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CFP Flashcards

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CFP® flashcards
1
Q

Noncancelable

A

Premium will remain the same

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2
Q

Guaranteed Renewable

A

Premiums may increase but policy will stay in force

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3
Q

Disability integrated with Social Security

A

SS has a 5 month waiting period. If they have SIS rider, that amount will be reduced by SS paid in month 5

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4
Q

Six ADLs (Activities of Daily Living)

A

Eating, Bathing, Dressing, toilet, transfer to bed, maintaining continence.

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5
Q

Medicare - Long Term Care Benefit

A
  • 20 days paid by Medicare, next 80 are co-payment, anything else is patient cost
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6
Q

Dividend Options for Life Insurance

A

Cash
Reduction of Premiums
Accumulate with Interest (taxable)
Paid up Additions
One Year Term Insurance (5th dividend)

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7
Q

Nonforfeiture Options for Life Insurance

A

Cash
Reduced Paid Up insurance
Extended Term / Paid up term insurance

Can’t even pay

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8
Q

1035 Exchange

A

Annuity -> Life NO WAY!

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9
Q

Financial Planning Process

A
  1. Understanding the Clients Personal and Financial Circumstance
  2. identifying and selecting goal
  3. Analyzing current and potential course of action
  4. Develop recommendations
  5. Present recommendations
  6. Implement recommendations
  7. Monitor and update
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10
Q

Housing Expense Ratio (PITI)

A

< 28% gross income

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11
Q

Total Monthly Debt

A

< 36% gross income

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12
Q

Consumer Debt

A

< 20% net income

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13
Q

Real Rate of Return

A

= (1+ after tax return / 1+ inflation rate) -1 x 100

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14
Q

College Funding

A

Step 1 - cost in first year (solve for FV)
Step 2 - lump sum needed (solve for PV)
Step 3 - how much do you need to save

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15
Q

UTMA vs UGMA

A

UTMA can include real estate

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16
Q

Alimony

A
  • cash payments if obligation (rent, tax)
  • life insurance where payor is insured
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17
Q

COBRA

A
  • 20+ employees
  • 18 months if because of you
  • 36 months for family
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18
Q

Compensatory vs Punitive Damages

A
  • compensatory is tax free because it’s for physical injuries
  • punitive is punishment so it’s taxable
    (Except for wrongful death)
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19
Q

Monetary Policy

A

BEST
- buy is expansionary
- sell is tighten

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20
Q

Reverse Mortgage

A
  • must be 62
  • get funds distributed from house value
  • proceeds tax free
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21
Q

Investment Advisor

A

“ABC” Test
Advice
Business
Compensation

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22
Q

Exceptions to Investment Advisor

A
  • LATE (lawyer, accountant, teacher, engineer)
  • bank
  • limited to US gov securities
  • family office
  • only insurance companies are clients
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23
Q

Contracts Elements

A
  • offer and acceptance
  • consideration (something of value)
  • legal capacity
  • lawful purpose
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24
Q

Insurable Risks

A
  • large number of homogeneous exposure units
  • loss is definite and measurable
  • loss must be accidental
  • loss must not be catastrophic to insurance company
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25
Q

Parts of Insurance Contract

A

Declarations
Definitions
Insurance Agreements
Conditions
Exclusions
“DICE”

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26
Q

Homeowners Insurance

A

A - dwelling
B - other structures
C - personal property
D - loss of use
E - liability
F - medical

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27
Q

Property Loss Calculations

A

Replacement Cost * Coinsurance % = insurance required

(Insurance carried / required ) x loss - deductible = amt paid by insurance

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28
Q

Personal Auto Policy Parts

A

A - liability
B - medical
C - uninsured motorists
D - damage to your auto

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29
Q

Workers Comp

A
  • medical benefits
  • disability income
  • rehab
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30
Q

Stock Redemption

A
  • entity purchase
  • no step up in basis
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31
Q

Cross Purchase

A
  • stockholder owns
  • step up in basis
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32
Q

Endorsement Method

A
  • R = employer owns policy and pays premium
  • employer retains cash value or premiums paid
  • employees beneficiary gets balance of death benefit
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33
Q

Collateral Assignment Method

A
  • employee is owner
  • employee aSSigns the policy
  • employer receives premiums paid
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34
Q

Annuity Taxation

A

Monthly payment * life expectancy in months = expected return

Investment (basis) / expected return = exclusion ratio

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35
Q

Bankers Acceptance

A

Finance imports and export transactions

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36
Q

Eurodollar

A

Deposit in any foreign bank that is denominated in dollars

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37
Q

Yankee Bonds

A

Dollar denominated bonds issued in the US by foreign banks and corporations

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38
Q

T-Bills

A
  • 3,6,12 month maturities
  • safest
  • no coupon interest
  • weekly auction
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39
Q

T-Notes

A
  • 1-10 years
  • RIP is risk
  • not callable
  • semiannual interest
  • monthly auction
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40
Q

T-Bonds

A
  • 10-30 years
  • RIP is risk
  • callable
  • semiannual interest
  • quarterly auctions
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41
Q

Bonds Risk

A

Default risk
Reinvestment risk
Interest rate risk
Purchasing power risk
“DRIP”

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42
Q

American Depositary Receipts

A

Buy foreign shares in the US
- dividends paid in US dollars but declared in foreign currency

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43
Q

Systematic Risk

A

Purchasing power risk
Reinvestment risk
Interest rate risk
Market risk
Exchange rate risk
“PRIME”

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44
Q

Unsystematic Risk

A

Business risk
Financial risk

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45
Q

Total risk

A
  • standard deviation
  • combo of unsystematic and systematic risk
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46
Q

Systematic risk

A

Known as beta

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47
Q

Covariance

A

Measures the extent to which 2 stocks are related to one another

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48
Q

Correlation Coefficient

A

Ranges from +1 to -1
+1 = perfect correlation (risky)
-1 = opposite (risk is eliminated)

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49
Q

Coefficient of Variation

A

Measure of relative variability used to compare investments
= standard deviation / return

Higher the coefficient variation = riskier

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50
Q

Standard Deviation

A

Measures variability
Non diversified portfolio
Measure of total risk

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51
Q

Beta

A

Measures volatility
Diversified portfolio
Measures systematic risk

52
Q

Current Yield

A

= annual interest in dollars / current bond price

53
Q

Muni Bonds vs Treasuries Taxation

A

Muni’s - no fed taxes, but yes to state taxes (if resident state may be no state taxes)

Treasuries - yes to fed taxes, no state taxes

54
Q

Duration

A

High interest = low duration
YTM and Duration are positively correlated

55
Q

Duration to manage bonds

A

UPS
- if interest rates are going UP, Shorten duration

FALLEN
- if interest rates are Falling, Lengthen duration

56
Q

Bond Price Volatility

A
  • small coupon, longer maturity and lower interest rate = bigger price fluctuation
57
Q

Current Market Price formula

A

= earnings x P/E Ratio

58
Q

return on equity

A

= EPS / common equity

59
Q

Dividend payout ratio

A

= common dividends paid / EPS

60
Q

Market Risk Premium

A
  • from required rate of return formula
  • (risk of market - risk free rate)
61
Q

Stock Risk Premium

A
  • from required rate of return formula
  • (risk of market - risk free rate)Beta
62
Q

Fundamental Analysis

A
  • consider current and past company records
  • F FOR FORMULAS
63
Q

Technical Analysis

A
  • used charts or computer programs
64
Q

Benchmarks

A

Dow Jones = price weighted
SP500 = float like a butterfly, sting like a bee = Floating
Russell 2000 = small cap = cap weighted
Wilshire 5000 = Volkswagen = value
Value Line = value is equal = equal weighted
NASDAQ - capitalization bc capital letters
EAFE

65
Q

Ex-Dividend Date for Common Stock

A
  • must purchase stock before ex-dividend date
  • watch for weekends and holidays
66
Q

Alpha

A

Portfolio managers contribution

67
Q

R^2

A

If > 60 then Alpha first or Treynor

If < 60 then Sharpe

68
Q

Stock Option Collar

A

Selling a call and buying a put
- own the stock and want to hedge against a decline

69
Q

Maintenance Margin Requirement

A

= (1 - initial margin) / (1 - maintenance margin) x purchase price of stock

70
Q

Option Straddle

A

Buying a put and buying a call

  • don’t know how the stock is going to move
71
Q

Debts not cancelled by bankruptcy

A
  • student loans
  • gov loans
  • child support
  • taxes
  • alimony
72
Q

Assets subject to probate

A
  • single owned assets
  • property held tenancy in common
  • assets where beneficiary is “estate of the insured”
  • community property (50% to each spouse)
73
Q

Gross Estate

A

All probate assets + non probate assets
- gift taxes paid within 3 years of death
- general powers of appointment mom

74
Q

Fully Deductible Gifts

A
  • to spouse
  • qualified charities
  • education institutions
  • political parties
75
Q

What form for gift tax return

A

709

76
Q

Present interest gifts

A
  • 2503(c)
  • direct gift
  • crummey
  • 529
  • UGMA/ UTMA
77
Q

Crummey trust

A

Able to take out the lessor of $18,000 or value of gift transferred that year

78
Q

Bypass trust (B)

A
  • pass using $13,610,000 exemption
  • assets pass to trust beneficiary
79
Q

Marital Trust (A)

A

Surviving spouse has control over property
Assets pass by marital deduction

80
Q

Marital Trust (A)

A

Surviving spouse has control over property
Assets pass by marital deduction
Assets pass to second spouses beneficiary

81
Q

QTIP (C)

A

Current income trust
Assets pass to trust beneficiary
2nd marriage
LAME

82
Q

QTIP (C)

A

Current income trust
Assets pass to trust beneficiary
2nd marriage
LAME

83
Q

QDOT

A

Allows you to pass assets to non-US spouse

84
Q

CRAT (5%)

A
  • no additions
  • fixed payments
  • any charity
  • 10% ending value
85
Q

CRUT (5%)

A
  • additions allowed
  • variable payments
  • any charity
  • 10% ending value
86
Q

Pooled Income

A
  • additions allowed
  • variable payments
  • specific charity
87
Q

Charitable Gift annuity

A
  • no additions
  • fixed lifetime income
  • specific charity
  • deduction based on gift less annuity
88
Q

Charitable Lead Trust

A
  • L = leaves
89
Q

Private Foundations

A
  • 5% distributed for charity
  • individual
  • study , music, award
90
Q

Intrafamily Transfers

A

PIGS need income
Private annuity
Installment sale (small estates)
Grantor retained annuity trust
Self cancelling installment not (for large estates)

91
Q

GST tax

A
  • direct skip then transferor pays GST
  • taxable termination then trustee pays GST
  • taxable distribution then transferee pays GST
92
Q

SS Taxation

A

MAGI

50% single = $25k MFJ = $32k
85% single = $34k MFJ = $44k

93
Q

Keogh Contributions

A

15% = 12.12%
25% = 18.59%

94
Q

Annual Report - who is it written for

A

Shareholders

95
Q

Preferred Stock

A

Stated dividend rate
Duration is infinite
Typically purchased by corporations bc 50% dividend deduction

96
Q

Unit Investment Trust

A

Unmanaged portfolio
Don’t buy new securities

97
Q

Daily Limit for Futures Contract

A

Max permissible price increase or decrease

98
Q

Futures Long vs Short

A

Long position = own the product = short hedge

Short position = selling the product = long hedge

99
Q

Collectibles tax rate

A

28%

Rise in value during inflationary periods

100
Q

Private Placement (Reg D)

A

1-2-3
$1,000,000 net worth (excluding home)
$200,000 single income
$300,000 MFJ income

101
Q

Liquidity Defintion

A

Speed + stability of price

102
Q

Marketability Definition

A

Speed of transaction

103
Q

Adjustments for AGI

A
  • IRA contribution
  • Keogh or SEP
  • 1/2 SE tax .07065
  • alimony paid
  • SE health insurance
104
Q

Adjustments for AGI

A
  • IRA contribution
  • Keogh or SEP
  • 1/2 SE tax .07065
  • alimony paid
  • SE health insurance
105
Q

Investment interest deduction

A
  • limited to taxpayers net investment income
  • need income that is taxed at ordinary rates (stcg, non-qual dividends, interest)
106
Q

Casualty Theft and Losses

A

Lesser of basis or FMV
subtract insurance coverage
Subtract $100
Subtract 10% of AGI

  • must be federally declared
107
Q

How many exemptions can you claim?

A

0

108
Q

Kiddie Tax

A
  • first $1,300 is standard deduction
  • next $1,300 is taxed at 10%
  • anything over at parents marginal
  • if they have earned income standard deduction = earned income + $450
109
Q

Self Employment Tax

A

Net earnings * .1413

110
Q

Self Employment Income Examples

A
  • net schedule C
  • k-1 income
  • board of directors
  • part time earnings
111
Q

FICA taxes

A

6.2% up to $168,000 then 1.45% on the rest

112
Q

Dependent Care Expense Credit

A
  • $3,000 for 1 kid
  • $6,000 for 2+ kids
    Use 20% of allowable expenses to determine credit amount
    Until age 13
113
Q

Child Tax Credit

A

$2,000 / child under age 17
Up to $1,700 is refundable

114
Q

Section 1244

A

Allows $100,000 ordinary loss if business fails

115
Q

MACRS

A

5 years- computer, auto, truck

7 years - office equipment

116
Q

MACRS

A

5 years- computer, auto, truck

7 years - office equipment

117
Q

179 deduction

A

Election to expense up to 1,220,000 of qualifying property in the year of acquisition

Cannot create a loss

Tangible personal property

118
Q

Keys to Boot

A
  • boot received = recognized gain
  • boot paid = add to basis
  • basis carry’s over from last property
119
Q

Like Kind Exchanges

A
  • FMV if property received
  • adjusted basis of property given up
  • boot
120
Q

Renting vacation home

A

Personal use cannot exceed the longer of 14 days or 10% of rental use

121
Q

Charitable donations

A

FMV = 3 letters = 30% of AGI

Basis = 5 letters = 50% of AGI

Ordinary income property is limited to basis

122
Q

Roth Conversion

A

Assets must be held for 5 years to avoid 10% penalty

123
Q

Withdrawal of Earnings from Roth

A

59 1/2 AND 5 years for no tax

124
Q

QBI

A

20% deduction for pass through entities
- if service related there is a phase out

125
Q

QBI

A

20% deduction for pass through entities
- if service related there is a phase out

126
Q

Qualified Charitable Distribution

A

Age 70 1/2
Up to $105,000

127
Q

Alimony Recapture

A
  • $15k decrease from year to year
  • $37,500 is constant

CFP (2 decks)

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