Question 1

In many states, a claims-made insurance policy is required to:

Accepted Answer

A)   contain an extended-reporting clause
B)   provide for purchase, at the policyholder's option
C)   provide for automatic tail coverage
D)   All of the above D

Question 2

Which of the following ratios are of more concern for the shareholders?

Accepted Answer

A)   Liquidity and profitability
B)   Liquidity and leverage
C)   Profitability and activity
D)   Profitability and leverage D

Question 3

Not all misstatements will be material enough to affect the fair presentation of the financial statement. A material misstatement is one that the auditors determine would change or influence the option of a reasonable person relying on the financial statements for information. Ultimately, auditors must exercise judgment to assess materiality based on the qualitative nature of the misstatements and their quantitative extent. Materiality is also based on auditors' assessment of control risk levels in the organization. The following factors may influence the auditors' assessment of control risk EXCEPT:

Accepted Answer

A)   Management's awareness or lack of awareness of applicable laws and regulations
B)   Client policy regarding such matters as acceptable operating practices and codes of conduct
C)   Assignment of responsibility and delegation of authority to deal with such matters as organizational goals and objectives, operating functions, and regulatory requirements
D)   None of these D

Question 4

In which of the following markets do the investor cannot short sell?

Accepted Answer

A)   Target market
B)   Historic market
C)   Borough market
D)   Regular market

Question 5

There is a feature which is commonly found in health insurance policies that limit the amount that will be paid for certain specified expenses, even if the claim does not exceed overall policy limit. What is that feature?

Accepted Answer

A)   Internal limits
B)   External limits
C)   Credit limits
D)   Insurance limits

Question 6

Which of the following statements most accurately describes the modern approach to cash management?

Accepted Answer

A)   Cash management involves the efficient disbursement of cash
B)   Cash management involves the efficient collection and disbursement of cash
C)   Cash management involves the efficient processing, collection, and depositing of cash
D)   Cash management involves the efficient processing and depositing of cash

Question 7

In which of the following condition an investment is considered desirable?

Accepted Answer

A)   When the cost is less than the future value of present cash flows
B)   When profit is less than the present value of future cash flows
C)   When present value of future cash flows is less than the cost
D)   None of these

Question 8

Which of the following is referred to as risk-free bond?

Accepted Answer

A)   Government Bond
B)   Municipal bond
C)   Sovereign bond
D)   Junk bond

Question 9

The Module Rule requires the insurer to provide:

Accepted Answer

A)   To the insurance commissioner of the state of domicile, a copy of notification of adverse financial condition
B)   To the auditor, evidence that the notification has been provided to the organization
C)   Both A & B
D)   Neither A nor B

Question 10

Lines of insurance in which claims are settled relatively quickly are called:

Accepted Answer

A)   Quick-tail lines
B)   Single-tail lines
C)   Acceptance-tail lines
D)   Short-tail lines

Question 11

In which policies the contract provides for insurance coverage for a fixed period of duration and enables the insurer to not renew the contract or adjust the provisions of the contract at the end of the contract period?

Accepted Answer

A)   Short duration
B)   Policy duration
C)   Contract duration
D)   None of the above

Question 12

Principal objectives of state statutes are:

Accepted Answer

A)   restrict investments of insurance entities
B)   prescribe methods of admitted asset recovery
C)   acquisition of risk-based capitals
D)   Both B & C

Question 13

All of the following are investment alternatives, Except:

Accepted Answer

A)   Derivative assets
B)   Collateral securities
C)   Fixed income securities
D)   Equity securities

Question 14

The organizations in which the ownership and control of operations are vested in the policyholders are known as:

Accepted Answer

A)   Private entities
B)   Public entities
C)   Reciprocal entities
D)   Mutual entities

Question 15

Buying power of an investor is calculated as:

Accepted Answer

A)   Assets-liabilities
B)   Equity-debt balances
C)   Short term debt-long term debt
D)   Current assets-current liabilities

Question 16

______________ is a condition of the markets typically associated with investor pessimism and economic slowdown; characterized by generally falling securities prices.

Accepted Answer

A)   Bear market
B)   Bull market
C)   OTC
D)   Dealers market

Question 17

All of the following are the problems associated to the Dividend Discount Model, EXCEPT:

Accepted Answer

A)   This model need infinite stream of dividends
B)   This model has uncertain dividend stream
C)   This model must estimate future dividends
D)   This model requires constant earnings per share

Question 18

What does the abbreviation SIC stands for?

Accepted Answer

A)   Standard Industrial Classification
B)   Symbolic Industry Consortium
C)   Southeastern Illinois Compendium
D)   None of these

Question 19

All of the following are sentiment indicators Except:

Accepted Answer

A)   Quick asset ratio
B)   Odd lot short ratio
C)   Shares sold short
D)   Short interest ratio

Question 20

Some objectives of an audit related to mutual funds might include determining that:

Accepted Answer

A)   Mutual fund checks are issued in accordance with firm policies and supported by valid trades
B)   Mutual fund purchases are confirmed on a timely basis
C)   Mutual fund switches are not authorized by the client
D)   All EXCEPT "C"

Exam 2: Certified Trust and Financial Advisor