Certified Private Wealth Professional (CPWP) Module 2 Free Trial
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Question 1 of 30
1. 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 2 of 30
2. Question
What is a measure of absolute dispersions?
Correct
The coefficient of variation is a measure of relative dispersions (unlike standard deviation, which is the measure of absolute dispersions). The coefficient of variation can be calculated by dividing the standard deviation by the mean.
Incorrect
The coefficient of variation is a measure of relative dispersions (unlike standard deviation, which is the measure of absolute dispersions). The coefficient of variation can be calculated by dividing the standard deviation by the mean.
Question 3 of 30
3. Question
Identify the major composite performance measures:
I. Treynor Index
II. Sharpe Index
III. Jensen Index
IV. Jassy Index
Correct
The major composite performance measures are the Treynor index, the Sharpe index, and the Jensen index. These indices are used to see whether a given stock actually beat the market.
Incorrect
The major composite performance measures are the Treynor index, the Sharpe index, and the Jensen index. These indices are used to see whether a given stock actually beat the market.
Question 4 of 30
4. Question
Which ratio measures the performance of portfolio managers?
Correct
In the Jensen ratio, alpha (α) is used as an absolute measure of performance; specifically, it compares the performance of a managed portfolio with that of an unmanaged portfolio of equal risk. The Jensen ratio measures how much the realized return differs from the required return, and more generally it measures the performance of portfolio managers.
Incorrect
In the Jensen ratio, alpha (α) is used as an absolute measure of performance; specifically, it compares the performance of a managed portfolio with that of an unmanaged portfolio of equal risk. The Jensen ratio measures how much the realized return differs from the required return, and more generally it measures the performance of portfolio managers.
Question 5 of 30
5. Question
Identify the process wherein securities are purchased over a period of time through periodic investments at a predetermined amount:
Correct
Dollar cost averaging is the process wherein securities are purchased over a period of time through periodic investments at a predetermined amount. This is done to reduce risks caused by changes in the market.
Incorrect
Dollar cost averaging is the process wherein securities are purchased over a period of time through periodic investments at a predetermined amount. This is done to reduce risks caused by changes in the market.
Question 6 of 30
6. Question
Identify the types of swaps:
I. Substitution swap
II. Intermarket spread swap
III. Pure yield pick-up swap
IV. Intra-market spread swap
Correct
In a substitution swap, bonds with virtually identical characteristics but different yields are swapped. When the difference in yields between the bonds is huge, it is called an intermarket spread swap. When a low-yield bond is sold and a high-yield bond is purchased (typically because it has a longer maturity), it is known as a pure-yield pickup swap. A swap that is designed to handle an expected interest rate change is called a rate anticipation swap. When an investor seeks to lock into a loss, he or she may execute a tax swap, selling a bond only to then buy a similar bond.
Incorrect
In a substitution swap, bonds with virtually identical characteristics but different yields are swapped. When the difference in yields between the bonds is huge, it is called an intermarket spread swap. When a low-yield bond is sold and a high-yield bond is purchased (typically because it has a longer maturity), it is known as a pure-yield pickup swap. A swap that is designed to handle an expected interest rate change is called a rate anticipation swap. When an investor seeks to lock into a loss, he or she may execute a tax swap, selling a bond only to then buy a similar bond.
Question 7 of 30
7. Question
Time deposits with specified dates of maturity are called?
Correct
Certificates of deposit, also known as CDs, are time deposits with specified dates of maturity. A certificate of deposit may be either negotiable or nonnegotiable.
Incorrect
Certificates of deposit, also known as CDs, are time deposits with specified dates of maturity. A certificate of deposit may be either negotiable or nonnegotiable.
Question 8 of 30
8. Question
The interest acquired through the US Treasury bills is subjected to which type of tax?
Correct
US Treasury bills are issued by the federal government and are sold in denominations of $1,000 to $1,000,000 and have maturity periods of three to twelve months. These treasury bills are usually sold at a discount. The interest acquired through them is subject to federal income tax, but not state or local tax.
Incorrect
US Treasury bills are issued by the federal government and are sold in denominations of $1,000 to $1,000,000 and have maturity periods of three to twelve months. These treasury bills are usually sold at a discount. The interest acquired through them is subject to federal income tax, but not state or local tax.
Question 9 of 30
9. Question
Identify the short term investment vehicles:
I. Treasury notes
II. Commercial paper
III. Certificate of deposits
IV. Treasury Bills
Correct
Treasury notes are sold in denominations ranging from $1,000 to $1,000,000 and have maturity periods of between 2 and ten years. Treasury bonds are the government’s long-term debt; they have maturity periods longer than ten years.
Incorrect
Treasury notes are sold in denominations ranging from $1,000 to $1,000,000 and have maturity periods of between 2 and ten years. Treasury bonds are the government’s long-term debt; they have maturity periods longer than ten years.
Question 10 of 30
10. Question
How is the intrinsic value of the call option calculated?
Correct
The intrinsic value of an option is defined as the minimum price for which it can be bought. The intrinsic value of a call option is calculated as stock price less strike price; the intrinsic value of put options is calculated as strike price less stock price.
Incorrect
The intrinsic value of an option is defined as the minimum price for which it can be bought. The intrinsic value of a call option is calculated as stock price less strike price; the intrinsic value of put options is calculated as strike price less stock price.
Question 11 of 30
11. Question
Identify the types of REITs:
I. Equity REITs
II. Hybrid REITs
III. Secured REITs
IV. Mortgage REITs
Correct
There are three basic types of REITs: equity REITs, which acquire ownership interests in commercial, industrial, and residential properties; mortgage REITs, which lend the funds for construction and mortgages; and hybrid REITs, which are a combination of the other two types.
Incorrect
There are three basic types of REITs: equity REITs, which acquire ownership interests in commercial, industrial, and residential properties; mortgage REITs, which lend the funds for construction and mortgages; and hybrid REITs, which are a combination of the other two types.
Question 12 of 30
12. Question
The risk in which the changes in government, restrictions imposed on foreign exchange flows, and environmental and other regulations may expose a firm to unforeseen costs is known as:
Correct
Political risk, which is also known as regulatory or country risk, is the chance that changes in government, restrictions imposed on foreign exchange flows, and/or environmental and other regulations may expose a firm to unforeseen costs.
Incorrect
Political risk, which is also known as regulatory or country risk, is the chance that changes in government, restrictions imposed on foreign exchange flows, and/or environmental and other regulations may expose a firm to unforeseen costs.
Question 13 of 30
13. Question
Who purchases the liability insurance on behalf of directors and officers?
Correct
Directors and officers liability insurance is purchased by a corporation on behalf of the officers and directors; it protects these people from lawsuits that may be brought by stockholders, creditors, competitors, and governments.
Incorrect
Directors and officers liability insurance is purchased by a corporation on behalf of the officers and directors; it protects these people from lawsuits that may be brought by stockholders, creditors, competitors, and governments.
Question 14 of 30
14. Question
Identify the plan which is the combination of preferred provider organisation and health maintenance organisation:
Correct
A point-of-service plan is a hybrid of the HMO and the PPO: these resemble HMOs for network services and PPOs for non-network services. Point-of-service plans may be either open-ended HMOs, in which is the insured has the option to visit doctors outside the network, or gatekeeper PPOs, in which the customer selects a primary care physician who is responsible for determining whether the customer needs to go outside the network for care.
Incorrect
A point-of-service plan is a hybrid of the HMO and the PPO: these resemble HMOs for network services and PPOs for non-network services. Point-of-service plans may be either open-ended HMOs, in which is the insured has the option to visit doctors outside the network, or gatekeeper PPOs, in which the customer selects a primary care physician who is responsible for determining whether the customer needs to go outside the network for care.
Question 15 of 30
15. Question
Identify the types of inabilities in disability income insurance:
I. The inability to engage in one’s own occupation.
II. The inability to engage in any occupation.
III. The inability to engage in an occupation for which one has been trained or educated.
IV. The inability due to an injury that is not debilitating.
Correct
There are four types of disability in current policies: the inability to engage in one’s own occupation; the inability to engage in an occupation for which one has been trained or educated; the inability to engage in any occupation; and a reduction in income due to disability.
Incorrect
There are four types of disability in current policies: the inability to engage in one’s own occupation; the inability to engage in an occupation for which one has been trained or educated; the inability to engage in any occupation; and a reduction in income due to disability.
Question 16 of 30
16. Question
What are the benefits an individual must receive under the long term care insurance policy?
I. Outline of coverage
II. Shopper’s guide
III. Free 30 day period to examine the policy
IV. Claim for each year
Correct
An applicant for a long-term care insurance policy must receive an outline of coverage, a shopper’s guide, and a free 30-day period to examine the policy. The insurer must provide accurate comparisons with competing policies. The insurer must also ask clear questions when evaluating the applicant’s health.
Incorrect
An applicant for a long-term care insurance policy must receive an outline of coverage, a shopper’s guide, and a free 30-day period to examine the policy. The insurer must provide accurate comparisons with competing policies. The insurer must also ask clear questions when evaluating the applicant’s health.
Question 17 of 30
17. Question
Under what situations a policy owner can change the policy?
I. If one has quit smoking
II. If the policy is performing well
III. If the policy is in financial trouble
IV. If one wants to replace a short-term policy with long-term policy
Correct
A policy owner may wish to terminate or change a policy for a number of reasons. This is often done if the insurance company that issued the policy is in financial trouble, or if the policy is performing poorly. One may want to replace a policy if one has quit smoking and is now eligible for a better premium. Sometimes, people replace a short-term policy with a long-term policy if they feel they can reduce cost.
Incorrect
A policy owner may wish to terminate or change a policy for a number of reasons. This is often done if the insurance company that issued the policy is in financial trouble, or if the policy is performing poorly. One may want to replace a policy if one has quit smoking and is now eligible for a better premium. Sometimes, people replace a short-term policy with a long-term policy if they feel they can reduce cost.
Question 18 of 30
18. Question
What does the yield graph show?
I. Yield graph shows the relationship between the interest rates and time
II. Yield graph shows the relationship between demand and supply
III. Yield graph shows the relationship between the price and demand
IV. Yield graph shows the relationship between the term to maturity and yield to maturity
Correct
A yield curve is a graph that shows the relationship between term to maturity and yield to maturity. A yield curve will show the relationship between interest rates and time, typically as relating to government Treasury securities.
Incorrect
A yield curve is a graph that shows the relationship between term to maturity and yield to maturity. A yield curve will show the relationship between interest rates and time, typically as relating to government Treasury securities.
Question 19 of 30
19. Question
In which phase of life cycle, people are willing to accept high risk ventures in return of high returns?
Correct
The accumulation phase is typically the client’s first forty years, during which he or she wants to earn funds to help his or her family avert financial disaster; save money for homes, automobiles, and college; and develop some assets for long-term security. Individuals in the accumulation phase usually are willing to accept some high-risk investments if there is the promise of above-average return.
Incorrect
The accumulation phase is typically the client’s first forty years, during which he or she wants to earn funds to help his or her family avert financial disaster; save money for homes, automobiles, and college; and develop some assets for long-term security. Individuals in the accumulation phase usually are willing to accept some high-risk investments if there is the promise of above-average return.
Question 20 of 30
20. Question
Name the system by which securities orders are matched to bypass the need for a third party.
Correct
An electronic communication network, or ECN, is a system by which securities orders are matched to bypass the need for a third party. The matching is performed electronically, and allows buyers and sellers of securities to communicate directly without the need for a third party to facilitate their trading. ECNs must register with the Securities and Exchange Commission (SEC) as a broker/dealer, and collect a fee for their services.
Incorrect
An electronic communication network, or ECN, is a system by which securities orders are matched to bypass the need for a third party. The matching is performed electronically, and allows buyers and sellers of securities to communicate directly without the need for a third party to facilitate their trading. ECNs must register with the Securities and Exchange Commission (SEC) as a broker/dealer, and collect a fee for their services.
Question 21 of 30
21. Question
What should be the clients total monthly payment on all debts?
Correct
Consumer debt should never be greater than 20% of income. The monthly payments on a home should be no more than 28% of the owner’s gross income. The total monthly payment on all debts should never be more than 38% of gross monthly income.
Incorrect
Consumer debt should never be greater than 20% of income. The monthly payments on a home should be no more than 28% of the owner’s gross income. The total monthly payment on all debts should never be more than 38% of gross monthly income.
Question 22 of 30
22. Question
What are the types of debt that a financial planner will need to address?
I. Twenty day accounts
II. Revolving and optional charge accounts
III. Instalment purchases or time payment plans
IV. Regular charge accounts
Correct
There are three main varieties of consumer debt: thirty-day or regular charge accounts; revolving and optional charge accounts; and installment purchases or time-payment plans.
Incorrect
There are three main varieties of consumer debt: thirty-day or regular charge accounts; revolving and optional charge accounts; and installment purchases or time-payment plans.
Question 23 of 30
23. Question
The rate at which the population dies is called:
Correct
Mortality is the rate at which a population dies, while morbidity is the likelihood of disability. Insurance companies use the mortality and morbidity rates of certain populations to set insurance rates.
Incorrect
Mortality is the rate at which a population dies, while morbidity is the likelihood of disability. Insurance companies use the mortality and morbidity rates of certain populations to set insurance rates.
Question 24 of 30
24. Question
Which insurance covers the dwelling and other structures on a replacement cost basis?
Correct
Homeowners insurance covers the dwelling and other structures on a replacement cost basis. This means that if the amount of insurance coverage is at least 80%, the loss will be paid without deduction for depreciation, and not on an actual cash basis, in which the payment is the replacement cost minus depreciation. If the amount of insurance is less than 80% of the replacement cost, the company will pay either the actual cash value or the proportion of the replacement cost of the loss that the amount of insurance bears to 80% of the replacement cost value of the building, whichever is larger.
Incorrect
Homeowners insurance covers the dwelling and other structures on a replacement cost basis. This means that if the amount of insurance coverage is at least 80%, the loss will be paid without deduction for depreciation, and not on an actual cash basis, in which the payment is the replacement cost minus depreciation. If the amount of insurance is less than 80% of the replacement cost, the company will pay either the actual cash value or the proportion of the replacement cost of the loss that the amount of insurance bears to 80% of the replacement cost value of the building, whichever is larger.
Question 25 of 30
25. Question
Identify certain substitutes for liquidity:
I. Life insurance policy
II. Savings account
III. Home equity loans
IV. Real estate
Correct
Some liquidity substitutes are checking and savings accounts, money market accounts, CDs, life insurance policies, US Treasury bills, and home equity loans.
Incorrect
Some liquidity substitutes are checking and savings accounts, money market accounts, CDs, life insurance policies, US Treasury bills, and home equity loans.
Question 26 of 30
26. Question
Identify the factors that are favourable for buying a home:
Correct
There are a few factors consumers should consider before deciding whether to buy or lease a home. Most of the time, people will lease (or rent) when they do not have the requisite funds to make a down payment. Purchasing a home creates a number of tax advantages for the buyer. In addition, creditors tend to give better treatment to homeowners. A purchased home may become an appreciating asset for the owner.
Incorrect
There are a few factors consumers should consider before deciding whether to buy or lease a home. Most of the time, people will lease (or rent) when they do not have the requisite funds to make a down payment. Purchasing a home creates a number of tax advantages for the buyer. In addition, creditors tend to give better treatment to homeowners. A purchased home may become an appreciating asset for the owner.
Question 27 of 30
27. Question
What are the available options for the division of business and/or house in case of divorce settlement?
I. One spouse may keep the house or business by buying out the other’s interest
II. The business/home may be kept sealed without any proceedings
III. Both spouses may continue to own the business/home
IV. The business/home may be sold and the proceeds can be divided
Correct
There are three available options when dividing a business and/or house: one spouse may keep the house or business by buying out the other’s interest; both spouses may continue to own the business/home; or the business/home may be sold and the proceeds divided.
Incorrect
There are three available options when dividing a business and/or house: one spouse may keep the house or business by buying out the other’s interest; both spouses may continue to own the business/home; or the business/home may be sold and the proceeds divided.
Question 28 of 30
28. Question
Name the programme that helps the individuals who want to work but cannot.
Correct
Most people should maintain an emergency fund with enough to cover between three and six months of expenses in case of job loss. Although there are state unemployment insurance programs that will help individuals who want to work but cannot, these funds are limited and subject to many restrictions.
Incorrect
Most people should maintain an emergency fund with enough to cover between three and six months of expenses in case of job loss. Although there are state unemployment insurance programs that will help individuals who want to work but cannot, these funds are limited and subject to many restrictions.
Question 29 of 30
29. Question
How does the demand curve show in case of perfect price elasticity?
Correct
Price elasticity exists when a small change in price results in a large change in sales. When perfect elasticity exists, the demand curve is exactly horizontal. Price inelasticity, on the other hand, exists when a large price change produces only a small change in sales. A vertical demand curve indicates perfect price inelasticity.
Incorrect
Price elasticity exists when a small change in price results in a large change in sales. When perfect elasticity exists, the demand curve is exactly horizontal. Price inelasticity, on the other hand, exists when a large price change produces only a small change in sales. A vertical demand curve indicates perfect price inelasticity.
Question 30 of 30
30. Question
Identify the factors that can cause the movement along the supply curve:
I. Changes in technology
II. Changes in resource prices
III. Natural disasters
IV. Changes in the price of substitute goods
Correct
Factors that can cause movement along the supply curve include changes in resource prices, changes in technology, natural disasters, or other disruptive events.
Incorrect
Factors that can cause movement along the supply curve include changes in resource prices, changes in technology, natural disasters, or other disruptive events.
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