Certified Private Wealth Professional (CPWP) Module 2 Free Trial Set Two
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Question 1 of 30
1. Question
What is the goal of the asset pricing model?
Correct
The goal of the asset pricing model known as the option pricing model is to determine the value of a call option. This model assumes that the call option is in the European rather than the American style, meaning it can be exercised only on its expiration date.
Incorrect
The goal of the asset pricing model known as the option pricing model is to determine the value of a call option. This model assumes that the call option is in the European rather than the American style, meaning it can be exercised only on its expiration date.
Question 2 of 30
2. Question
What are the variables in the option pricing model?
I. Maturity amount
II. Interest rates
III. Prices of the underlying stock
IV. Volatility
Correct
In the option pricing model, there are four variables: time to maturity, interest rates, the price of the underlying stock, and volatility. The value of a call will typically decrease with an increase in strike price.
Incorrect
In the option pricing model, there are four variables: time to maturity, interest rates, the price of the underlying stock, and volatility. The value of a call will typically decrease with an increase in strike price.
Question 3 of 30
3. Question
Identify the qualified private charities:
I. Veteran’s organizations
II. Government entities
III. Fraternal orders
IV. Private non-operating foundations
Correct
Qualifying private charities include: veteran’s organizations, fraternal orders, and certain private nonoperating foundations.
Incorrect
Qualifying private charities include: veteran’s organizations, fraternal orders, and certain private nonoperating foundations.
Question 4 of 30
4. Question
What is the percentage of ceiling for public charities?
Correct
For public charities, there is a 30% ceiling (20% for private charities) on long-term capital gain property.
Incorrect
For public charities, there is a 30% ceiling (20% for private charities) on long-term capital gain property.
Question 5 of 30
5. Question
What is the standard measure of total risk?
Correct
The standard measure of total risk is variance; this is the measure of the dispersion of returns around the expected return. Semivariance, on the other hand, is a measure of downside risk, the dispersion of returns that occur below a certain target return.
Incorrect
The standard measure of total risk is variance; this is the measure of the dispersion of returns around the expected return. Semivariance, on the other hand, is a measure of downside risk, the dispersion of returns that occur below a certain target return.
Question 6 of 30
6. Question
How are the risk and the standard deviation related to each other?
Correct
Standard deviation is the measure of the variability of returns of an asset compared with the mean or expected value of that asset. It is a measure of total risk: the larger the dispersion around some mean value, the greater the risk and the larger the standard deviation.
Incorrect
Standard deviation is the measure of the variability of returns of an asset compared with the mean or expected value of that asset. It is a measure of total risk: the larger the dispersion around some mean value, the greater the risk and the larger the standard deviation.
Question 7 of 30
7. Question
Which of these do the smart money traders use for technical analysis?
I. Margin debit balance
II. OTC vs NYSE volume
III. Eurodollar rates
IV. Confidence Index
Correct
Contrarians will make use of mutual fund cash positions, the investor credit balances in brokerage accounts, investment advisory opinion, and OTC vs. NYSE volume, whereas smart money traders will make use of the Confidence Index, T-bill yields, Eurodollar rates, short sales by specialists, and the margin debit balances in brokerage accounts.
Incorrect
Contrarians will make use of mutual fund cash positions, the investor credit balances in brokerage accounts, investment advisory opinion, and OTC vs. NYSE volume, whereas smart money traders will make use of the Confidence Index, T-bill yields, Eurodollar rates, short sales by specialists, and the margin debit balances in brokerage accounts.
Question 8 of 30
8. Question
Identify the ways asset allocation programmes are usually marketed:
I. Aggressive growth
II. Unstable income
III. Fixed income
IV. Growth and income
Correct
Asset allocation programs are usually marketed in one of five ways: aggressive growth, growth, growth and income, balanced, and fixed income; these are listed above in descending order of return and risk level.
Incorrect
Asset allocation programs are usually marketed in one of five ways: aggressive growth, growth, growth and income, balanced, and fixed income; these are listed above in descending order of return and risk level.
Question 9 of 30
9. Question
Identify the companies which provide the ratings of financial strength:
I. Moody’s
II. Fitch
III. NAIC Watchlist
IV. Weiss
Correct
These five companies provide the best ratings of financial strength: A.M. Best; Fitch; Moody’s; Standard and Poor’s; and Weiss.
Incorrect
These five companies provide the best ratings of financial strength: A.M. Best; Fitch; Moody’s; Standard and Poor’s; and Weiss.
Question 10 of 30
10. Question
Identify the factors on which the ratings of financial strength are based:
I. Underwriting results
II. Soundness of investment
III. Adequacy of policyholder’s surplus to absorb shocks
IV. Inadequacy of reserves for undischarged liabilities
Correct
These five companies provide the best ratings of financial strength: A.M. Best; Fitch; Moody’s; Standard and Poor’s; and Weiss. These ratings are typically based on underwriting results, economy of management, adequacy of reserves for undischarged liabilities, adequacy of policyholder’s surplus to absorb shocks, and the soundness of investments.
Incorrect
These five companies provide the best ratings of financial strength: A.M. Best; Fitch; Moody’s; Standard and Poor’s; and Weiss. These ratings are typically based on underwriting results, economy of management, adequacy of reserves for undischarged liabilities, adequacy of policyholder’s surplus to absorb shocks, and the soundness of investments.
Question 11 of 30
11. Question
How will the covariance react, if the two variables move together?
Correct
Covariance, meanwhile, is the degree to which any two variables move together over time. If the two variables move together, they have a positive covariance; if they move apart, they have a negative covariance.
Incorrect
Covariance, meanwhile, is the degree to which any two variables move together over time. If the two variables move together, they have a positive covariance; if they move apart, they have a negative covariance.
Question 12 of 30
12. Question
hat does a correlation coefficient of zero indicate?
Correct
A correlation coefficient of +1 indicates that returns move in the same direction and are perfectly positively correlated; a correlation coefficient of -1 means the returns move oppositely, and are perfectly negatively correlated; a correlation coefficient of zero indicates two uncorrelated returns.
Incorrect
A correlation coefficient of +1 indicates that returns move in the same direction and are perfectly positively correlated; a correlation coefficient of -1 means the returns move oppositely, and are perfectly negatively correlated; a correlation coefficient of zero indicates two uncorrelated returns.
Question 13 of 30
13. Question
As per the homeowner forms, which of the below statements is not true:
Correct
In the first section, Coverage A insures the house and anything attached to it; Coverage B insures any other structures on the property; Coverage C insures the personal property of the owner at actual cash value; Coverage D pays for any loss of use; Coverage E insures against personal liability; and Coverage F insures for any medical payments that need to be paid to other people.
Incorrect
In the first section, Coverage A insures the house and anything attached to it; Coverage B insures any other structures on the property; Coverage C insures the personal property of the owner at actual cash value; Coverage D pays for any loss of use; Coverage E insures against personal liability; and Coverage F insures for any medical payments that need to be paid to other people.
Question 14 of 30
14. Question
Name the insurance policy that provides both property and liability insurance for a family.
Correct
A personal auto policy (PAP) is a package insurance policy that provides both property and liability insurance for the members of a family. A PAP offers four kinds of insurance.
Incorrect
A personal auto policy (PAP) is a package insurance policy that provides both property and liability insurance for the members of a family. A PAP offers four kinds of insurance.
Question 15 of 30
15. Question
Why is the key employee insurance taken out?
I. To save the tax from the business
II. To protect the business against the loss of business income
III. To ensure that the funds will be available to find a new key employee
IV. To ensure that the funds will be available to train the replacement of the key employee
Correct
Key employee insurance is insurance taken out on a certain valuable employee. This insurance is owned by the business, which is also considered the beneficiary. The premiums in a policy of this type are not deductible to the business. Death benefits acquired through a policy of this type are tax-free. Generally, key employee insurance is taken out in order to protect the business against the loss of business income and also to ensure that funds will be available to find and train a replacement for the key employee.
Incorrect
Key employee insurance is insurance taken out on a certain valuable employee. This insurance is owned by the business, which is also considered the beneficiary. The premiums in a policy of this type are not deductible to the business. Death benefits acquired through a policy of this type are tax-free. Generally, key employee insurance is taken out in order to protect the business against the loss of business income and also to ensure that funds will be available to find and train a replacement for the key employee.
Question 16 of 30
16. Question
What is the purpose of insurance?
I. To protect the existing assets
II. To protect the income
III. To minimise the liabilities
IV. To protect both the income and the assets
Correct
The purpose of insurance is threefold: to protect existing assets; to protect income, so that it will not be interrupted by loss; and to protect both income and assets in the case of liabilities or emergency needs.
Incorrect
The purpose of insurance is threefold: to protect existing assets; to protect income, so that it will not be interrupted by loss; and to protect both income and assets in the case of liabilities or emergency needs.
Question 17 of 30
17. Question
What does PPI stand for?
Correct
The Producer Price Index, known as the PPI, is calculated by the United States Department of Labor. It takes a slightly different look at the price of goods by measuring the wholesale cost of a certain set of goods over a determined period of time.
Incorrect
The Producer Price Index, known as the PPI, is calculated by the United States Department of Labor. It takes a slightly different look at the price of goods by measuring the wholesale cost of a certain set of goods over a determined period of time.
Question 18 of 30
18. Question
What do we calculate using statistics from the Bureau of Labor?
Correct
The Consumer Price Index is calculated using statistics from the Bureau of Labor. This index, commonly known as the CPI, measures the cost of a basket of goods and services over a set time period.
Incorrect
The Consumer Price Index is calculated using statistics from the Bureau of Labor. This index, commonly known as the CPI, measures the cost of a basket of goods and services over a set time period.
Question 19 of 30
19. Question
The portion of the premium that covers expenses, profit, and contingencies is called:
Correct
Loading is the portion of the premium that will cover expenses, profit, and margin for contingencies. Mortality and interest are used to calculate the net premium, which is combined with operating expenses to figure gross expenses.
Incorrect
Loading is the portion of the premium that will cover expenses, profit, and margin for contingencies. Mortality and interest are used to calculate the net premium, which is combined with operating expenses to figure gross expenses.
Question 20 of 30
20. Question
Identify the elements for the existence of a valid contract:
I. Offer and acceptance
II. Genuine assent
III. Capacity
IV. Inadequate consideration
Correct
In order for a valid contract to exist, there must be five elements: offer and acceptance, genuine assent, adequate consideration, capacity, and legality.
Incorrect
In order for a valid contract to exist, there must be five elements: offer and acceptance, genuine assent, adequate consideration, capacity, and legality.
Question 21 of 30
21. Question
Identify the types of Budget Expenses:
I. Committed Expenses
II. Discretionary Expenses
III. Flexible Expenses
IV. Non-discretionary Expenses
Correct
Budget expenses can be either discretionary or nondiscretionary: discretionary expenses can be changed or timed depending on convenience. Nondiscretionary (fixed) expenses can be changed somewhat, but must be paid at some time.
Incorrect
Budget expenses can be either discretionary or nondiscretionary: discretionary expenses can be changed or timed depending on convenience. Nondiscretionary (fixed) expenses can be changed somewhat, but must be paid at some time.
Question 22 of 30
22. Question
Select the different types of financial strategies:
I. Consolidation of credit card
II. Tapping into a company savings plan
III. Borrowing from friends
IV. Taking out home equity line of credit
Correct
People can use a number of financing strategies in personal budgeting. One common strategy is to consolidate credit card or student loan debt, so as to lock in a low interest rate. A person may also take a cash-out refinance, in which a first mortgage is renewed and additional cash is disbursed to the mortgager. People also often take out a home equity loan or home equity line of credit. Sometimes, an individual will use the cash value of a life insurance policy for a loan. Another common financing strategy is tapping into a company savings plan. Finally, individuals often use the after-tax money from a Roth IRA; this money can be taken out without any penalty or tax consequences.
Incorrect
People can use a number of financing strategies in personal budgeting. One common strategy is to consolidate credit card or student loan debt, so as to lock in a low interest rate. A person may also take a cash-out refinance, in which a first mortgage is renewed and additional cash is disbursed to the mortgager. People also often take out a home equity loan or home equity line of credit. Sometimes, an individual will use the cash value of a life insurance policy for a loan. Another common financing strategy is tapping into a company savings plan. Finally, individuals often use the after-tax money from a Roth IRA; this money can be taken out without any penalty or tax consequences.
Question 23 of 30
23. Question
Identify the leading economic indicators as compiled by National Bureau of Economic Research:
I. Stock prices
II. Average unemployment claims
III. Average employment earnings
IV. Average weekly work hours
Correct
The ten leading economic indicators (as compiled by the National Bureau of Economic Research) are: stock prices; average weekly work hours; average unemployment claims; manufacturer’s new consumer goods orders; manufacturers’ new orders for nondefense capital goods; vendor performance; new building permits; the difference in interest rates for ten-year Treasury bonds and the federal funds rate); inflation-adjusted M-2; and consumer expectations as measured by the University of Michigan Research Center.
Incorrect
The ten leading economic indicators (as compiled by the National Bureau of Economic Research) are: stock prices; average weekly work hours; average unemployment claims; manufacturer’s new consumer goods orders; manufacturers’ new orders for nondefense capital goods; vendor performance; new building permits; the difference in interest rates for ten-year Treasury bonds and the federal funds rate); inflation-adjusted M-2; and consumer expectations as measured by the University of Michigan Research Center.
Question 24 of 30
24. Question
What does CPI stand for?
Correct
The Consumer Price Index is calculated using statistics from the Bureau of Labor. This index, commonly known as the CPI, measures the cost of a basket of goods and services over a set time period. The Producer Price Index, known as the PPI, is calculated by the United States Department of Labor.
Incorrect
The Consumer Price Index is calculated using statistics from the Bureau of Labor. This index, commonly known as the CPI, measures the cost of a basket of goods and services over a set time period. The Producer Price Index, known as the PPI, is calculated by the United States Department of Labor.
Question 25 of 30
25. Question
Who can be selected as Fiduciary?
I. Someone who outlives the testator
II. Someone who has skills in legal and financial affairs
III. Someone who is familiar with testator
IV. Partial person with lack of integrity
Correct
When selecting a fiduciary, one should look for a person who will most likely outlive the testator, has skills in legal and financial affairs, is familiar with the testator, and is an impartial person with strong integrity.
Incorrect
When selecting a fiduciary, one should look for a person who will most likely outlive the testator, has skills in legal and financial affairs, is familiar with the testator, and is an impartial person with strong integrity.
Question 26 of 30
26. Question
In a contract, minimum how many people must be involved?
Correct
In contract law, the person to whom an offer is made is called the offeree; the person who makes the offer is called the offeror.
Incorrect
In contract law, the person to whom an offer is made is called the offeree; the person who makes the offer is called the offeror.
Question 27 of 30
27. Question
Identify the types of Variable outflows:
I. Monthly Auto Loans
II. Monthly Food Spending
III. Unpredictable Expenses
IV. Entertainment Expenses
Correct
Fixed outflows include such items as monthly auto loans, home mortgages, and property taxes. Variable outflows cover expenses such as monthly food spending, entertainment spending, and other unpredictable expenses.
Incorrect
Fixed outflows include such items as monthly auto loans, home mortgages, and property taxes. Variable outflows cover expenses such as monthly food spending, entertainment spending, and other unpredictable expenses.
Question 28 of 30
28. Question
What are the common taxes shown on the Income Statement?
I. Client’s Property Tax
II. Income Tax
III. Self-Employment Tax
IV. Service Tax
Correct
The most common taxes shown on the income statement are the client’s property taxes, income taxes, self-employment taxes (if any), and FICA taxes. The income statement is useful in helping illustrate to clients whether or not their lifestyle is within their means.
Incorrect
The most common taxes shown on the income statement are the client’s property taxes, income taxes, self-employment taxes (if any), and FICA taxes. The income statement is useful in helping illustrate to clients whether or not their lifestyle is within their means.
Question 29 of 30
29. Question
Basic elements of financial planning process are:
I. Analysing and evaluating the client’s financial status.
II. Implementing the financial planning recommendations.
III. Creating the financial statements.
IV. Monitoring the financial planning recommendations.
Correct
Personal financial planning process
The Code of Ethics and Professional Responsibility defines a number of terms that are essential to the practice of financial planning. The personal financial planning process, sometimes just known as the financial planning process, is the process that includes (but is not necessarily limited to) six basic elements: establishing and defining the client-planner relationship; gathering client data, objectives, and goals; analyzing and evaluating the client’s financial status; developing and presenting financial planning recommendations; implementing the financial planning recommendations; and, finally, monitoring the financial planning recommendations.
Incorrect
Personal financial planning process
The Code of Ethics and Professional Responsibility defines a number of terms that are essential to the practice of financial planning. The personal financial planning process, sometimes just known as the financial planning process, is the process that includes (but is not necessarily limited to) six basic elements: establishing and defining the client-planner relationship; gathering client data, objectives, and goals; analyzing and evaluating the client’s financial status; developing and presenting financial planning recommendations; implementing the financial planning recommendations; and, finally, monitoring the financial planning recommendations.
Question 30 of 30
30. Question
Which of the following principles directly asserts that financial planners should remain objective regarding the achievable goals for each client?
Correct
The seven principles are qualities that an ethical financial planner will cultivate. They are integrity, objectivity, competence, fairness, confidentiality, professionalism, and diligence. Though these principles in general have the well being of the client in mind, they do not assert that a financial planner should manipulate facts in order to please a potential client. On the contrary, the second principle, objectivity, directly asserts that financial planners should remain objective regarding the achievable goals for each client.
Incorrect
The seven principles are qualities that an ethical financial planner will cultivate. They are integrity, objectivity, competence, fairness, confidentiality, professionalism, and diligence. Though these principles in general have the well being of the client in mind, they do not assert that a financial planner should manipulate facts in order to please a potential client. On the contrary, the second principle, objectivity, directly asserts that financial planners should remain objective regarding the achievable goals for each client.
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