Professional Knowledge Flashcards
7 cards from real AAFM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Professional Knowledge flashcards as text
Which financial statement shows a company's assets, liabilities, and equity at a point in time?
Answer: Balance sheet
The balance sheet is a snapshot of financial position at a specific date.
A client asks about reducing estate tax exposure through gifting. What tool leverages the annual gift tax exclusion?
Answer: Making gifts up to the annual exclusion limit each year
Annual exclusion gifts transfer wealth free of gift tax and reduce the taxable estate over time.
What does a high debt-to-income ratio typically signal to a lender?
Answer: Greater credit risk
A high DTI means more income is committed to debt, indicating higher default risk.
In insurance planning, the principle of 'indemnity' means the policy should do what?
Answer: Restore the insured to their prior financial position, not profit
Indemnity ensures compensation for actual loss without allowing the insured to profit from a claim.
Which measure indicates how sensitive a stock is to overall market movements?
Answer: Beta
Beta measures a security's volatility relative to the broader market.
What is the main tax advantage of a 401(k) plan with pre-tax contributions?
Answer: Contributions reduce current taxable income and grow tax-deferred
Pre-tax 401(k) contributions lower taxable income now and grow tax-deferred until withdrawal.
Which statement best describes 'liquidity' of an asset?
Answer: How quickly it can be converted to cash without significant loss
Liquidity reflects the ease and speed of converting an asset to cash near its fair value.