Pass the AAFM Chartered Wealth Manager CWM_LEVEL_2 Questions and answers with ExamsMirror

Section C (4 Mark)

KB, a household product manufacturer, reported earnings per share of Rs3.20 in 1993, and paid dividends per share of Rs1.70 in that year. The firm reported depreciation of Rs315 million in 1993, and capital expenditures of Rs475 million. (There were 160 million shares outstanding, trading at Rs51 per share.) This ratio of capital expenditures to depreciation is expected to be maintained in the long term. The working capital needs are negligible. KB had debt outstanding of Rs1.6 billion, and intends to maintain its current financing mix (of debt and equity) to finance future investment needs. The firm is in steady state and earnings are expected to grow 7% a year. The stock had a beta of 1.05. (The Risk Free Rate is 6.25%.)

Estimate the value per share, using the FCFE Model.

Section A (1 Mark)

One of the tax exemption under avoidance of Double Taxation is U/S Sec 10(6)(ii) for exemption on income received by the diplomats, ambassador, etc

Section B (2 Mark)

Basic Idea of retirement benefit plan is

Section A (1 Mark)

An aggressive asset allocation would contain larger proportions of __________ than a conservative allocation.

Section B (2 Mark)

A January month Nifty Futures contract will expire on the last _____ of January

Section B (2 Mark)

In a collateralized mortgage obligation (CMO) a tranche:

Section A (1 Mark)

When deciding under uncertainty, which of the following generally accepted guidelines that a decision maker should follow:

Section B (2 Mark)

Amit has just received new information regarding his investment in PLC ltd. The new information appears to be in conflict with earlier forecast of what the stock price should be at this point. He is still willing to incorporate the new information into his forecast and to revise it accordingly.

Which behavioral heuristic is Amit displaying?

Section B (2 Mark)

A property has 120 rooms and each room has a monthly rent of Rs.750. The occupancy rate throughout the year is 80% and maintenance expenses per year works out to be Rs.3,00,000. Capitalization rate is 12%. Calculate the value of the property.

Section A (1 Mark)

In US which of the following is classified as passive income?

Section A (1 Mark)

_____________ is defined as fairness in spending in US.

Section A (1 Mark)

Investments that are difficult to convert to cash are said to have _________

Section A (1 Mark)

Response of listening falls under which one of the following categories?

Section A (1 Mark)

Which of the following is/are correct?

Section A (1 Mark)

Which of the following is allowed as deduction from net annual value of a property?

Section A (1 Mark)

As per presumptive income scheme under section 44AE, the presumed income shall be:

Section A (1 Mark)

Which of the following services are related to the field of Real Estate?

Section B (2 Mark)

The favorable difference received by buyer/holder on the exercise/expiry date, between the final settlement price as and the strike price, will be recognized as ___________

Section B (2 Mark)

Resident but not ordinary resident (RNOR) is ____________ on Indian Income and ___________ on Foreign Income.

Section B (2 Mark)

A Family consists of karta, his wife four sons and their wires and children and its income is Rs. 1000000 if by family arrangement income yield property is settled on karta his wife and sons & daughter in law than tax liability would be

Section B (2 Mark)

Which of the following Biases are exhibited by Passive Preserver?

Section A (1 Mark)

An American call option can be exercised

Section A (1 Mark)

If POA in respect of in moveable property of value more than ………………….it must be registered

Section B (2 Mark)

Differences between hedge funds and mutual funds are that

Section A (1 Mark)

A bank is considering making a loan to Sandeep Hunjan. Sandeep owns his own home and has lived there for the past four years. What aspect of evaluating a consumer loan application is this fact most concerned with?

Section C (4 Mark)

Personal Data

Financial Data

Shanker and Parvati Pandey have the following assets at fair market value (FMV):

Their simplified income statement is presented as follows:

They have no liabilities and no company-sponsored retirement plans.

They have no wills and they live in a non-community property state.

Shankers’ parents can meet all current expenses from current cash flow but have very limited reserve funds

Other Relevant Data

●They are inexperienced investors, but they are willing to take reasonable and normal investment risk if appropriate, but they do not wish to invest aggressively.

●Both Shanker and Parvati have purchased term life insurance policies with Rs. 250,000 death benefit on each; they own their own policies, and Ganesh is the contingent beneficiary on both policies.

●Shanker is the primary beneficiary of Parvati’s single premium deferred annuity; Ganesh is the contingent beneficiary.

●You have found their disability insurance inadequate. The Pandey have indicated they could fit your proposed Rs. 3500 annual premium for an adequate policy into their living expenses.

●You have reviewed their auto, homeowner’s, liability, and life insurance and found their policies adequate. Shanker and Parvati are responsible for their medical expenses.

●Ganesh is an intelligent high school student who earns scholarship of Rs. 2,000 annually and has a Rs. 500 in savings account.

●The “cash” is invested in a variety of money market funds and insured savings accounts.

●They do not plan additional children and they have no other dependents.

●The Pandey currently can save Rs. 5,000 per year out of current salary and can continue to do so (in inflation-adjusted Rupees) until they retire in 20 years. This savings rate assumes that all planned asset acquisition and replacements are paid out of income before savings (except the three goals as per below.

Goals (in order of priority)

1.College education for Ganesh. They expect to spend a total of Rs. 5,00,000 (Present value) for his entire education.

2.Retirement in 20 years which maximizes their standard of living at retirement.

3.Parvati and Shanker plan to take 6 months off from work (“sabbatical”) in 4 years for travel and research and to spend Rs. 1,50,000.

Economic Environment

The economy has been in a period of modest economic growth for about 2 years. Inflation, as measured by the CPI, was at a 4.9% annual rate over the last year. Ninety-day T-bill rates are currently 6%, while the yield to maturity on 20-year government bonds is 7.5%. Most forecasts call for little change in these conditions over the short and long term.

Assumptions provided by Wealth Manager

Section C (4 Mark)

Suppose that an investor makes an investment in Stock ABC and that over the next 12 months ABC appreciates by 10 percent. He then thinks of selling ABC for normal portfolio rebalancing purposes, but then come across an item in the, The Economic Times that sparks new optimism: Could ABC climb even higher?

Which answer describes the likeliest response from an investor with regard to exhibiting Regret Aversion Bias, given ABC’s recent performance and this new information?

Section B (2 Mark)

Which of the following two outcomes is an example of Status Quo Bias:

Section C (4 Mark)

Read the senario and answer to the question.

What amount he would have piled up at the end of the 20 years if it earns 8.5% compounded interest and discontinues making deposits after 9th deposit?

Section A (1 Mark)

The steps to establishing an investment policy are to state the

Section C (4 Mark)

Read the senario and answer to the question.

What is the Basic Liquidity Ratio for the couple? Is it sufficient considering Vinay’s circumstances?

Section A (1 Mark)

Wealth Erosion can happen due to _______

Section A (1 Mark)

Accumulation, preservation and distribution are stages of

Section A (1 Mark)

Depending on how questions are asked, ___________ can cause investors to communicate responses to questions about risk tolerance that are either unduly conservative or unduly aggressive.

Section C (4 Mark)

Ms. Sonali Briganza is 22 years old. She is currently earning a salary of Rs.5,00,000/- per annum and saves 20% of her salary every year. If her salary increases by 10% every year and she is able to get a return of 11% p.a. compounded annually throughout her investment horizon what would be the corpus of funds available at her age 58.

Section C (4 Mark)

The current dividend on an equity share of Bharat Limited is Rs.8.00 on earnings per share of Rs. 30.00. Assume that the dividend per share will grow at the rate of 20 percent per year for the next 5 years. Thereafter, the growth rate is expected to fall and stabilize at 12 percent. Investors require a return of 15 percent from Bharat’s equity shares. What is the intrinsic value of Bharat’s equity share?

Section A (1 Mark)

Forecasting errors are potentially important because

Section A (1 Mark)

Marketing relationships are:

Section A (1 Mark)

Hedge funds often seek to take advantage of market inefficiencies such as:

Section A (1 Mark)

Which type of portfolio allocation is usually done once every few years?

Section B (2 Mark)

As per article 12 Double Taxation Avoidance Agreement with Singapore, Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed__________ per cent.

Section C (4 Mark)

Vinod has a investment portfolio of Rs. 100000, a floor of Rs. 75000, and a multiplier of 2. So the initial portfolio mix is 50000 in stocks and 50000 in bonds. If stock market falls by 20%, what should Vinod do assuming he is following a CPPI policy?

Section B (2 Mark)

R acquired shares of G Ltd, on 15/12/1998 for Rs. 5 lakh which were sold on 15/5/2011 for Rs. 18.50 lakh. Expenses of transfer were Rs. 20,000/-. He invests Rs. 6 lakh in the bonds of NHAI on 16/10/2011. Compute the capital gain for the assessment year 2012-13.

Section A (1 Mark)

Liquid assets comprise

Section B (2 Mark)

Which of the following statements concerning index funds and actively managed funds is true?

Section A (1 Mark)

Quicker attention and resolution of complaints lead to ________

Section A (1 Mark)

Which of the following is not a broad category of Alpha drivers?

Section A (1 Mark)

H Ltd, a UK resident company, owns 100% of the share capital of two other UK companies and 80% of the share capital of T SA, a company resident in Italy.H Ltd has three associated companies.

Section A (1 Mark)

Which of the following is NOT a major consideration in the asset allocation process?

Section A (1 Mark)

An appealing feature of options on futures contracts is that: