WMS Market Analysis & Trends 3

Question 1

A wealth manager notices that a client's portfolio has a beta of 1.4. This means the portfolio is expected to:

Accepted Answer

Move 40% more than the market in either direction

Answer

Beta measures sensitivity to market movements; a beta of 1.4 means the portfolio tends to move 40% more than the market benchmark, up or down.

Question 2

Which of the following best describes the 'wealth effect' in macroeconomic analysis?

Accepted Answer

Rising asset prices increase consumer confidence and spending

Answer

The wealth effect describes how rising asset prices (stocks, real estate) make consumers feel wealthier, increasing their willingness to spend.

Question 3

In sector rotation theory, which sectors tend to outperform EARLY in an economic expansion?

Accepted Answer

Financials and consumer discretionary

Answer

Financials benefit from rising credit demand early in expansions, and consumer discretionary benefits as consumer confidence and spending recover.

Question 4

The VIX index measures market expectations of volatility for which time horizon?

Accepted Answer

30 calendar days

Answer

The VIX, often called the 'fear gauge,' measures implied volatility of S&P 500 options over the next 30 calendar days.

Question 5

A client asks about the 'Rule of 20' in equity valuation. This rule suggests stocks are fairly valued when:

Accepted Answer

P/E ratio plus inflation rate equals 20

Answer

The Rule of 20 states that stocks are fairly valued when the P/E ratio plus the current inflation rate equals approximately 20.

(WMS) Wealth Management Specialist Certification Practice Test