Investment Advisor Risk Management and Insurance in Financial Planning

Question 1

Which type of life insurance provides a death benefit for a specified term and has no cash value component?

Accepted Answer

Term life insurance

Answer

Whole life insurance

Answer

Universal life insurance

Answer

Variable life insurance

Question 2

An investment adviser recommending insurance products to clients should consider the client's insurance needs as part of which planning area?

Accepted Answer

Comprehensive risk management within the financial plan

Answer

Tax planning only

Answer

Investment selection only

Answer

Estate planning only

Question 3

What does 'systematic risk' refer to in portfolio management?

Accepted Answer

Market-wide risk that cannot be diversified away

Answer

Risk that can be eliminated through diversification

Answer

The risk of a specific company defaulting

Answer

Risk associated with foreign currency fluctuations only

Question 4

An investor holds a portfolio of 50 individual stocks. Further adding more stocks will primarily reduce which type of risk?

Accepted Answer

Unsystematic (company-specific) risk

Answer

Systematic risk

Answer

Inflation risk

Answer

Interest rate risk

Question 5

Which risk describes the possibility that inflation will erode the purchasing power of a portfolio's returns?

Accepted Answer

Inflation (purchasing power) risk

Answer

Credit risk

Answer

Liquidity risk

Answer

Reinvestment risk

Question 6

An investment adviser recommending a client purchase disability income insurance is primarily addressing which risk?

Accepted Answer

The risk of loss of earned income due to illness or injury

Answer

Market risk

Answer

Longevity risk

Answer

Interest rate risk