Multiple Choice
Identify
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1.
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Under Modern Portfolio Theory, an investor who owns an “efficient
portfolio” holds:
a. | a portfolio of weakly corrolated stocks | b. | a portfolio of
strongly corrolated stocks | c. | a portfolio with few transaction
costs | d. | a relatively small portfolio that can be easily
managed |
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2.
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The Provident Annuity Company offers its variable annuity investors the choice
of the Global Growth subaccount managed by Pacific Investments. Pacific also manages the Global
Growth mutual fund, which has performed very well in the past. Advisors who recommend the
Global Growth subaccount to their clients should:
a. | refer to the subaccount as a “clone” of the mutual
fund | b. | note that the past investment results of the mutual fund | c. | disclose that
Pacific manages both the fund and the subaccount | d. | disclose that the fund and the subaccount may
not be managed by the same investment analyst |
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3.
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All of the following variable annuity features allow an investor to accumulate
capital under the tenets of Modern Portfolio Theory EXCEPT:
a. | automatic rebalancing of portfolio assets | b. | lack of transaction
costs to switch between investment subaccounts | c. | actively managed
subaccounts | d. | passively managed subaccount |
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4.
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The difference between accumulating capital using an equity indexed annuity
versus a variable annuity invested in an indexed subaccount is:
a. | the indexed subaccount may go down in value, the equity indexed annuity will
not | b. | the investor in the indexed subaccount is credited with full market movements, the
equity indexed annuity is not | c. | the indexed subaccount will receive dividend
income from its passively managed portfolio, the equity indexed annuity will not | d. | all of the above are
true |
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5.
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Which of the following annuity types is most appropriate for investors with
investment objectives of accumulation and conservation of capital
a. | fixed deferred annuities | b. | equity indexed annuities | c. | variable deferred
annuities | d. | all of these annuities fulfill both accumulation and conservation
objectives |
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6.
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Which of the following risks is a possible reason that fixed deferred annuities
will not fulfill a client’s objective of conservation of principal?
a. | interest rate risk | b. | legislative risk | c. | credit
risk | d. | market risk |
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7.
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What is the greatest risk facing investors who seek conservation of
principal?
a. | tax risk | b. | purchasing power risk | c. | interest rate
risk | d. | opportunity risk |
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8.
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Which of the following riders would make a variable annuity a more suitable
recommendation for an investor with an objective of conservation of principal?
a. | guaranteed minimum accumulation benefit (GMAB) rider | b. | guaranteed minimum
income benefit (GMIB) rider | c. | guaranteed minimum withdraw benefit (GMWB)
rider | d. | enhanced minimum death benefit rider |
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9.
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Which of the following variable annuity riders is most suitable for
client’s who have an objective of distribution and wish to retain as much flexibility as
possible over her principal?
a. | guaranteed minimum accumulation benefit (GMAB) rider | b. | guaranteed minimum
income benefit (GMIB) rider | c. | guaranteed minimum withdraw benefit (GMWB)
rider | d. | enhanced minimum death benefit rider |
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10.
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Which of the following annuities is least affected by the annuity
company’s credit risk?
a. | fixed annuities | b. | indexed annuities | c. | variable
annuities | d. | all of these annuities are equally subject to the annuity company’s credit
risk |
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11.
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All deferred annuities will contain minimum payout tables when the contract is
established. Historically, those minimum payout table are typically:
a. | less favorable than payouts based on current conditions when the account is
annuitized | b. | the same as payouts based on current conditions when the account is
annuitized | c. | more favorable than payouts based on current conditions when the account is
annuitized | d. | there is no fixed relationship between the two possible
payouts |
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12.
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Which of the following are annuity features that may be of interest to investors
seeking to transfer wealth to beneficiaries?
a. | waiver of surrender fees upon the contractholder’s death | b. | enhanced minimum
death benefits | c. | payment of benefits to beneficiaries outside of probate system | d. | all of the
above |
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13.
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Which of the following investment factors prompted tightening of state laws on
annuity disclosures and suitablity analysis?
a. | tax deferral | b. | liquidity | c. | creditor
protection | d. | estate planning |
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14.
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Which of the following affect the liquidity of an investment in annuities
a. | surrender charges | b. | up front sales charges | c. | contract
charges | d. | all of the above |
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15.
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Investments in annuities offer indivdiual investors:
a. | significant tax advantages | b. | significant tax
disadvantages | c. | both a and b | d. | neither a nor b |
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16.
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To determine whether the tax deferral offered by annuity contracts provides a
greater benefit to an investor than a comparable taxable investment depends on:
a. | the investor’s current tax rate | b. | the investor’s tax rate at the time of
withdrawal | c. | the length of the investment period | d. | all of the
above |
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17.
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Which of the following factors has an impact on an investor’s investment
horizon?
a. | tax penalties for premature withdrawals | b. | financial
needs | c. | surrender charges | d. | all of the
above |
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18.
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In Florida, which of the following are protected from claims of the
client’s creditors?
a. | investments held by the client’s IRA | b. | death benefits paid
by the client’s annuity or life insurance to the client’s
beneficiaries | c. | the principal balance in the client’s deferred variable
annuity | d. | all of the above |
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19.
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Advisors should recommend that clients buy annuity contracts within their
revocable living trusts:
a. | to most of their clients to simplify estate administration | b. | to take advantage of
special tax treatment of trust owned contracts | c. | if there are special circumstances that warrant
it | d. | all of the above |
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20.
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The key difference between a charitable remainder annuity trust (CRAT) and a
charitable remiander unitrust (CRUT) is:
a. | the type of charitable organizations that can benefit | b. | how the annual
income payments are calculated | c. | the length of time income payments can be paid
| d. | the type of assets used to fund the arrangement |
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