Question 1

Which risk assessment procedures are used to obtain an understanding of the entity and its environment, including its internal control?

Accepted Answer

A)  Inquiries of management 
B)  Analytical procedures 
C)  Observation 
D)  All of the above

Question 2

Spreading of risks among insurance entities is called:

Accepted Answer

A)  Reinsurance 
B)  Syndication 
C)  Consortium act 
D)  Risk Diffusion

Question 3

Assume our typical 65-year-old investor likewise has adequate insurance coverage and a cash reserve. Let's also assume she is retiring this year. This individual will want less risk exposure than the 25-year-old investor, because her earning power from employment will soon be ending; she will not be able to recover any investment losses by saving more out of her paycheck. Depending on her income from social security and a pension plan, she may need some current income from her retirement portfolio to meet living expenses. Given that she can be expected to live an average of another 20 years, she will need protection against inflation. A risk-averse investor will choose:

Accepted Answer

A)  A combination of current income and capital depreciation in an attempt to have principal growth outpace inflation 
B)  A combination of current income and capital preservation strategy 
C)  A combination of current income and capital appreciation in an attempt to have principal growth outpace inflation 
D)  A combination of current income and total return in an attempt to have principal growth outpace inflation

Question 4

Who is responsible for accounting for customer remittance advices and the agent's current account?

Accepted Answer

A)  Accounts department 
B)  Customer release policy 
C)  Payment policy 
D)  Premium collection department

Question 5

Which of the following shows relationship between two moving averages of prices?

Accepted Answer

A)  Moving average convergence/divergence 
B)  Relative strength index 
C)  On balance volume 
D)  Bollinger bands

Question 6

Mutual funds provide an attractive investment choice because they generally offer the following feature/s:

Accepted Answer

A)  Professional Management 
B)  Diversification 
C)  Affordability 
D)  All of these

Question 7

Excess liability:

Accepted Answer

A)  covers the insured against the loss in access of an actual amount, but only for profits as covered and defined in a predetermined planning. 
B)  covers the insured against the loss in access of an actual amount, but only for profits as covered and defined in an underlying policy. 
C)  covers all uninsured against the gain in access of a stated amount, but only for losses as covered and defined in an underlying policy. 
D)  covers the insured against the loss in access of a stated amount, but only for losses as covered and defined in an underlying policy.

Question 8

Which of the following is NOT a source of Return on Equity (ROE)?

Accepted Answer

A)  Return on assets 
B)  Leverage 
C)  Book value per share 
D)  Sales per total assets

Question 9

Which of the following is NOT the kind of public entity risk pools?

Accepted Answer

A)  Risk-avoiding pools 
B)  Insurance-purchasing pools 
C)  Banking pools 
D)  Claim-serving pools

Question 10

Which of the following considers the size of the company and needs no adjustment for stock splits?

Accepted Answer

A)  Price weighting 
B)  Capitalization weighting 
C)  Equal weighting 
D)  Base weighting

Question 11

Dow Jones industrial average is composed of how many blue chip stocks?

Accepted Answer

A)  10 
B)  30 
C)  50 
D)  70

Question 12

Which of the following is the difference between an expected return and actual return on an investment?

Accepted Answer

A)  Expected return 
B)  Normal return 
C)  Tax return 
D)  None of these

Question 13

The circuit breaker that is applied where stock prices in the market are dropping is known as which of the following?

Accepted Answer

A)  Starter 
B)  Floor 
C)  Ceiling 
D)  Simulator

Question 14

________ is an endorsement or policy providing either blanket or scheduled coverage of expensive personal property not adequately covered in a standard homeowner's policy.

Accepted Answer

A)  Personal property floater 
B)  Peril 
C)  Condominium 
D)  Co-insurance

Question 15

Bond prices are expressed as a percentage of:

Accepted Answer

A)  Discount value 
B)  Par value 
C)  Future value 
D)  Intrinsic value

Question 16

It is a market condition normally associated with investor optimism, economic recovery, and expansion; characterized by generally rising securities prices.

Accepted Answer

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

Question 17

An investor wants to buy 100 shares of a company but due to shortage of funds investor can only 30% of the total share price and will borrow rest of 70% from brokerage firm. Which of the following type of account will be suitable for investor in this situation?

Accepted Answer

A)  Cash account 
B)  Margin account 
C)  Real account 
D)  CFA account

Question 18

Which of the following equation is FALSE?

Accepted Answer

A)  Total risk = general risk + specific risk 
B)  Total risk = market risk + issuer risk 
C)  Total risk = systematic risk + nonsystematic risk 
D)  Total risk = un-diversified risk + equity risk

Question 19

Which of the following orders are placed prior to the execution of trade?

Accepted Answer

A)  Market and stop orders 
B)  Market and limit orders 
C)  Stop and limit orders 
D)  Stop and mitigate orders

Question 20

Of the following statements identify the advantage of the market measures to the investor.

Accepted Answer

A)  These measures identify the population to be measured and its method 
B)  These measures offer equivalents for common sizes and metric units 
C)  These measures regulate the access to and cost of imports and exports 
D)  These measure quickly judge the overall portfolio performance

Exam 2: Certified Trust and Financial Advisor