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

Section B (2 Mark)

The Wilson Corporation has the following relationships:

What is Wilson’s profit margin and debt ratio?

Section B (2 Mark)

Behavioral finance argues that ____________.

Section A (1 Mark)

To ensure compliance under this method of lending, the current ratio of the concern should not be less that _________

Section B (2 Mark)

The assumptions concerning the shape of utility functions of investors differ between conventional theory and prospect theory. Conventional theory assumes that utility functions are __________ whereas prospect theory assumes that utility functions are __________.

Section C (4 Mark)

Read the senario and answer to the question.

Assume Reena retires at the age of 60 years and invests her salary at 8% p.a.What will be the future value of Reena’s salary at the time of her retirement if she saves her entire salary?

Section C (4 Mark)

Dyder System is a full-service truck leasing, maintenance, and rental firm. The following are selected numbers from the financial statements for 1992 and 1993 (in millions).

The firm had capital expenditures of Rs800 million in 1992 and Rs850 million in 1993. The working capital in 1991 was Rs34.8 million, and the total debt outstanding in 1991 was Rs1.75 billion. There were 77 million shares outstanding, trading at Rs29 per share.

Estimate the cash flows to the firm in 1992 and 1993(in Rs Millions)

Section B (2 Mark)

Lucy purchased a rental house a few years ago for $100,000. Total depreciation to date is $35,000. In the current year, she sells the house for $155,000 and pays $10,000 selling expenses. Calculate Lucy's gain on the sale.

Section C (4 Mark)

Read the senario and answer to the question.

Calculate the Net Worth of Mr. Adhikari as on 31/03/2009.

Section C (4 Mark)

The required rate of return on an investment is 12%, you estimate that a firm X’s dividend will grow as follows:

For the subsequent years you expect the dividend to grow at the more modest rate of 7% annually. What is the maximum price that you should pay for this stock?

Section A (1 Mark)

The risk that occurs when the index used for determination of interest earned on the CDO trust collateral is different from the index used to calculate the interest to be paid on the CDO trust is known as______________.

Section C (4 Mark)

Which of the following statements is/are correct?

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 B (2 Mark)

Calculate the value at which an office building can be priced from the following information:

A similar building has 8% capitalization rates.

Section B (2 Mark)

Which of the following is closest to the forward price of a share price if

Dividend expected is 6%?

Section B (2 Mark)

Consider a one-year maturity call option and a one-year put option on the same stock, both with striking price Rs45. If the risk-free rate is 4%, the stock price is Rs48, and the put sells for Rs1.50, what should be the price of the call?

Section B (2 Mark)

Lalit wants to sell a property for Rs.20 lakhs. He is earning rent from tenant Rs.2,15,000. He is spending following amounts annually on that property

The value of the property would be:

Section B (2 Mark)

Narayan expects to receive Rs 25000 in net receipts each year for five year and to sell the property for Rs 350,000 at the end of the five-year period, if Narayan expects a 15% return, what would be the value of the property?

Section A (1 Mark)

In case of Credit Assessment, if the lender accepts the application and takes it forward towards acceptance provided it passes through the risk assessment criterion, then the Credit Score Band of the borrower would be:

Section A (1 Mark)

All of the following are examples of excise taxes except:

Section C (4 Mark)

Mr. Vinay, aged 36 years is working in a company, at a managerial level, and has an income of Rs. 40,000 p.m. comprising of Basic salary and DA as on 31/03/2008. His other allowances amount to Rs. 18,000 p.m. He would retire at the age of 60 years. His wife Reena, aged 32 years, is working in a High School and has a post-tax income of Rs. 2,76,000 per annum. Mr. and Mrs. Vinay have two daughter Deepika, aged 10 years and Rekha, aged 5 years.

Mr. Vinay’s father died of heart attack, 5 months back, at the age of 72 years, leaving a house (Value as on date Rs. 30 lakh) in which Vinay is staying at present and other assets worth Rs. 20 lakh (shares of large cap companies worth Rs. 10 lakh, Fixed deposit in post office of Rs. 5 lakh and Bank FD of Rs. 5 lakh) in Vinay’s mother’s name. His mother 63 years old is disabled and fully dependent on Vinay, he being the only child of his parents. Vinay has to keep an attendant for his mother, round the clock.

The Assets of the Couple are:

1.Cash in HandRs. 18,000

2.Bank balanceRs. 40,000 (Vinay) Rs. 25,000 (Reena)

3.JewelleryRs. 400000 (Reena)

4.Money Market Mutual FundRs. 3,00,000 (Vinay)

5.Shares

?ICICI Bank 200 shares bought at Rs. 1000 per share,

?Infosys 150 shares bought at Rs. 1700 per share

?Reliance Communication 350 shares bought at Rs. 350 share.

6.Debt oriented mutual FundsRs. 2,00,000

7.PPFRs. 5,00,000 (Vinay), Rs. 4,00,000 (Reena)

8.House in the joint name of Vinay and Reena with 50% ownership of each. This house has two floors and is let out for Rs. 9,000 pm for each of the floors. Present value of this house is Rs. 60,00,000.

Vinay and Reena had taken a housing loan of Rs. 15,00,000 each. Of this Rs. 10,00,000 is pending on each name. They are presently paying an EMI of Rs. 20,000 each, Rate of interest being 10.75% p.a.

The Retirement Benefits of Vinay after 15 years hence, are expected to be as follows:

Vinay has taken a term insurance of Rs. 30 lakh for 20 years, which is expiring 5 years from now. He has no other insurance. Vinay’s monthly household/ living expenses are Rs. 50,000. This excludes EMI on loans but includes all other expenses including expenses on his mother’s care.

Vinay expects Deepika to get married 12 years hence for which likely expenditures in today’s term is 15 lakh.

Vinay’s salary is likely to grow at 7% pa and Reena’s salary is likely to grow at 6% p.a. Risk free rate of interest is 8% pa and inflation is 6% p.a. Long term growth on Equity/Equity based MF is taken as 15% p.a.

Section A (1 Mark)

Fiscal termites are factors that threaten the integrity of tax systems, and most of which relate to the internationalization of tax. These are:

Section B (2 Mark)

Investors will choose investments that resonate with their own personality or that have characteristics that investors can relate to their own behavior. Taking the opposite view, investors ignore potentially good investments because they can’t relate to or do not come in contact with characteristics of those investments. For example, thrifty people may not relate to expensive stocks (high price/earnings multiples) and potentially miss out on the benefits of owning these stocks.

Which of the following Availability Bias have been exhibited in the case above?

Section A (1 Mark)

The CDO structures which are used by asset management companies, insurance companies and other investment shops with the intent of exploiting a mismatch between the yield of underlying securities and lower cost of servicing the CDO structures are called___________.

Section B (2 Mark)

A stock with a Beta of 0.7 currently priced at Rs 50 is expected to increase in price to Rs 55 by year end and pay Rs 1 as dividend. The expected market return is 15% and the risk free rate is 8%. The stock is:

Section A (1 Mark)

____________refers to the tendency of people to think of currency in nominal, rather than real terms

Section A (1 Mark)

Comprehensive Wealth Management addresses

Section B (2 Mark)

The ____________ provides an unequivocal statement on the expected return-beta relationship for all assets, whereas the _____________ implies that this relationship holds for all but perhaps a small number of securities.

Section A (1 Mark)

A ____________________ tax system takes the same percentage of each person's income, regardless of whether the income is high, medium, or low.

Section B (2 Mark)

Suppose you have some money to invest and you hear about a great stock tip from your neighbor who is known to have a good stock market sense. He recommends you purchase shares in Petrolite, a company that makes a new kind of lighter fluid for charcoal grills.

What is your response to this situation if you exhibit Availability bias?

Section B (2 Mark)

Consider the single factor APT. Portfolio A has a beta of 0.2 and an expected return of 13%. Portfolio B has a beta of 0.4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio _________ and a long position in portfolio _________.

Section C (4 Mark)

Read the senario and answer to the question.

Mr. Bhatia owns a Maruti Wagonr with a monthly EMI of Rs. 6,312. The above loan will be completely repaid by August 2008. Mr. Bhatia planning to purchase a new car worth of Rs. 15 lakh. For this he has to take a full value loan of the car with 9% interest for 5 years. But his present car is in good condition and life of this car is approximately another 5 years repairs and maintenance cost are minimum. If he postpones his car purchasing plan now and deposit the same EMI outflow required for new car into an SIP with a minimum 15% yield for the next five years, then calculate the fund he can accumulate?

Section A (1 Mark)

A person saves Rs. 5,000/- every quarter for 9 years @ 15 % per annum compounded Quarterly. What amount would he be having after 9 years ?

Section A (1 Mark)

____________is the reasonably probable and legal use of vacant land or an improved property that is physically possible, legally permissible, appropriately supported, financially feasible, and that results in the highest value.

Section A (1 Mark)

The slope of the CML is the:

Section B (2 Mark)

Which of the above statements is/are correct?

Section B (2 Mark)

Which of the following statements is/are true?

Section B (2 Mark)

Which of the following activities is/are a part of “Building the CRM project foundation phase “in CRM implementation?

Section A (1 Mark)

A bank is considering making a loan to Neil Garg. Neil has bounced three cheques in the last year and already has Rs 1,00,000 on a credit card and an automobile loan with a large balance. What aspect of evaluating a consumer loan application is this fact concerned with?

Section B (2 Mark)

If a stock GHI ltd pays an annual dividend of Rs. 5 and plans to follow this policy for ever, then what would be the ate of return that investor would realize given the current market price of stock is 100?

Section B (2 Mark)

Manav invests Rs. 500/- every 6 months towards a fund to pay for his children education. If the investment pays ROI @ 9 % per annum, compounded Semi Annually, then what will be the corpus after 10 years ?

Section A (1 Mark)

The cost which the Wealth management firms would generally not be able to fully absorb the revenue shock in the near future is known as Sticky Cost.

Section A (1 Mark)

Growth stocks typically have high:

Section C (4 Mark)

Read the senario and answer to the question.

If Mahesh has the option of 3 funds whose details are as below, find Jensen’s index for fund A, Treynor index for fund B and Sharpe index for the market

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 A (1 Mark)

Teena Dutta wants to buy a used car and wants a loan that she will pay off over the next three years with monthly payments. What type of loan does Teena want?

Section A (1 Mark)

Long-term cash flow improvement may not be achieved by

Section A (1 Mark)

General Insurance business was established in India in

Section C (4 Mark)

Mr. Bhatia, aged 43 is practicing as a Doctor at Nasik. His wife Mrs. Bhatia is a social worker. They reside in a flat they own along with their daughter Neena aged 9. Mr. Bhatia’s elder sister is residing in Canada whom he has not met since last 5 years. His another elder sister resides in USA whom he has not met since last 8 years. Mr. Bhatia will continue active practice upto the age of 75. Looking at the history of his family life expectancies, Mr. Bhatia believes he would survive upto 85. His gross monthly income currently is Rs. 1, 45,000. Their monthly expenses are Rs. 25,000/-(including Personal expenses Rs. 5000) and they save about Rs. 35,000/- every month. Mr. Bhatia has total assets of Rs. 38.25 lacs and total outstanding liability for Medical Equipment and car of Rs. 12.45 lacs, which gives Mr. Bhatia net worth of Rs. 25.80 lacs estimated as on March 2008. His current investments are as follows:

Mr. Bhatia is a moderate risk taker and minimizes his tax through various schemes. He has a minimal exposure to equity instruments, as substantial portion of his investments is locked in Debt instruments. But he is aware of the fact that capital growth without investing in direct equity or equity mutual funds is difficult. In the current scenario, the economy is positive, with a growth of more than 9% and hence equity will yield excellent returns.

Objectives:

1.Mr. Bhatia and his wife would like to start saving for their daughter Neena’s educational needs. They require Rs. 1,00,000 at her age of 15, 2 lacs when she is 16, and 8 lacs when she is 18 and 25 lacs when she is 21.

2.To provide Rs. 50 lacs for Neena’s wedding at the age of 25.

3.To provide for vacations with the family to US & Canada, Middle East and Europe.

4.To provide a retirement corpus for a period of 10 years

5.Purchase a new car worth Rs. 15 lacs in nest 6 months.

6.To buy a property worth Rs. 1 crore nearby of RML hospital.

Section C (4 Mark)

Read the senario and answer to the question.

Assume Neeraj bought a second hand car in June 2007. Since the insurance premium was due, Neeraj paid it in the old owner’s name.Neeraj didn’t receive the original policy despite repeated requests. The car later met with an accident causing damages worth Rs. 10000. Neeraj had not transferred the car in his name, as Neeraj did not have the original documents. Can the insurer reject his claim?

Section B (2 Mark)

Manav wishes to have a retirement corpus of Rs. 2,50,000/- in 30 years’ time. Assuming that he can earn a ROI of 12 % per annum, what amount he should invest yearly into a fund to reach his goal?