AAMS Module Quizzes (1-10) with Complete Solutions, Exams of Advanced Education

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AAMS Module Quizzes (1-10) with

Complete Solutions

A "walk in" customer tells you how his best friend has made a profit through rapid trading of small over-the-counter (OTC) stocks. He wants to do the same. You explain the high risks involved in such a strategy and your personal reservations about it. He gives you all the information you need for your new account form. The next week, he requests that you buy large positions in two thinly traded OTC issues. You think the order is too risky given his circumstances and tell him so, but he insists that you initiate the transaction. Which one of the following would represent an appropriate course of action? - ANSWER-Consult with your branch manager about what to do. When faced with a difficult customer situation, investment professionals should consult with their branch manager. A barrier of effective investment strategy is - ANSWER-inadequate time horizons One of the biggest enemies of effective strategy is inadequate time horizons, since many effective strategies can take years to unfold. A beneficiary who is guaranteed payments for life (with a minimum guarantee of 10 years of payments) has selected which one of the following settlement options? - ANSWER-life income with period certain A "life income with period certain" settlement option guarantees payments for life to the primary beneficiary with a guarantee of 10 years of payments minimum to a contingent beneficiary should the primary beneficiary be unable to collect. If the first beneficiary dies prior to collecting the 10 years of payments, the second beneficiary gets the remaining payments. A bond investor buys $10,000 of 1-year bonds, $10,000 of 2-year bonds, and so on— with the final $10,000 invested in 15-year bonds. What type of strategy is this investor using? - ANSWER-ladder strategy The ladder strategy spreads equal amounts of bond holdings among different maturities. A client can best estimate his or her old age Social Security benefits by - ANSWER- obtaining an estimate of future benefits directly from the Social Security Administration. The Social Security Administration is the best source for an estimate of Social Security old-age benefits. A client has decided to move the funds from her former employer's 403(b) plan into an IRA. The best way to avoid a 20% withholding tax or any taxable income, would be if she - ANSWER-instruct the pension plan to roll over the funds directly to her new IRA. Direct rollovers avoid the 20% withholding.

A client who expects his portfolio of intermediate-term government bonds to earn 13% a year suffers from which one of the following? - ANSWER-unrealistic expectations Historically, intermediate-term government bonds have had an annual return of between 5% and 6%, so this client has very unrealistic expectations. A client, age 55, takes a $3,000 distribution from his rollover IRA to pay for a semester of college tuition for his 21-year-old son. Which one of the following correctly explains the tax consequences for the father? - ANSWER-The entire distribution is subject to income tax, but it is free from the 10% early withdrawal penalty. There is no 10% early withdrawal penalty for funds withdrawn to pay for higher education. The distribution is, however, subject to ordinary income taxation. A client, age 55, takes a $3,000 distribution from his rollover IRA to pay for a semester of his son's college tuition; his son is age 21. Which one of the following correctly explains the tax consequences for the father? - ANSWER-The entire distribution is subject to income tax, but it is free from the 10% early withdrawal penalty. There generally is a 10% penalty (with some exceptions) for distributions taken from an IRA if the individual is under 59½ years old; these same distributions are also subject to current income taxation. Penalty-free withdrawals may be taken from rollover IRAs if the withdrawal is to be used pay for qualified education expenses, such as college tuition for a son or daughter. A contingent (standby) trust - ANSWER-receives the donor's income tax basis if the value of the property equals or exceeds the donor's basis. The recipient receives the donor's income tax basis if the value of the property equals or exceeds the donor's basis. A correlation of 0.0 between two securities means that the returns of the two move - ANSWER-independently—there is no relationship between the two. A correlation of 0.0 means there is no relationship between the returns of the two securities. Perfectly positively correlated securities (1.0) move in the same direction and perfectly negatively correlated securities (-1.0) move in opposite directions. A Crummey power is - ANSWER-a type of power of appointment. A Crummey power is a type of power of appointment. A custodial account for a minor is - ANSWER-required to terminate when the minor reaches the age of majority as specified by state law. Custodial accounts must terminate when the minor reaches the age of majority as specified by state law. A disadvantage to using life insurance to informally fund a nonqualified plan is - ANSWER-additional death benefit proceeds would be paid to a beneficiary of an executive with potentially a very large estate.

Paying additional death benefits to a beneficiary of an executive with a large estate is a disadvantage if there is no need for the protection, and it may cause additional estate taxes to be owed. A funded deferred compensation plan - ANSWER-will be taxable to an employee if nonforfeitable. If the employee has constructive receipt of plan compensation (funds are nonforfeitable), such compensation will be taxable to the employee. A life insurance's policy dividend generally - ANSWER-is not taxable. There is generally no tax on life insurance dividends because they are a return of premium. In other words, they are generally excluded from income. A living will - ANSWER-applies only when a patient is terminally ill and incompetent to make medical decisions. Only when a patient is terminal and incompetent to make medical decisions will the provisions of a living will apply. A major difference between excess benefit plans and supplemental executive retirement plans (SERPs) is(LO 7-3) - ANSWER-SERPs often provide for disability retirement benefits. SERPs are generally provided to high-level executives, and are primarily designed to provide adequate post-retirement income, including the possibility of a disability-related retirement. A major responsibility of FINRA is - ANSWER-developing rules and regulations for its members. A major responsibility of FINRA is - ANSWER-developing rules and regulations for its members. FINRA is the largest securities industry self-regulating organization and, therefore, develops rules and regulations for its members. A measure of a security's systematic risk is - ANSWER-beta. Beta measures the degree to which a security moves with the market or systematic risk. A mutual fund sales load that is assessed on a descending scale if the fund is sold within the first five or six years of purchase is called a - ANSWER-contingent deferred sales charge. A contingent deferred sales charge is a sales load assessed on a descending scale if the fund is sold within the first five or six years of purchase. A nonspringing durable power of attorney - ANSWER-remains effective after the principal becomes incapacitated. The very purpose of any durable power of attorney is to give the attorney-in-fact authority to act after the principal becomes incapacitated. However, such authority does

not survive the principal's death. Such authority is created in an independent document, and is effective immediately in this type of power of attorney. A person with no heirs (or anyone who is a financial dependent) would most likely select the - ANSWER-straight life income option. A straight life income option may be best for someone who has no heirs, because upon the individual's death, payments stop. Income payments will be higher than payments with a longer guaranteed income period (e.g., joint life or 10 years certain). A person's marginal tax rate equals the rate of tax paid on the __________? - ANSWER-last dollar of income. The marginal tax rate is the tax rate paid on the last dollar of income. A potential client, Dr. Shepard, is contacted by James Hyde, an investment professional. Dr. Shepard tells James that he is a regular investor in biotech companies, and that if James was knowledgeable about the industry, he would do business with him. James tells the doctor that he has lots of contacts in the industry and that many of his best clients are active investors in biotech issues. Actually, James has only one such client, from whom he takes unsolicited orders. James clearly is violating the principle of - ANSWER-integrity A potential client, Ross Walker, is contacted by Amy Taylor, an investment professional. Ross is interested in trading complex options and is willing to open an account if Amy is knowledgeable about options. Amy implies to Ross that she is an expert in option trading but, in fact, knows only the basic elements of it. Looking solely at Amy's lack of competency in this area, which fiduciary duty has not been met? - ANSWER-duty of care Lacking the competency to provide advice in the best interest of the client falls under the fiduciary duty of care. A potential implication of a salary reduction plan is that - ANSWER-income tax is paid at the employee's marginal tax rate in retirement, with the expectation it will be a lower rate at that time. While future tax rates are unknown, the employee expects to be taxed at a lower rate in retirement. A potential implication of a salary reduction plan is that - ANSWER-Income tax is paid at the employee's marginal tax rate in retirement, with the expectation it will be a lower rate at that time. While future tax rates are unknown, the employee expects to be taxed at a lower rate in retirement. A power of appointment trust - ANSWER-will entitle the grantor to a marital deduction. A power of appointment trust is a marital trust that automatically qualifies for the marital deduction. Because the grantor's spouse is given a general rather than special power of

appointment, the trust property does not bypass, but rather must be included in the spouse's gross estate. The grantor's spouse is entitled to all trust income. A qualified plan may be established by - ANSWER-a company only. Only a company may establish a qualified plan. A qualified tuition plan account - ANSWER-is considered an irrevocable gift. Contributions to a qualified tuition plan account are considered irrevocable gifts that are entitled to the gift tax annual exclusion. These accounts can be established for a beneficiary of any age. The other options are characteristics of Coverdell education savings accounts. A rabbi trust is - ANSWER-a form of irrevocable grantor trust established by an employer. A rabbi trust is a form of irrevocable grantor trust established by an employer. A REIT (real estate investment trust) that distributes _____% of its taxable income to its shareholders does not have to pay taxes. - ANSWER-90% REITs that distribute at least 90% of their taxable income to shareholders do not have to pay taxes. A return of capital dividend from a stock - ANSWER-reduces the investor's basis in the stock. A return of capital dividend itself is not taxed but instead reduces the investor's basis in the stock. A Section 1035 exchange is not permitted from - ANSWER-an annuity to a cash value life insurance policy. A Section 1035 exchange can be used to move money from a cash value life insurance policy to an annuity but not in the reverse direction. Moving from an annuity to a life insurance policy would bypass underwriting, which would not be allowed. A self-employed client opens a SEP-IRA on the advice of her investment professional. The most immediate effect on her tax situation for this year is - ANSWER-tax reduction. The SEP-IRA is currently deductible. Thus, tax reduction is the most immediate effect on the tax situation. The funds placed into the account grow tax deferred, but the most immediate effect is the tax reduction. A self-employed client opens and funds a SEP-IRA on the advice of her investment professional. The most immediate effect on her tax situation for this year is - ANSWER- tax reduction. Because the contribution to the SEP-IRA can be claimed as a deduction, this client's taxable income has been reduced for this year. A tax credit reduces which of the following by a specified amount? - ANSWER- taxpayer's tax liability

A tax credit is a direct dollar-for-dollar reduction of a taxpayer's liability in a specific amount and is therefore more valuable to a taxpayer than a deduction in the same amount. A tax disadvantage of making a lifetime gift rather than a transfer at death is that - ANSWER-the gift tax exclusion amount is not portable between spouses, but the estate tax exclusion amount is portable. There is no portability of the gift tax exclusion amount, but the estate tax exclusion amount is portable. A top hat plan - ANSWER-is subject to the reporting and disclosure requirements of ERISA. Although not subject to the other provisions of ERISA, a top hat plan must comply with that law's reporting and disclosure requirements. A U.S. dollar-denominated instrument that is a CD issued by foreign branches of major American and foreign commercial banks is a - ANSWER-Eurodollar certificate of deposit. A Eurodollar CD is a U.S. dollar-denominated CD issued by foreign branches of major U.S. and foreign commercial banks. A U.S. investor owns a bond denominated in Mexican pesos. If the bond earned 8% while the value of the peso increased against the U.S. dollar by 4%, the investor's total return was - ANSWER-increased by the strengthening peso. When the investor converts the Mexican bond into American dollars, the investor can buy more dollars with fewer pesos; therefore the investor's total return was increased by the strengthening peso. In general, when a foreign currency is strengthening (the U.S. dollar is weakening), that will increase the return for a U.S. investor. According to David Dreman, which set of characteristics should the contrarian investor look for in a stock? - ANSWER-medium-to-large listed companies; strong financial positions, low P/Es Dreman's advice is to invest in medium-to-large listed companies (large companies on the Amex or Nasdaq) with low P/E ratios and solid financial positions. According to Ibbotson data, which one of the following had the smallest standard deviation since 1926? - ANSWER-T-bills T-bills had a standard deviation significantly lower than that of long-term corporate bonds, government bonds, or common stocks. According to research reports from your firm, CodeHead Software's earnings for this year are estimated to be $2.00 and next year are estimated to be $2.25 per share. The current P/E ratio of similar software vendors is 15, but CodeHead typically sells at a 10% premium to these other vendors. What stock price would you estimate for CodeHead next year? - ANSWER-$37.

First determine the P/E for CodeHead. It sells at a 10% premium so the P/E of the industry, 15, has to be increased by 10%. 10% of 15 = 1.5, which added to 15 = 16.5. Then taking next year's earnings of $2.25 × 16.5 = $37.125 or $37.13. Acme GNMA fund must have at least what percentage of its assets in GNMAs? - ANSWER-80% A fund that has a security in its name must have at least 80% of its assets in that type of security. All of the following are advantages to implementing a nonqualified deferred compensation plan, except - ANSWER-the NQDC is offered in lieu of the qualified plan. The NQDC is supplemental to any qualified plan that is in place. All of the following are indicators that a contrarian investor would use as cues for their own buying and selling of stocks, except - ANSWER-average daily trading volume Contrarian investors would use short selling, specialists' sentiment, mutual fund cash positions, investment advisory opinions, and put-call volume ratio. All of the following are permissible deductions for the federal estate tax except - ANSWER-the annual exclusion. The annual exclusion is deductible only in the gift tax calculation, and only when the donee has received a present interest gift. All of the following are true for dividends left to accumulate in a policy except they - ANSWER-are taxable as earned. One of the benefits of life insurance cash values is that they grow on a tax-deferred basis, so choice b. is false and therefore the correct answer. All of the following assets in a decedent's estate require probate except - ANSWER-the decedent's interest in property held in joint tenancy with right of survivorship that the decedent left to his son in his will. Right of survivorship (JTWROS) property bypasses probate. All of the following assets would be included in a decedent's gross estate except - ANSWER-the decedent's vested interest in a single life annuity on the decedent's life. Because no payments will be made to a survivor as a result of the decedent owning this asset, there is nothing to include in the decedent's gross estate. All of the following provide a clearer picture of the client's needs - ANSWER-1. anticipated retirement lifestyle

2. bad experiences w/ particular investments
3. succession planning in place, if any, for a client involved in ownership of small business

All other factors being equal, which of the following bonds have the greatest duration? - ANSWER-a zero-coupon bond Duration is inversely related to the coupon rate. The zero-coupon bond would have the longest duration, all other factors being equal. An enemy of effective strategy is - ANSWER-inadequate time horizons. One enemy of effective strategy is inadequate time horizons. An entity buy-sell agreement - ANSWER-requires the business entity to purchase the share of the business for any deceased owner who is a party to the agreement. In an entity agreement, the business entity is obligated to purchase an owner's offered interest. To make certain that it has the money to fulfill its purchase obligation, the entity purchases an insurance policy on each owner from whom it may have to purchase. Option c. is a characteristic of a cross-purchase buy-sell agreement. With either type of agreement, actual transfer of the interest takes place in the future, not immediately. Buy-sell agreements can be used with any type of business entity. An exchange-traded note is a(n) - ANSWER-unsecured debt. An exchange-traded note is an unsecured debt obligation, usually of an investment bank or commercial bank that trades like a stock and represents promises by the issuers to match the returns of an index or commodity, minus fees. An individual who owns an annuity has elected to receive income for life. After receiving payments for five months, she dies and payments cease, with no additional payments to beneficiaries. She elected which annuity income option? - ANSWER-straight life income option The straight life income option is based on only one person's life, so when that beneficiary dies, all payments end. Life income with period certain or refund would provide a benefit to beneficiaries and a joint life income option would continue to make payments to the survivor. An investment professional is assessing the life insurance needs of the Robinson family. As it stands, Mr. Robinson has determined that the family's immediate cash flow requirements in the event of his death are $65,000. The amount needed to meet all future funding requirements (net of Mrs. Robinson's income and Social Security and pension benefits) is estimated to be $550,000. The family owns a home in which their equity interest is $200,000. Based upon these figures, the investment professional would recommend life insurance with a face amount of - ANSWER-$615,000. $65,000 + $550,000 = $615,000; the $200,000 equity in the home does not represent a truly liquid asset to offset these expenses (though it could possibly be tapped with a home equity loan). An investment professional who is not an attorney is engaged in the unauthorized practice of law when he or she counsels a client regarding the - ANSWER-validity of a living will.

Determining the validity of a living will is not an allowable activity for an investment professional. An investment professional who reads investment journals is complying with the - ANSWER-duty to keep current. The duty to keep current requires an investment professional to be up to date with subjects relating to his or her job. An investor notices that technology stocks are in a strong bull market and wants to take advantage of it. Even though valuations are at record high levels, he buys a technology stock that a brokerage firm is recommending. Which one of the following is the investor demonstrating? - ANSWER-rationalization/illusion of validity Rationalization/illusion of validity occurs when an investor relies on information that supports her decisions or ignores or dismisses information that does not support those decisions. As described by Gerald Perritt, which one of the following best describes a sound small- cap stock investment strategy? - ANSWER-sell when 40% of the company's shares become owned by institutional investors; own 20?30 issues; three- to five-year holding period Perritt suggests owning 20?30 issues, having a three-to five-year holding period, and sell when 40% of the company's shares become owned by institutional investors. As described in this course, many individuals and households overlook the potential needs for - ANSWER-disability income and long-term care insurance. Both disability income and long-term care insurance are intended to provide income when an individual is unable to work and may be incurring costs for medical care. As described in this module, many individuals and households overlook the potential needs for - ANSWER-disability income and long-term-care insurance. It is common for many individuals to overlook the need for disability income and long- term-care insurance. As the investment policy statement formulation moves to policy implementation, - ANSWER-the investment professional takes a leading role. The investment professional, using the guidelines already established in the investment policy statement, takes the lead role during the policy implementation phase of the process. Asset allocation can best be defined as the process of - ANSWER-distributing portfolio investments among various investment categories. The essence of asset allocation is having portfolio investments divided among different investment categories. Assume a client has $30,000 in a money market fund, $2,000 in a checking account, a mortgage loan of $110,000 (not to be paid off, as it will be transferred to the spouse), an

auto loan of $20,000, and credit card balances of $5,000. Assume that if he died, postmortem expenses would be $15,000. What would be the cash requirements for this client? - ANSWER-$8, The cash requirements would be debt of $25,000 ($20,000 + $5,000—the mortgage is excluded because it will not be paid off), + expenses of $15,000 - liquid assets of $32,000 ($30,000 + $2,000) = $8,000. Assume a growth stock mutual fund has a beta of 1.3. If the stock market increases by 9%, you would expect this mutual fund to - ANSWER-increase by 11.7%. You would expect any fund with a beta of 1.3 to increase by 11.7% (1.3 × 9%). Assume an investor sells a 25-year, A-rated, 5% municipal bond and reinvests in a 30- year A-rated 6.5% municipal bond. Both bonds are callable in five years. Which one of the following is likely to occur with this pure yield pickup strategy? - ANSWER-Call risk is increased. A higher coupon rate increases call risk. Assume each of the asset classes below has the following correlation to long-term government bonds: Treasury bills: 0. Corporate bonds: 0. Large stocks: 0. Small stocks: 0. Which one of the following correctly states the impact of diversification on a portfolio of long-term government bonds? - ANSWER-Small stocks provide more diversification than large stocks. Because the correlations of small stocks to long-term government bonds are less than that of large stocks (even though both are positive), small stocks provide more diversification than large stocks. Assume that an employer plans to use corporate-owned life insurance to informally fund a nonqualified deferred compensation agreement and would like to have the flexibility to invest in a number of different asset categories. Which one of the following types of life insurance should this employer choose? - ANSWER-variable life insurance Variable life insurance permits the cash value of the policy to be invested in a number of different accounts of the insurer, such as indexed equities, blue chip growth, growth and income, international, bonds, and so forth. Assume that the standard deviation of a stock is 30, the standard deviation of the market index is 18, and that the correlation coefficient between the stock and the market is .68. What is the beta of the stock? - ANSWER-1. Beta = (30 / 18) x 0.68 = 1. At what age must mandatory distributions begin for a Roth IRA owner? - ANSWER- none There are no mandatory distribution requirements for the owner of a Roth IRA.

Banker's Acceptance - ANSWER-A BA is a time draft that, when accepted by the bank, has the promise of payment from that bank. Based on historic performance data in the course, which class of assets has provided the greatest pretax total return since 1926? - ANSWER-small cap Based on the 2008 Aon Consulting Worldwide study cited in the module, a client with a preretirement income of $90,000 will need approximately how much income during retirement? - ANSWER-$70, This is 78% of preretirement income, which is the range cited in the study. Based only on the listed descriptions, which one of the following types of clients has been identified as the best prospect for cash value life insurance? - ANSWER-clients who prefer the discipline of regular, periodic investments Cash value life insurance generally requires monthly, quarterly, or yearly payments, so it is a good fit for clients that like the discipline of regular, periodic investments. Benjamin Graham's style of investing can be described as which of the following? - ANSWER-bottom-up Graham's style of investment was "bottom-up," looking first to the financial dynamics of an individual company and then considering the larger economic environment. Bob received 100 shares of stock from his uncle, Raymond. Raymond purchased the stock eight years ago for $12 per share. Bob received the stock as a gift from uncle Raymond two years ago, when the fair market value of the stock was $15 per share. Assume Bob sold the stock this year for $19 per share. What would be Bob's basis in these shares? - ANSWER-$12 per share In the case of an asset received as a gift, if the fair market value on the date of the gift is greater than the donor's adjusted basis, the recipient has a carryover basis. In this case, uncle Raymond had purchased the stock for $12 per share and had gifted it to Bob when the fair market value was $15 per share. Bob subsequently sold the stock for $ per share. Thus, the carryover basis from uncle Raymond would be $12 per share. Bonds fell in price on news of higher interest rates. To which one of the following risks are the bonds most likely to be subject? - ANSWER-interest rate risk Interest rate risk centers on the inverse relationship of interest rate changes and bond prices, so, in this situation, if interest rates go up, the price of George's bonds go down. Brenda Bradford is the owner of a whole life policy on her husband, Rolf. Their daughter, Vera, is named in the policy as the contingent beneficiary. In issuing the policy, the insurance company has asked that a settlement option be selected. Which one of the following individuals is currently empowered to make the selection? - ANSWER-Brenda, the policy owner As the owner of the policy, Brenda is entitled to make any changes to the policy, including the selection of a settlement option.

Buying a municipal bond to generate income is an example of - ANSWER-tax avoidance. Interest received from municipal bonds is generally exempt from federal taxation, so tax can be avoided on this interest. Can an individual continue to make contributions past age 70½ in a Roth IRA? - ANSWER-yes, if the individual has earned income Individuals can contribute to a Roth IRA past age 70½ as long as they have earned income. Can certain levels of inflation be ignored when calculating retirement income needs? - ANSWER-no Inflation cannot be ignored at any level—even at low levels, a retiree's standard of living will be eroded over time—especially if that time period is 20 years or more. Can the interest paid on funds borrowed to purchase municipal bonds be deductible? - ANSWER-no Interest paid on funds to purchase municipal bonds is not deductible. Carol Taylor has $10,000 to invest at the end of each year for five years, and she can earn a fixed rate of 8%. "How much," she asks, "will my money be worth in five years?" - ANSWER-$58, This is an ordinary annuity problem with n = 5, i = 8, and PMT = 10,000, then FVOA = $58,666. Cash value life insurance policies build cash value on what type of basis? - ANSWER- tax-deferred basis Cash value life insurance policies grow tax-deferred until the cash value is withdrawn from the policy. Cindy Dawson just paid $9,750 for a 7%, $10,000 par value bond with 15 years to maturity. What is the yield to maturity (YTM) of this bond? Using the time value of money functions on the financial calculator, use the following assumptions on a semiannual basis: FV = 10, PV = -9, N = 15 (x2) PMT = 3507.28% - ANSWER-7.28% (USE ONLINE CALCULATOR) HP 10bII+: Set calculator to end mode and two compounding periods per year. Then 9,750 +/- PV, 10,000 FV, 350 PMT, 15 SHIFT N, I/YR = 7.28%. Company XYZ has earnings this year of $1.80 per share, expects earnings next year to increase by 15%, and generally trades at a 10% premium to the S&P 500 index. Currently, the P/E of the S&P 500 index is 20. What is the expected value of XYZ next year? - ANSWER-$45.

The P/E is correct [20 × 1.10 = 22] and is multiplied, correctly, by next year's earnings ($1.80 × 1.15 = $2.07) to get $45.54. Confidentiality is an important ethical obligation for all those who render investment advice. The CFP Board and NASAA allow the unauthorized disclosure of confidential client information during - ANSWER-legal procedures that require disclosure. The principle of confidentiality means ensuring that information is accessible only to those authorized to have access, so it does not preclude disclosure required under legal proceedings. Confidentiality is an important ethical obligation for all those who render investment advice. The CFP Board, however, allows the unauthorized disclosure of confidential client information in - ANSWER-connection with a civil dispute between a CFP certificant and a client. Confidential client information may be released only to those authorized to have access. Presumably one such situation is during a civil dispute between a CFP certificant and a client. Dan Smith has bonds maturing in two weeks. Since he bought the bonds, interest rates have fallen. Dan's bonds are most likely subject to which one of the following risks? - ANSWER-reinvestment rate risk Reinvestment rate risk is the risk associated with reinvesting interest and/or principal payments when interest rates have fallen. David Dreman's advice to the investor centers on three rules. Which of the following is not one of those rules? - ANSWER-select only industry average P/E stocks Dreman's three rules were select only low P/E stock, diversify with 20?30 stocks in 15+ industries, and invest only in medium or larger companies listed on the NYSE. David Vandercamp passed away in 2020, leaving a sizable estate. His will left, among other things, 2,000 shares of GE to his daughter, Bianca. These shares had been purchased as a single lot in 2011. Bianca and her husband sold the stock. What was their cost basis in these shares? - ANSWER-the fair market value on the day Mr. Vandercamp died Because Bianca inherited the stock, her basis is the fair market value of the shares on the day her father died. Disability insurance is concerned with ___________ risks, and life insurance is concerned with _____________ risks. - ANSWER-morbidity / mortality The difference between life insurance and disability insurance is the difference between mortality and morbidity. Life insurance protects against the risk of premature death— mortality. Disability insurance products (and other health insurance products) protect against morbidity risks, which are risks associated with reduced health.

Dividends received from a participating life insurance policy are - ANSWER-a return of unused premium payments. Unlike cash dividends from stock, dividends from a participating life insurance policy are a return of excess premium payments, and not taxable. During the past year, the portfolio of your largest client had a return of 10% and a beta of 1.1. During the same year, the average T-bill rate was 1.25%. What is the Treynor ratio for the performance of this portfolio? - ANSWER-. The Treynor ratio divides the excess return (return - risk-free rate) by the beta—in this case, (.10 - .0125) ÷ 1.1 = .0796. Each after-tax annuity payment is - ANSWER-partly a tax-free return of capital and partly income that is subject to ordinary income taxation. A portion of each annuity payment represents a tax-free return of capital, and a portion is subject to ordinary income taxation. Earned income usually ceases when a person retires. From what sources will a retired person typically receive income? - ANSWER-invested savings, Social Security, and employer-sponsored retirement plans Typically, there are three income sources that are used to pay retirement expenses: Social Security, employer-sponsored pension and profit sharing plans, and the individual's accumulated investments. These sources are known as the "three-legged stool" of retirement income. Earnings in a variable deferred annuity - ANSWER-grow on a tax-deferred basis. Earnings in a variable deferred annuity grow on a tax-deferred basis and are taxed only when paid out from the annuity. Equity-based compensation plans may - ANSWER-be established for executives only and do not have to cover rank-and-file employees and are therefore not generally subject to ERISA requirements Equity-based compensation plans may be established for executives only and do not have to cover rank-and-file employees. As a general rule, equity-based compensation plans are not subject to the coverage and participation, and other requirements of the Employee Retirement Income Security Act of 1974 (ERISA) because they are not considered to be "employee benefit plans"; that is, employee pension plans or employee welfare benefit plans subject to the requirements of ERISA. Equity-based compensation plans may - ANSWER-be established for executives only and do not have to cover rank-and-file employees and are therefore not generally subject to ERISA requirements. Equity-based compensation plans may be established for executives only and do not have to cover rank-and-file employees. As a general rule, equity-based compensation plans are not subject to the coverage and participation, and other requirements of the Employee Retirement Income Security Act of 1974 (ERISA) because they are not

considered to be "employee benefit plans;" that is, employee pension plans or employee welfare benefit plans subject to the requirements of ERISA. Fine Inc. is a small publicly traded corporation. The company wants to provide an incentive for Ian Good, its vice president of sales, to continue with the company. However, the company does not want to deplete its much-needed cash account. Based on the characteristic of providing the greatest incentive without depleting cash, Fine Inc. should establish - ANSWER-a restricted stock plan. A restrictive stock plan uses no cash, and it also provides an incentive for Ian to stay with the company. For finding net cash flow - ANSWER-income-expenses (remember NOT to include balance sheet items such as credit card balance and checking account) For finding Net worth - ANSWER-Assets-Liabilities (remember NOT to include cash flows such as auto payments) For full Social Security retirement benefits, full retirement age - ANSWER-depends on your year of birth. In order to receive full Social Security retirement benefits, a person has to attain the full retirement age as defined by the Social Security Administration. Depending on the individual's year of birth, that age increases gradually to 67 for persons who reach age 62 in 2022. For most clients, the two most commonly overlooked risks are - ANSWER-long-term care insurance and disability insurance. For most clients, the needs for (1) disability insurance and (2) long-term care insurance are the most commonly overlooked risks. Most people recognize the need for at least some life insurance. Accidental death and dismemberment is typically a rider available with life insurance or a stand-alone employee benefit option. For tax purposes, which one of the following correctly identifies a rule that applies to the depreciation deduction for post-1986 real estate? - ANSWER-The depreciation expenses taken over the years are treated as capital gains on the sale of the real estate. Depreciation deductions are, in essence, converted into long-term capital gains upon sale of the realty. The gain created by the depreciation deductions are known as unrecaptured Section 1250 income, and is subject to a maximum long-term capital gain rate of 25%. For whom can an UGMA be used to benefit? - ANSWER-a child up to a maximum age UGMAs can be used for the benefit of a child up to a maximum age, as specified by individual state law.

Four main attributes of a good business plan - ANSWER-1. written and shared with someone who has an interest in your success

2. include realistic action steps and personal goals
3. professional development goals Gary Stevens would like to know the weighted beta coefficient for his portfolio. He owns 100 shares of ACE common stock with a beta of 1.1 and total current market value of $5,000; 400 shares of BDF common stock with a beta of .70 and total current market value of $8,000; and 200 shares of GIK common stock with a beta of 1.5 and total current market value of $10,000.What is the overall weighted beta coefficient for Gary's portfolio? - ANSWER-This can be done long-hand, using the following steps:$5,000 + $8,000 + $10,000 = $23,000 total value of the portfolio([$5,000/$23,000] x 1.1) + ([$8,000/$23,000] x 0.7) + ([$10,000/$23,000] x 1.5) = 1.13478 = 1. Gary Trapp is employed by the city of Great Rapids, and his sister, Julie, teaches first grade in the Great Rapids public school system. They each participate in deferred compensation retirement plans through their employers: Gary participates in a 457 plan and Julie participates in a TSA.Which of the following statements correctly indicate how their respective plans compare to each other? I. Both plans are based on contracts with the employer. II. Both plans are subject to an $19,500 limit on salary deferrals in 2020. III. Neither plan is able to use forward-averaging tax treatment for distributions. IV. Both plans are subject to the minimum distribution requirements that apply to qualified plans. - ANSWER-I, II, III, and IV Both the Section 403(b) plan (TSA) and the Section 457 plan are based on contracts with the employer (the salary deferral agreement). Deferrals are limited to $19,500 in 2020 plus catch-ups, if applicable, and distributions from both of these plans are subject to ordinary income taxation, not forward-averaging treatment. Both plans are also subject to the minimum distribution requirements that apply to qualified plans. Generally, loans taken against the cash value of an in-force life insurance policy (not classified as a MEC) are - ANSWER-not currently taxable. Except in the case of a MEC, there are no taxes generated from loans taken against the cash value of life insurance policies. If a policy is surrendered or lapses with a loan outstanding, all or part of the loan amount may be taxable. George Billups recently retired. Prior to his retirement, he and his wife agreed that she should sign the required waiver to allow the money purchase plan to pay George's retirement income as a single life annuity with no period certain. Which one of the following statements best explains why George and his wife would select the single life annuity distribution option from his retirement plan? - ANSWER-to maximize the periodic payment because George and his wife have no need or desire to have any portion of the plan benefits left after his death Persons with no dependents or others they wish to benefit, and those who wish to maximize monthly cash flow, may find a single life annuity attractive. A permanent life

insurance plan may make this attractive even to married persons or those who want to leave an estate. Gift splitting allows - ANSWER-a married couple to double their allowable annual exclusions. Gift splitting allows a gift of property owned by one spouse to be treated as if it were made one-half by each spouse, thereby doubling the allowable annual exclusions. Grantor Retained Annuity Trust (GRAT) - ANSWER-the grantor receives a fixed dollar amount from the trust fund annually Grantor Retained Unitrust (GRUT) - ANSWER-grantor receives a specified percentage of the value of the trust funds annually Growth stocks typically have which of the following characteristics? - ANSWER-Growth stocks have high profit margins, carry high betas, and pay small dividends. Hi-Tech Solutions Inc. is a small publicly traded corporation. The company wants to persuade Tom Salazar, its vice president of sales, to continue with the company and is seeking an incentive for Tom to achieve this end. However, the company needs to avoid any withdrawal from its much-needed cash account. Based on these characteristics, Hi- Tech Solutions Inc. should establish - ANSWER-a restricted stock plan. The fact that the company does not want to increase costs would indicate they should use the restricted stock plan since it does not create additional expenses or claims on cash flow. All the other choices would increase company expenses. How are dividends from REITs taxed? - ANSWER-ordinary income tax rates Dividends from REITs are not "qualified dividends" and are taxed at ordinary income tax rates. How frequently do mortgage pass-through bonds make payments? - ANSWER-monthly Pass-through bonds make monthly payments of principal and interest as they pass through mortgage payments, which are made monthly, to investors. If a decedent dies intestate, - ANSWER-her property that does not pass by will substitute will be distributed according to her state's intestate succession statute. In these circumstances, state law determines who receives which property and in what amount. If a minimum distribution from an IRA is not taken in the calendar year after reaching age 70½, there is a _____excise tax? - ANSWER-50% If a minimum distribution from an IRA is not taken in the calendar year after reaching age 70½, there is a 50% excise tax on the amount that should have been withdrawn.

If a shareholder participates in a public utility's dividend reinvestment program, - ANSWER-the shareholder is treated as if he or she received a cash dividend equal to the fair market value of the shares purchased under the plan. Income is recognized in an amount that equals the fair market value of the shares purchased under the plan. If a stock pays a dividend of $1.60 per share, the growth rate of that dividend is 6%, and the required return is 10%, what is the intrinsic value of the stock according to the dividend discount model? - ANSWER-$42. The dividend discount model is D1/r-g where D1 is the dividend value at the end of the first year, r is the required return, and g is the dividend growth rate:(1.60 × 1.06) / (.

• .06) = $1.696 / .04 = $42. If an investor contributes $5,000 to her IRA at the beginning of each year for 20 years, and earns 8% annually, how much will she have accumulated? - ANSWER-$247,114. Using the HP 10bII+, set the calculator to begin mode and one compounding period per year. Then 5,000 +/- PMT, 8 I/YR, 20 SHIFT N, FV = $247,114.61. If an investor were looking to add another investment to his or her portfolio, which of the following correlation coefficients would provide the greatest risk reduction? - ANSWER- a managed futures fund with a correlation of -0. The scale for correlation coefficients goes from -1.0 (perfectly negatively correlated) to 1.0 (perfectly positively correlated). The further to the left you go on the scale, the lower the correlation and the greater the risk reduction. If disability premiums are paid with pretax dollars, any benefits payments received would - ANSWER-be subject to income tax. If disability premiums are paid with pretax dollars, any benefits received would be subject to income tax and the employer would be required to match the FICA portion of payroll taxes. Choice b. is therefore incorrect. Choice c. is incorrect because benefit payments would never be tax deductible, and choice d. is incorrect because this simply does not apply to disability benefits. If international stocks were added to a portfolio of U.S. stocks, which one of the following risks would specifically be added to the portfolio? - ANSWER-exchange rate risk International stocks specifically add exchange rate risk to a portfolio since their value is affected by changes in the values of foreign currencies relative to that of the U.S. dollar. If the market rate on bonds similar to Bond A increases, Bond A's present value will - ANSWER-decrease. When market interest rates increase, bond prices (present value) decreases. If the market rate on coupon bonds similar to Bond A increases, Bond A's duration will - ANSWER-decrease.

There is an inverse relationship between a bond's duration and changes in market interest rates. In "A Random Walk Down Wall Street," Burton Malkiel wrote that "A simple policy of buying and holding will be __________ any technical procedure. - ANSWER-as good as Malkiel wrote that "A simple policy of buying and holding will be at least as good as any technical procedure." In 2010 Dodd Frank tasked the SEC to study the feasibility of drafting a harmonized fiduciary standard for both investment advisers and broker-dealers. In April 2018 the SEC proposed - ANSWER-continuing both a suitability standard for brokers and a fiduciary standard for advisers. The proposals released by the SEC in April 2018 did not recommend a harmonized fiduciary standard but rather maintained two different standards—a suitability standard for brokers and a fiduciary standard for advisers. Both standards would have additional requirements and expectations under the proposed rules released by the SEC. In a taxable account, corporate zero-coupon bonds generate annual - ANSWER-taxable income. In a taxable account, corporate zeros do generate taxable income without generating the cash to pay the taxes (phantom income); in a tax-deferred account, income from zeros is deferred. In general, withdrawals for a retiree's cash flow should be taken from - ANSWER- taxable accounts first. In general, withdrawals should be taken from taxable accounts first—capital that compounds tax-deferred will grow to more dollars than capital that is taxed every year. In the absence of an intentional choice, the IRS assumes a taxpayer uses which one of the following methods to report mutual fund sales? - ANSWER-first-in, first-out First-in, first-out (FIFO) is the method assumed by the IRS if a taxpayer fails to select another method. In the early years of his or her business, a self-employed individual may be a good candidate for - ANSWER-term life insurance. Because cash flow is often limited in the early years of a business, term insurance often makes sense for self-employed individuals. In which of the following types of ownership is property acquired during a marriage considered to belong one-half to the wife and one-half to the husband, regardless of whose name is on the title? - ANSWER-community property In community property states, property acquired during a marriage is considered to belong one-half to the wife and one-half to the husband, regardless of whose name is on the title.

In which way is an ETF (exchange-traded fund) different from a mutual fund? - ANSWER-they can be sold short Unlike mutual funds, ETFs can be sold short. Incentive stock options - ANSWER-are a form of deferred compensation. Incentive stock options provide a company with one way to set up deferred compensation for an executive. Income from a Treasury bond is - ANSWER-exempt from state and local taxation. A Treasury bond pays interest that is exempt from state and local taxation. Investment Advisers Act of 1940 - ANSWER-requires investment advisers to register with the SEC Investment professional Bill Winters received the latest long-term total return data for different asset classes. He sees that common stocks returned 8% compounded with a standard deviation of 19.0; T-bills had a 1.25% return with a standard deviation of 3.4. What is the expected return of a portfolio of 60% stocks and 40% T-bills? - ANSWER- 5.3% This correct calculation is: (.6 × 8%) + (.4 × 1.25%) = 5.3% Investors who strongly believe in the efficient market hypothesis would select which one of the following types of mutual funds? - ANSWER-an index fund An index fund (which operates on the assumption of market efficiency) is an appropriate choice for a supporter of the efficient market hypothesis. Jensen's Alpha - ANSWER-1. it assumes that the portfolio being evaluated is well diversified

2. both alpha and beta appear in the formula for the ratio
3. it indicates by how much the realized return differs from the return required by the capital asset pricing model (CAPM) Joan Allen recently terminated from the Carson County School District. She plans to roll her 403(b) plan account into her IRA (account number 235472) at Mega Mutual Funds and wants to avoid the 20% withholding. Which one of the following statements correctly instructs her on the procedure? - ANSWER-Instruct the plan administrator to make the distribution check to "Mega Mutual Funds, account #235472, for the benefit of Joan Allen." She should mail to or deposit that check with Mega Mutual Funds. After separation from service, a 403(b) plan participant can elect to move her assets to certain other retirement arrangements. And, like distributions from employer plans, the amounts must be directly rolled over from the 403(b) custodian to the other retirement arrangement to avoid a 20% withholding tax. Life insurance can be used to address which of the following needs? - ANSWER-1. the care of aging parents
4. the payment of estate taxes

3. replacement of a spouse's income Life insurance proceeds paid from a policy owned by the decedent are __________ subject to estate tax - ANSWER-always If the policy is owned by the decedent, the proceeds are generally always included. Life insurance proceeds paid to beneficiaries are generally - ANSWER-tax-free. Generally speaking, life insurance proceeds paid to beneficiaries are income-tax-free. Lily has several accounts with Progress Bank, which is FDIC insured. She has the following balances: $300,000 in a single account $280,000 in a joint account with her son $280,000 in a joint account with her daughter $225,000 in an IRA Lily is concerned about the safety of her funds and has asked you how much FDIC coverage she has personally.You would advise her that the total amount of her coverage is - ANSWER-$725,000. Lily receives personal coverage of $250,000 for her single account, $225,000 for her IRA, and is then limited to a total of $250,000 of the $560,000 combined value in the joint accounts (due to the like registration). Managing client expectations is best achieved through which of the following? - ANSWER-educate the client Educating your clients is the best way to help set and manage their expectations. Marcia Simpson has analyzed her client's situation and has concluded that her client will come short of attaining the amount of capital he would like to have by the time he plans to retire. The client is a low risk taker and will have limited funds for future periodic investments. Before making a recommendation, Marcia should do which one of the following? - ANSWER-Discuss the problem and ask the client to clarify how he wishes to adjust his accumulation goal, risk level, or periodic investments. After being informed of the various constraints, implications of their decisions, and other options they have, the client can choose to make adjustments with which he is comfortable. Measurement of total risk - ANSWER-standard deviation Money from a 403(b) plan may be rolled over to an IRA or - ANSWER-a government- sponsored 457 plan. another 403(b) plan. a 401(k). The 2001 Tax Act generally allows for rollovers between different types of plans. A qualified plan, however, is not required to accept rollovers.

Money market mutual funds invest in all of the following except - ANSWER-corporate bonds Corporate bonds will generally have high marketability, but are not necessarily safe from default, and they will carry high market risk. Mrs. Bartlett purchased a life insurance policy that will pay $100,000 to her beneficiary should she die anytime during the next year. She is guaranteed the right to renew this policy every year for the next five years. The policy is not expected to have any cash value. Mrs. Bartlett has purchased a - ANSWER-term life insurance policy. Term insurance generally provides nothing other than a cash payment in the event of death, only if the loss occurs within the policy period. Mrs. Bartlett purchased a life insurance policy that will pay $100,000 to her beneficiary should she die at any time during the next year. The policy guarantees the right to renew every year for the next five years, and builds no cash value. Mrs. Bartlett has purchased a - ANSWER-term life insurance policy. Mrs. Bartlett owns a renewable five-year term life insurance policy. Such a policy would have a guarantee-to-renew provision. Ms. Arbuckle paid approximately $22,100, or 22.1% of her taxable income of $100,000, to the IRS. What does this percentage represent? - ANSWER-average tax rate Ms. Arbuckle's tax liability of $22,100 divided by her taxable income of $100,000 equals her average tax rate of 22.1%. Ms. Arbuckle paid approximately $23,500, or 23.5% of her taxable income of $100,000, to the IRS. What does this percentage represent? - ANSWER-average tax rate The average tax rate is defined as the tax liability divided by the taxable income. negative alpha means - ANSWER-the fund underperformed the benchmark (does NOT mean that it's a negative return, it's just LOWER than the benchmark) Of the following options, which is the most appropriate use of life insurance by a business? - ANSWER-Provide money to help continue the business at the death of a partner or other owner. When a key person (especially a partner or other owner) dies, life insurance can provide needed money to fund a buy-sell agreement or to keep the business operating. Of the following, which one describes a key attribute of an investment policy statement?

• ANSWER-long-term perspective—to take advantage of the positive bias in the markets A key attribute of an investment policy statement is that it should be created with a long- term perspective to use the positive bias in the markets that occurs with the passage of time.

On "May Day" (May 1, 1975) which of the following events occurred? - ANSWER-fixed rate commissions were abolished On "May Day," fixed rate commissions were abolished, and the first discount brokers came into existence. Prior to May Day, commission rates had been set by the NYSE. One assumption of technical analysis is that - ANSWER-stock prices move in trends. Technical analysis assumes that stock prices move in trends. One change in a client's situation that would require an adjustment in the asset management process would be - ANSWER-a sudden early retirement from his employer. A sudden early retirement is a major change that would require an adjustment to the asset management process. One implication of the Brinson study is that investors should - ANSWER-concentrate on asset allocation with less attention given to securities selection and market timing. The implication from the Brinson study is to give considerable attention to asset allocation and less attention to securities selection and market timing. One of the characteristics regarding growth stocks is that the earnings per share growth rate should be at least what percentage? - ANSWER-15% One of the typical characteristics of growth stocks is earnings per share growth rate of 15% or more. One of your clients is interested in investing in a real estate limited partnership. He has heard of the tax law requirements limiting the use of passive activity losses in sheltering other income. What can you tell him about these requirements with respect to the real estate limited partnership? - ANSWER-A limited partner's participation is strictly "passive." Limited partners are considered passive investors who provide most of the capital for a project. One reason to use active investment management is the potential for downside protection. - ANSWER-the potential for downside protection. The potential for downside protection, where the active manager moves to cash to cushion a bear market, is one possible reason to use active investment management. One reason to use passive investing is that - ANSWER-long-term returns can be better when compared with the returns of active management. Passive investing often provides better returns over time than with active investment management. Over time, the cash value of a permanent life insurance policy could grow substantially. This cash value can be used to - ANSWER-1. help supplement retirement expenses

2. help pay for college expenses
3. pay for a vacation

P.R.I.M.E Systematic Risks - ANSWER-1. Purchasing Power Risk

2. Reinvestment Risk
3. Interest Rate Risk
4. Market Risk
5. Exchange Rate Risk Portfolio X had a Sharpe ratio of 1.10, while Portfolio Y had a Sharpe ratio of .55. Based on this information, which one of the following statements is correct? - ANSWER- Portfolio X had better performance than Portfolio Y on a risk-adjusted basis. A higher Sharpe ratio does indicate better performance based on the risk taken, as measured by standard deviation. Roger Jones is considering recommending one of two mutual funds for a client. Although both funds are generally appropriate for the client, one is a proprietary fund that pays Roger a higher commission and the other has a better risk/return profile. Roger decides to recommend the latter fund to the client. With which of the following fiduciary duties has Roger complied? - ANSWER-loyalty The fiduciary duty of loyalty requires the adviser to look out for the best interest of the client, which is what Roger had done. The proprietary product may be suitable, but not in the best interest of the client since another similar fund is available with a better risk/return profile. Sam was born in 1954, so his FRA is 66. If he begins receiving Social Security benefits early, the amount of his monthly Social Security checks will be - ANSWER-reduced for the rest of his life. Early retirees born in 1954 will have their retirement benefits reduced throughout the remainder of their lives. Sara White bought a stock that has subsequently dropped 50%. She plans to hold on to the stock in the hopes of getting back to even. What investor mistake is Sara most likely making? - ANSWER-loss aversion Loss aversion is the reluctance to take losses and is associated with a "get-even-itis" mentality. Sarah Hamilton is a management consultant whose business operates under the cash method, or cash basis, of accounting. Her tax year coincides with the calendar year. In late November 2019, she finished a consulting job and billed the client, who sent her a check on January 6, 2020. How should she treat this income, and why? - ANSWER-as 2020 income, because the check was received in 2020 Because Sarah, a cash basis taxpayer, received the check in 2020, she should report the income for 2020. Section 457 plans cover employees of - ANSWER-nonprofit organizations only. Section 457 plans cover employees of state and local governments and tax-exempt organizations, but they do not cover employees of for-profit organizations.

Securities Act of 1933 - ANSWER-required that new companies provide full disclosure through the issuance of a prospectus Securities Exchange Act of 1934 - ANSWER-created the SEC and empowered the commission to regulate exchanges and broker-dealers, and to require information from public companies Several individual investments each have high standard deviations. Which of the following are true about the standard deviation for a portfolio of these same investments? I. has to be high since the standard deviations are high II. has to be low since the standard deviations are highI II. can be low if there is a low correlation of returns between the investments IV. can be high if there is a high correlation of returns between the investments - ANSWER-III and IV only If the investments have a low correlation coefficient between them, they will reduce investment risk, which can result in a portfolio with a low standard deviation. If the investments have a high correlation of returns between them, then they will not reduce investment risk, and the portfolio will continue to have high systematic risk, hence a high standard deviation for the portfolio. Stefan's business plan includes the following goal: "I will contact 50 prospective clients and document this activity in the CRM for tracking purposes." Which primary element of a good goal is missing? - ANSWER-This goal is not time-framed. The acronym to remember for goal setting is SMART, which stands for Specific, Measurable, Achievable, Relevant, and Time-Framed. The primary flaw in this goal is that it is not time-framed. Because it is not time-framed, it is difficult to tell if this is achievable, but it is certainly measurable and very likely relevant. Stock ABC has an average return of 9.0% with a standard deviation of 7.0%. What is the range of expected returns for ABC 68% of the time? - ANSWER-+2.0% to 16.0% 68% of the time the returns will fall with one standard deviation of the average return. One standard deviation below the mean is 9% - 7% = 2% while one standard deviation above the mean is 9% + 7% = 16%. Supplemental executive retirement plans (SERPs) are characterized by which of the following? I. SERPs are designed for all employees. II. SERPs are designed for a select group of management or highly compensated employees. III. SERPs must be unfunded. IV. Benefits are paid by the employer out of general assets. - ANSWER-II and IV only