AFC Investment and Retirement Planning 4

Question 1

A client aged 55 wants to withdraw from their 401(k) due to a job loss. Which provision allows penalty-free withdrawals in this scenario?

Accepted Answer

Rule of 55

Answer

The Rule of 55 allows penalty-free 401(k) withdrawals if you separate from service in or after the year you turn 55.

Question 2

Which of the following best describes the 'sequence of returns risk' in retirement planning?

Accepted Answer

The risk that poor early-retirement returns permanently deplete a portfolio

Answer

Sequence of returns risk refers to the danger that negative returns early in retirement, combined with withdrawals, can permanently impair a portfolio even if average returns are acceptable.

Question 3

A married couple files jointly with $180,000 MAGI. What is their ability to contribute directly to a Roth IRA in 2024?

Accepted Answer

Partial contribution allowed (phase-out range)

Answer

In 2024, the Roth IRA phase-out for married filing jointly begins at $230,000, so $180,000 MAGI qualifies for a full contribution.

Question 4

What does the term 'duration' measure in the context of a bond portfolio?

Accepted Answer

The weighted average time to receive all cash flows, expressed in years

Answer

Duration measures a bond's price sensitivity to interest rate changes and equals the weighted average time to receive all cash flows.

Question 5

A client's portfolio has a beta of 1.4. If the market declines 10%, what is the expected portfolio decline assuming CAPM holds?

Accepted Answer

14%

Answer

Under CAPM, expected portfolio return change = beta × market return change, so 1.4 × -10% = -14%.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Investment and Retirement Planning 4