WMCPTest2Examwith100%CorrectSolutions.
Investors need to be rewarded if they buy an investment with a risky payout because
investors in general are
a)
risk neutral.
b)
risk seeking.
c)
risk averse.
d)
risk tolerant. - Correct Answer risk averse.
How much would a client pay for a risky in...
WMCP Test 2 Exam with 100% Correct Solutions.
Investors need to be rewarded if they buy an investment with a risky payout because
investors in general are
a)
risk neutral.
b)
risk seeking.
c)
risk averse.
d)
risk tolerant. - Correct Answer risk averse.
How much would a client pay for a risky investment with a 50% probability of being worth
$500 and 50% of being worth $1,000 assuming a natural log utility function?
a)
$750.00
b)
$707.11
c)
$756.27
d)
$794.32 - Correct Answer $707.11
How much would a client pay for a risky investment with a 50 percent probability of it being
worth $3,000 and 50 percent probability of it being worth $8,000 in one year assuming a
natural log utility function?
a)
$5,500.00
b)
$5,588.23
c)
$4,898.98
d)
$4,682.00 - Correct Answer $4,898.98
If the risk of stocks is consistent with traditional investment theory, which of the following
would we observe in historical asset return data?
,a)
The standard deviation of stock returns will be lower for longer time horizons than for
shorter ones.
b)
Cash is the preferred asset for a 5-year investing goal.
c)
Returns at the 95th percentile for cash will be higher than for bonds.
d)
There will be historical time periods where stocks underperform bonds over a 20-year
time horizon. - Correct Answer There will be historical time periods where stocks
underperform bonds over a 20-year time horizon.
The phenomenon that most likely explains why mean reversion is so reliable despite
being inconsistent with economic theory is known as:
a)
the equity risk premium.
b)
stock price increases during a recession.
c)
bear market inversion.
d)
sentiment. - Correct Answer sentiment
If we define safety by the historical 5th percentile of returns, which asset is the safest for
funding a short-run investing goal and the riskiest for funding a 20-year investment goal?
a)
international equities
b)
stocks
c)
bonds
d)
cash - Correct Answer cash
Which of the following is consistent with the concepts of consumption smoothing and
decreasing marginal utility?
a)
,Preserving the value of one's savings in retirement and spending only interest and
dividends.
b)
Taking a luxurious vacation after receiving a one-time bonus at work.
c)
Saving more when income rises later in the life cycle.
d)
Increasing saving early in the life cycle to take advantage of compound returns. - Correct
Answer Saving more when income rises later in the life cycle.
Let's say a client has $1 million saved and expects to live for 15 years. What is the client's
permanent income?
a)
$66,667
b)
$72,000
c)
$133,333
d)
$33,333 - Correct Answer $66,667
Let's say a client has $2,000,000 saved and expects to live for 20 years. What is the
client's permanent income?
a)
$66,667
b)
$200,000
c)
$133,333
d)
$100,000 - Correct Answer 100,000
A client suggests that she would like to hold on to a stock position that was given to her by
her father. The advisor dismisses this suggestion and asks her 'do you want to have a
riskier portfolio with no benefit?' This advisor is exhibiting
a)
mutuality.
b)
sympathy.
c)
An advisor explains that, on average, stocks can be expected to provide a higher return
than bonds. Two years after developing an investment plan, the client complains that her
stock investments have performed worse than her bonds. This is an example of what
communication problem?
a)
Paternalism
b)
Interruption
c)
Critical interpretation
d)
Repetition - Correct Answer Critical interpretation
A designation such as the WMCP can be used to enhance client trust by enhancing:
a)
mutuality.
b)
credibility.
c)
empathy.
d)
critical interpretation. - Correct Answer credibility.
Charlene earns her living through compensation based on her total assets under
management (AUM). Her elderly client wants to increase her charitable contributions
during retirement by contributing to a non-profit that helps out-of-work artists. Charlene
thinks this is a bad financial decision. Why does Charlene face a conflict of interest in this
scenario?
a)
Charlene needs to hit her quarterly benchmarks, and the charitable gifts will reduce AUM.
Yet, she also needs to adhere to her client's stated wishes.
b)
Charlene should make sure her portfolio is always beating the market, in order to keep the
client loyal
c)
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