,000 shares of its stock to Bill's plan account. At the time, these shares were each
valued at $15. During the current year, Bill took a lump-sum distribution from the plan and sold his
shares for $25 each. Bill will have to report ordinary income for the current year equal to which one of
the following amounts? - ANSWER $15,000
Bill is immediately taxed on the cost, or basis, of the securities received, and at ordinary income rates.
Hence, he would have to include $15,000 (1,000 shares × $15) as ordinary income for the current year.
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