FASEA Data Analysis and Interpretation 2

Question 1

A financial adviser notices that a client's portfolio return of 12% over 3 years appears strong, but inflation averaged 4% per year during the same period. What is the approximate real return?

Accepted Answer

Approximately -0.5%

Answer

Real return is calculated by adjusting nominal return for inflation: (1.12)/(1.04)^3 - 1 ≈ -0.5%, meaning the portfolio barely kept pace with inflation.

Question 2

When analysing a client's cash flow data, an adviser finds that average monthly expenses are $5,200 but the median is $3,800. What does this disparity most likely indicate?

Accepted Answer

A few months had unusually high expenses, skewing the average upward

Answer

When the mean significantly exceeds the median, it indicates that a few high-value outliers are pulling the average upward, which is common with irregular large expenses.

Question 3

A client's superannuation fund reported a time-weighted return (TWR) of 9% and a money-weighted return (MWR) of 6% for the same period. What most likely explains this difference?

Accepted Answer

The client made large contributions before a period of poor performance

Answer

MWR is lower than TWR when significant cash inflows occur before underperformance, as the MWR is sensitive to the timing and size of client contributions.

Question 4

An adviser is reviewing a scatter plot of client age versus risk tolerance score. The plot shows a correlation coefficient of -0.72. How should this data be interpreted?

Accepted Answer

Older clients strongly tend to have lower risk tolerance scores

Answer

A correlation of -0.72 indicates a moderately strong negative relationship, meaning older clients tend to score lower on risk tolerance, though correlation does not imply causation.

Question 5

A client provides bank statements showing total annual deposits of $180,000 against declared income of $95,000. Under FASEA obligations, what should the adviser do first?

Accepted Answer

Seek a reasonable explanation from the client before proceeding

Answer

FASEA's ethical standards require advisers to act with integrity; seeking a reasonable explanation from the client is the appropriate first step before determining whether further action is needed.

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

FASEA Data Analysis and Interpretation 2