Book 1 (Mastered)

Question 1

Keywords to look for in Insurance and Contract questions

Answer 1

• Agent vs Broker
• “In writing”

Question 2

Broker

(“Brokers a deal w/ the insurance companies)

Answer 2

A marketing intermediary between the insurer and the policy owner.
The borker represents the policy owner (the client)

Question 3

In relation to Agent

Express authority
Implied authority
Apparent authority

Answer 3

Express = written, per insurance company
Implied = public belief implied by indicators (rate books, signage, etc.)
Apparent = negligence of insurance co. to allow the agent to apppear to have authority

Question 4

Which is correct?
A) John Hobbs, CFP, Registered Investment Advisor
B) John Hobbs, CFP, RIA

Answer 4

A

Question 5

Investment advisor registration w/ the SEC

2 things

Answer 5

1) Pay initial $150 fee
2) File form ADV/SCH. I each year

Question 6

Visualize the yield curve & inverted yield curve

Question 7

What is the leading indicator of inflation?

Answer 7

PPI, which then trickles through into CPI

Question 8

Scenario

Fed wants to tighten credit because of rising inflation

Answer 8

Monetary policy:
1) Reserve requirements inc.
2) Discount rate inc.
3) Open Market operations SELL
4) Margin rates inc.

Question 9

General graph of the business cycle

Think of synonyms

Answer 9

PEAK
Recession/Contraction
TROUGH
Recovery/Expansion

Y-Axis: National Output
X-Axis: Time

Question 10

An indicator that moves in tandem w/ the economy

Ex) Industrial Production

Answer 10

Coincidental indicator

Question 11

Difference between disinflation & deflation

Answer 11

Disinflation = downward movement of inflated prices (trend)
Deflation = the actual decline in the price of goods & services

Question 12

A yield curve compares YTM and Yields, assuming the bonds are…

Answer 12

1) Same quality
2) Same taxation

Question 13

Is the yield curve an economic indicator?

Answer 13

only if its moving

Question 14

Agent

Answer 14

Legal rep of an insurance company with all 3 authorities
1) Express
2) Implied
3) Apparent (sometimes)

Question 15

What happens when a client pays down a mortgage principal (not interest)

Answer 15

Net worth increases (decreasing a liability)

Question 16

FINRA:

Series 6:
Series 7:
Series 63:
Series 65:
Series 66:

Answer 16

Series 6: Mutual funds (open), UIT, VL, variable annuities
Series 7: ALL securities (including close-end MF) (excludes commodities)
Series 63: Meets requirements for other states
Series 65: RIA (State required)
Series 66: Combines 63 & 65 exams

Question 17

What is the limit and requirement to deduct home equity interest on Sch. A?

Answer 17

Limit: 375k MFS; 750k MFJ
(think, how much the mortgage has left to be paid off)
Requirement: Must be to improve the home

Question 18

Federal Consumer Protection Laws

3 laws

Answer 18

1) The disclosed APR
2) Right to see credit report
3) Right to be told why credit was denied

Question 19

Assets valued at…

Answer 19

FMV
The value that a well-informed buyer is willing to accept from a well-informed seller where neither are compelled to buy or sell

Question 20

Liabilities valued at…

Answer 20

Principal value

Question 21

Current Ratio
(mainly used to evaluate corps., but may apply to personal financial statements)

Answer 21

Current Assets:
Cash/cash equivalents
Marketable securities
AR
Inventory

Current Liabilities:
Cash owed
AP
Credit card debt
Taxes payable

Current Assets / Current Liabilities

Question 22

Another word for time deposit

Answer 22

CD

Question 23

Custodial Accounts opened for minors to enable assets to be held

Answer 23

UGMA/UTMA

Question 24

To discourage the shifting of income to children in a lower tax bracket as a tax avoidance technique

Answer 24

Kiddie Tax

Question 25

For testing purposes, take annuity payments or lump-sum for lotto winnings?

Answer 25

Calculate PV of annuities, but, annuity payments mostly likey the answer, as opposed to the lump-sum

Question 26

What is Form ADV-W?

Answer 26

The closing of the advisory practice

Question 27

What is the consumer’s liability on stolen credit card transactions?

Answer 27

$50 per credit card

Question 28

Gifts to UGMA, UTMA, Coverdell, and 529 Plan are of ________ interest

Answer 28

Present

Question 29

Is a private investment advisor who only accpets insurance companies as clients exempt from filing as an RIA?

Answer 29

Yes

Question 30

Why can’t an UTMA own EE savings bonds?

Answer 30

It can but it would not receive the tax-deferred benefit, therefore defeating the purpose.
UTMA = Child owned
EE savings bond = Parent owned (>24yrs old)

Question 31

Monetary Policy activites

Answer 31

1) Reserve requirement
2) Discount rate
3) Open Market Ops.
4) Margin rate

Think: Fiscal = Not Fed