Risk Management & Asset Allocation Flashcards
7 cards from real RAA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Management & Asset Allocation flashcards as text
Which scenario best illustrates longevity risk for an annuity client?
Answer: The client outlives non-annuitized retirement assets and faces income shortfall
Longevity risk is the danger that a retiree will outlive their financial resources, making guaranteed lifetime income from annuities a direct hedge.
An advisor recommends a lower-cost fixed annuity over a variable annuity for a risk-averse retiree seeking predictable income. This decision is most consistent with:
Answer: Suitability and best-interest standards
Recommending a product aligned with the client's risk tolerance and income objective reflects compliance with suitability and best-interest (e.g., Reg BI) standards.
In mean-variance optimization, the inputs required to construct an efficient portfolio are:
Answer: Expected returns, variances, and correlations among assets
Mean-variance optimization uses expected returns, variances (or standard deviations), and pairwise correlations to compute the efficient frontier.
A 'floor and upside' strategy in retirement income planning typically combines:
Answer: A guaranteed income floor (e.g., annuity) plus an investment portfolio for growth
The floor-and-upside approach secures essential expenses with guaranteed income products and allocates remaining assets to growth-oriented investments.
Which of the following best describes reinvestment risk in the context of fixed annuities?
Answer: The risk that maturing proceeds must be reinvested at lower prevailing interest rates
Reinvestment risk is the risk that cash flows (or maturing principal) will be reinvested at rates lower than the original investment, reducing overall portfolio yield.
A client wants to protect against catastrophic long-term care costs without purchasing a stand-alone LTC policy. Which annuity feature addresses this?
Answer: An annuity with an LTC or confinement care rider
LTC or confinement care riders attached to annuities can increase income payments or accelerate benefits if the client requires qualifying long-term care.
State guaranty associations for annuities primarily protect against:
Answer: Insurance company insolvency, up to state coverage limits
State guaranty associations step in when an insurer becomes insolvent, covering annuity values up to state-defined limits (commonly $250,000).