Free Chartered Wealth Manager (CWM) Certification Level II Examination Exam CWM_LEVEL_2 Exam Practice Test

Section A (1 Mark)The premium on all other riders put together should not exceed _____ of the premium on the base policy

• 10%
• 20%
• 30%
• 50%

Section C (4 Mark)Mr. Chopra runs a Garment Factory, he is very concerned about his retirement and wants you to help him out in planning for it. His Current annual expenses are Rs. 12,00,000 which would be rising at an annual rate of 8% pre- retirement and 2% post retirement. His current age is 50 years and he wants to work till the age of 65. The expected life expectancy in his family is 75 years. Calculate the monthly contribution he must make till his retirement if the pre- retirement returns are 12% p.a. compounded monthly and post-retirement returns are 8% p.a compounded annually.

• 60973
• 59712
• 72376
• 56320

Section C (4 Mark)Zenith Finance is a big financial firm which owns several mutual funds. The funds are managed individually by portfolio managers but it has an investment committee that oversees all of the funds. This committee is responsible for evaluating the performance of the funds relative to the appropriate benchmark and relative to stated investment objectives of each individual fund. During a recent investment committee meeting, the poor performance of its Equity Funds were discussed. In particular, the inability of the portfolio managers to outperform their benchmarks was highlighted. The net conclusion of the committee was to review the performance of the manager responsible for each fund and dismiss those managers whose performance had lagged substantially behind the appropriate benchmark.The fund with the worst relative performance is the Zenith Large Cap Fund which invests in large cap stocks. A review of the operations of the fund found the following:* The turnover of the fund was almost double that of other similar style mutual funds* The fund's portfolio manager solicited input from her entire staff prior to making any decision to sell an existing holding* The beta of the Zenith Large Cap Fund's portfolio was 65% higher than the beta of other similar style mutual funds* The portfolio manager refuses to increase the Capital Goods sector weighting because of past losses the fund incurred in the sector* The portfolio manager sold all the fund's Oil Marketing Companies stocks as the price per barrel of oil rose above $105. He expects oil prices to fall back to the $80 to $85 per barrel* No stock is considered for purchase in the Large Cap Fund unless the portfolio manager has 10 years of financial information on that company.A committee member made the following 2 comments:Comment 1: ''One reason for the poor performance of Large Cap Mutual Fund is that the portfolio lacks recognizable companies. I believe that good companies make good investmentsComment 2: ''The portfolio manager of the Large Cap Fund refuses to acknowledge his mistakes. He seems to sell stocks that appreciate, but she holds stocks that have declined in valueThe two behavioral biases exhibited respectively in the above 2 comments from the committee are:

• Gambler's fallacy & Hindsight bias
• Regret minimization & Conservatism
• Money illusion & Mental accounting
• Representativeness Bias & Loss aversion Bias

Section C (4 Mark)Mr. XYZ is bearish about Nifty and expects it to fall. He sells a Call option with a strike price of Rs. 2600 at a premium of Rs. 154, when the current Nifty is at 2694. If the Nifty stays at 2600 or below, the Call option will not be exercised by the buyer of the Call and Mr. XYZ can retain the entire premium of Rs.154.What would be the Net Payoff of the Strategy?* If Nifty closes at 2900* If Nifty closes at 2400

• -146 and -46
• 202 and 154
• -146 and 154
• -46 and 4

Section B (2 Mark)Withholding Tax Rates for payments made to Non-Residents are determined by the Finance Act passed by the Parliament for various years. The current rates for Royalities are:

• 10
• 15
• 20
• 18

Section C (4 Mark)Medicon is one the world's largest manufacturer of implantable biomedical devices, reported earnings per share in 1993 of Rs3.95, and paid dividends per share of Rs0.68. Its earnings are expected to grow 16% from 1994 to 1998, but the growth rate is expected to decline each year after that to a stable growth rate of 6% in 2003. The payout ratio is expected to remain unchanged from 1994 to 1998, after which it will increase each year to reach 60% in steady state. The stock is expected to have a beta of 1.25 from 1994 to 1998, after which the beta will decline each year to reach 1.00 by the time the firm becomes stable. (The Risk Free rate is 6.25%.)Estimate the value per share, using the three-stage dividend discount model.

• Rs 47.49
• Rs 57.36
• Rs 35.51
• Rs 64.75

Section A (1 Mark)During ''Building the foundation'' life stage, we learn about _______

• Budgeting
• Five Fundamental of Fiscal Fitness
• Three Fundamental of Fiscal Fitness
• Seven Fundamental of Fiscal Fitness

Section A (1 Mark)For making a personal financial statement for a client, the optimum cash levels would be

• 2-3 months of cash requirement
• 4-6 months of cash requirement
• 6-9 months of cash requirement
• 1 year of cash requirement

Section B (2 Mark)A client has a minor child she is concerned about what might happen if she was to die while the child was still young and unable to sensibly handle a sizeable in heritance one solution could be to draft her will so that the child receives the asset once reaching age 21 this is an example of

• A discretionary trust
• A testamentary trust
• An inter vivo trust
• A family trust

Section B (2 Mark)Which of the following is a reasonable assumption to make about the understanding of a client on the Wealth planning Process?

• Client would have identified a desirable asset allocation
• Client would have some prior understanding of the assumptions on which the wealth plan is made
• Client would understand the financial products being recommended
• Client would be able to identify his financial goals