AAFM Professional Knowledge 4

Question 1

Which financial statement shows a company's assets, liabilities, and equity at a point in time?

Accepted Answer

Balance sheet

Answer

Income statement

Answer

Cash flow statement

Answer

Statement of retained earnings

Question 2

A client asks about reducing estate tax exposure through gifting. What tool leverages the annual gift tax exclusion?

Accepted Answer

Making gifts up to the annual exclusion limit each year

Answer

Selling all assets at once

Answer

Converting to a Roth IRA

Answer

Buying term life insurance

Question 3

What does a high debt-to-income ratio typically signal to a lender?

Accepted Answer

Greater credit risk

Answer

Strong repayment ability

Answer

High net worth

Answer

Low interest rate eligibility

Question 4

In insurance planning, the principle of 'indemnity' means the policy should do what?

Accepted Answer

Restore the insured to their prior financial position, not profit

Answer

Pay double the loss

Answer

Cover only future losses

Answer

Guarantee investment gains

Question 5

Which measure indicates how sensitive a stock is to overall market movements?

Accepted Answer

Beta

Answer

Alpha

Answer

P/E ratio

Answer

Dividend yield

Question 6

What is the main tax advantage of a 401(k) plan with pre-tax contributions?

Accepted Answer

Contributions reduce current taxable income and grow tax-deferred

Answer

Withdrawals are always tax-free

Answer

It has no contribution limit

Answer

Employer matches are taxed immediately

Question 7

Which statement best describes 'liquidity' of an asset?

Accepted Answer

How quickly it can be converted to cash without significant loss

Answer

Its total return over time

Answer

Its resistance to inflation

Answer

Its dividend payout rate