Free AAFM CWM_LEVEL_2 Practice Exam with Questions & Answers | Set: 5

Section A (1 Mark)

Garima deposits Rs. 2,000/- every month in an account and is getting interest @ 12 % per annum compounded monthly. How much will be her nest egg after 10 years ?

Section A (1 Mark)

The two major types of real estate are ____ and ___ .

Section B (2 Mark)

It was unconstitutional for the U.S. government to levy an income tax before the passage of which amendment?

Section B (2 Mark)

Major phases of budgeting process are:

Section B (2 Mark)

Broker dealer model is more prevalent in

Section B (2 Mark)

In order to determine the residential status of an NRI returning to India for permanent settlement, for the year of return, besides the stay not exceeding 181 days an additional condition is applicable that of stay not totalling to____________ days or more in relevant year if his stay in earlier ___________ years totaled to 365 days or more.

Section A (1 Mark)

In “CAMPARI” Model, R stands for:

Section C (4 Mark)

Harish Rawat has approached you on 26th Nov 2010, a Chartered Wealth Manager, for preparing a comprehensive Wealth plan to accomplish his financial goals. From your initial meeting, you have gathered the following information:

Harish Rawat, aged 44 years with life expectancy 70 years, is self-employed in Dehradun. Harish’s wife Sonali, aged 41 years with life expectancy 72 years, is working as a Assistant Manager in a Telecom

Company and is having a post-tax income of Rs. 4 lakh p.a. She is expected to retire at the age of 55 years. The couple has two children Chirag, aged 16 years and Vishesh, aged 10 years. Chirag is studying in 10th standard while Vishesh is studying in 4th standard. Harish’s net annual Income from retail medical store is Rs. 8 Lakh and their monthly household/living expenses, excluding housing loan EMI, are Rs. 32,500.

Harish is a Graduate. He earlier served in a pharmaceutical company as a medical representative for approx. 10 years. After separation from the company, he started his own wholesale business of medicines but could not sustain for long due to lack of working capital. He shut down his operations after 3.5 years. Thereafter he got a contract for retail medical shop in the premises of a nursing home. The terms of the contact are profit sharing in the ratio 50:50. Investment in stock and handling all activities of medical store are of Harish and no rent is charged by the owner of nursing home.

Harish had taken a housing loan of Rs. 15 Lakh disbursed on 1st April 2005. They are presently paying an EMI of Rs. 17,285 at the end of every month beginning from the month of disbursement. The loan is at fixed rate of interest of 11.25% p.a. (reducing monthly balance basis) with tenure of 15 years. Harish has taken a money back insurance plan of 20 year term with sum assured of Rs. 6 Lakh, the annual premium being Rs. 26,250. He has paid 14 annual premiums till date regularly. The policy provides for 20% of the basic sum assured to the insured as survival benefit after 4th, 8th, 12th, 16th years from the start of the policy. He has also taken a Mediclaim family floater policy which covers his spouse and two sons to the extent of Rs. 5 Lakh. He has also paid four regular annual premiums of Rs. 36,000 in a unit linked pension plan and next premium is due on 1st Dec 2010.

Harish’s parents are senior citizens and live in their own house in Haldwani District. Their only source of income is by way of interest received from their joint Senior Citizen Savings Scheme account. Harish’s younger brother, who is also self-employed, is living with his parents.

Harish had invested Rs. 1 lakh to buy 200 shares of a listed company, Mobizox, in the year 2001-02. The Company had issued Bonus shares in the ratio 1:1 in the year 2005-06.Harish also subscribed to the Company’s Rights issue of one share for every four shares held at a price of Rs. 250 per share in Feb 2010. Harish also invested Rs. 4 lakh in an Agriculture land at his native village in Haldwani in 2000-01.

Goals and aspirations

1.To make provision for their children’s higher education expenses at their respective age of 21 years.

2.Such expenses are Rs. 5 lakh for each child at current prices.

3.To make provision for children’s marriage expected at the end of 10 years and 15years from now; presently valued at Rs. 5 lakh each.

4.Build a corpus for his retirement at the age of 58 years

5.To go on vacation with family in January, 2011

Assumptions

1.Inflation is currently 6% p.a. and is likely to remain the same.

2.Risk free interest rate is at 7% p.a.

3.Return on equity MF is 12% p.a.

4.Return on debt MF is 8% p.a.

5.Cost Inflation index is 281 for 1995-96, is 406 for 2000-01, is 463 for 2003-04, is 551for 2007-08, is 582 for 2008-09 and is 632 for 2009-10.

Section B (2 Mark)

According to the efficient markets view, value stocks earn higher expected return than growth stocks because:

Section C (4 Mark)

Read the senario and answer to the question.

If Mrs. Deepika, a conservative investor, has Rs. 50, lakhs today that she could invest for the next three months in a three month bank CD or in a stock .The bank CD offers a guaranteed return 6 % over the three-month period. Alternatively she thinks the price of the stock will rise by 5% over the next months. She is confused in taking the decision. Guide her in trade off between return and risk so that she makes a decision in choosing investments?

Section C (4 Mark)

Read the senario and answer to the question.

Ms. Deepika is interested in investments in foreign markets. Her brother is working in one of reputed American company in India and that is offering him some shares under ESOP scheme. This company is not listed in India. It is listed in New York Stock Exchange. Ms. Deepika is asking her manager how this transaction will took place for her brother?

Section C (4 Mark)

Nifty is presently at 2694. Mr. XYZ expects Nifty to fall. He buys one Nifty ITM Put with a strike price Rs. 2800 at a premium of Rs. 132 and sells one Nifty OTM Put with strike price Rs. 2600 at a premium Rs. 52.

What would be the Net Payoff of the Strategy?

• If Nifty closes at 2359

• If Nifty closes at 3561

Section A (1 Mark)

____________ may be responsible for the prevalence of active versus passive investments management.

Section B (2 Mark)

Profitability Index is

Section B (2 Mark)

Total income of an individual including long-term capital gain of Rs. 50,000/- is Rs.1,60,000/-, the tax on total income for the assessment year 2012-13 shall be: CII-12-13: 852,11-12: 785,10-11:711]

Section A (1 Mark)

In which year can the subscriber to a PPF account take the first loan from the opening of the account?

Section A (1 Mark)

A(n) _________________________ guarantees the swap parties a specific rate of return on their credit asset. Bank A may agree to pay the total return on the loan to Bank B plus any appreciation in the market value of the loan. In return Bank A will often get LIBOR plus a fixed spread plus any depreciation in the value of the loan.

Section A (1 Mark)

Comprehensive Wealth Management addresses

Section A (1 Mark)

Fiscal policy is difficult to implement quickly because

Section A (1 Mark)

The __________ is NOT a market anomaly.

Section B (2 Mark)

If Second National Bank has more rate-sensitive liabilities then rate-sensitive assets, it can reduce interest rate risk with a swap that requires Second National to

Section C (4 Mark)

The following were P/E ratios for some Asian markets in February 1994, with relevant information on interest rates and economic growth:

Assuming the dividend payout ratio in each of these countries is 60%, estimate the P/E ratio in South Korea and Thailand, based upon stable growth. (Use a risk premium of 7.5% over the risk-free rate in each country.)

Section B (2 Mark)

Calculate the beta on a portfolio from the following data:

Section B (2 Mark)

Basic Idea of retirement benefit plan is

Section A (1 Mark)

DINK stands for _______

Section C (4 Mark)

Your broker recommends that you purchase XYZ Inc. at Rs.60. The stock pays a Rs.2.40 dividend which (like its per share earnings) is expected to grow annually at 8 percent. If you want to earn 12 percent on your funds, is this a good buy?

Section A (1 Mark)

Psychologists have found that people who make decisions that turn out badly blame themselves more when that decision was unconventional. The name for this phenomenon is

Section A (1 Mark)

Ratio of loading charge over the gross rate is called _________

Section A (1 Mark)

A term that refers to the borrower's assets or net worth is called:

Section A (1 Mark)

A(n) _____________ is an over-the-counter agreement offering protection against loss when default occurs on a loan or other debt instrument.

Section C (4 Mark)

Zenith Finance is a big financial firm which owns several mutual funds. The funds are managed individually by portfolio managers but it has an investment committee that oversees all of the funds. This committee is responsible for evaluating the performance of the funds relative to the appropriate benchmark and relative to stated investment objectives of each individual fund. During a recent investment committee meeting, the poor performance of its Equity Funds were discussed. In particular, the inability of the portfolio managers to outperform their benchmarks was highlighted. The net conclusion of the committee was to review the performance of the manager responsible for each fund and dismiss those managers whose performance had lagged substantially behind the appropriate benchmark.

The fund with the worst relative performance is the Zenith Large Cap Fund which invests in large cap stocks. A review of the operations of the fund found the following:

• The turnover of the fund was almost double that of other similar style mutual funds

• The fund’s portfolio manager solicited input from her entire staff prior to making any decision to sell an existing holding

• The beta of the Zenith Large Cap Fund’s portfolio was 65% higher than the beta of other similar style mutual funds

• The portfolio manager refuses to increase the Capital Goods sector weighting because of past losses the fund incurred in the sector

• The portfolio manager sold all the fund’s Oil Marketing Companies stocks as the price per barrel of oil rose above $105. He expects oil prices to fall back to the $80 to $85 per barrel

• No stock is considered for purchase in the Large Cap Fund unless the portfolio manager has 10 years of financial information on that company.

A committee member made the following 2 comments:

Comment 1: “One reason for the poor performance of Large Cap Mutual Fund is that the portfolio lacks recognizable companies. I believe that good companies make good investments

Comment 2: “The portfolio manager of the Large Cap Fund refuses to acknowledge his mistakes. He seems to sell stocks that appreciate, but she holds stocks that have declined in value

The two behavioral biases exhibited respectively in the above 2 comments from the committee are:

Section C (4 Mark)

Mr. Chopra runs a Garment Factory, he is very concerned about his retirement and wants you to help him out in planning for it. His Current annual expenses are Rs. 12,00,000 which would be rising at an annual rate of 8% pre- retirement and 2% post retirement. His current age is 50 years and he wants to work till the age of 65. The expected life expectancy in his family is 75 years. Calculate the monthly contribution he must make till his retirement if the pre- retirement returns are 12% p.a. compounded monthly and post-retirement returns are 8% p.a compounded annually.

Section A (1 Mark)

The principle in real estate valuation which acknowledges limitation on growth in market value, not ably in the case of improvements is known as:

Section C (4 Mark)

Read the senario and answer to the question.

Mahesh’s company has made plans for the next year. It is estimated that the company will employ total assets of Rs. 1000 lakh: 50% of the assets being financed by borrowed capital at an interest cost of 8% per year. The direct costs are estimated at Rs. 500 lakh. All other operating expenses are estimated at Rs. 76 lakh. The good will be sold to customer at 140% of the direct costs. Income tax rate is assumed to be 30%. Calculate net profit margin and return on owners’ equity.

Section A (1 Mark)

A ____________________ tax system places a relatively large tax burden on upper-income people and a relatively small tax burden on lower-income people.

Section C (4 Mark)

Mr. XYZ is bearish about Nifty and expects it to fall. He sells a Call option with a strike price of Rs. 2600 at a premium of Rs. 154, when the current Nifty is at 2694. If the Nifty stays at 2600 or below, the Call option will not be exercised by the buyer of the Call and Mr. XYZ can retain the entire premium of Rs.154.

What would be the Net Payoff of the Strategy?

• If Nifty closes at 2900

• If Nifty closes at 2400

Section B (2 Mark)

Non-Resident (NR) is __________on Indian Income and ___________on Foreign Income.

Section A (1 Mark)

A company, other than an Indian Company would be a resident in India for the previous year if during that year its control and management is situated:

Section B (2 Mark)

Ram and Mrs. Ram hold 20% and 30% equity shares in Anand Ltd. respectively. They are employed in Anand Ltd. (monthly salary being Rs.20000 and Rs. 30000 respectively) without any technical / professional qualification.

Other incomes of Ram and Mrs. Ram are Rs. 70000 and Rs. 100000 respectively. The net income of Ram and Mrs. Ram for the assessment year 2013-14 shall be.

Section B (2 Mark)

Mr. Patel expects the stock of A to sell for Rs. 70/- a year from now and to pay Rs. 4/- dividend. If the stock’s correlation with the Market is –0.3, and the standard deviation of A is 40% and standard deviation of the Market is 20% and the risk free rate of return is 5% and the market risk premium is 5%, what would be the price of stock A be now ?

Section B (2 Mark)

Mahesh wants to sell a property for Rs. 30 lakhs. He is earning rent from tenant Rs. 3,60,000. He is spending following amounts annually on that property

Based on the above information what should be the value of the property would be:

Section C (4 Mark)

Allianz is a number one accredited institute for the Engineering in New Delhi. It pays dividend per share of Rs. 0.24 on reported earning per share of Rs. 0.512 in 2007. The firms earnings per share have grown at 8% over the prior 5 year but that growth rate is expected to decline linearly over the next 5 years to 3%, while the payout ratio remains unchanged. The beta for the stock is 0.9. The risk free rate is 4.2% and the market risk premium is 4%.Calculate the price of the stock.

Section B (2 Mark)

Mr Dixit is considering purchasing an office building for Rs. 2,500,000. He expects the potential gross income (PGI) in the first year to be Rs. 450,000; vacancy and collection losses to be 9 percent of PGI; and operating expenses to be 42 percent of effective gross income (EGI). What is the (effective) gross income multiplier?

Section A (1 Mark)

__________refers to responding to a positive action with another positive action, rewarding kind actions.

Section B (2 Mark)

What is the projected sale price of an apartment building that produces an annual net cash flow Rs. 120,000, if we set a projected capitalization rate at 7%?

Section B (2 Mark)

In a “Pure Play” model of wealth management

Section C (4 Mark)

A portfolio consists of 3 securities.

What is the standard deviation of the portfolio?

Section A (1 Mark)

In US which group is unlikely to support tax limitations?

Section B (2 Mark)

There are three stocks, A, B, and C. You can either invest in these stocks or short sell them. There are three possible states of nature for economic growth in the upcoming year; economic growth may be strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below:

If you invested in an equally weighted portfolio of stocks A and B, your portfolio return would be ___________ if economic growth were moderate.

Section A (1 Mark)

The eligibility Criteria for Self Employed Professionals & Businessman for minimum age of the applicant in case of personal loan is: