Financial Planning & Ins

Question 1

Debt management rules. Monthly housing (PITI) : no more than 
A. 20
B. 36
C. 28
D. 18

Answer 1

C. 28

Question 2

Debt management rules. Total consumer debt: no more than 
A. 20
B. 28
C. 36
D. 38

Answer 2

A. 20% of net income, ..credit cards, auto loans etc

Question 3

Kiddie tax applies to investment (unearned) income under age of 18; or if child is full time student and under age of 24, if the child’s earned income does not exceed half of his support and applies to $1900 of unearned income. True or False

Answer 3

True

Question 4

What is three pronged test to register as investment adviser?
A. Advice, analysis, compensation.
B. advice, business of advice and compensation
C. Compensation, broker not paid, advice

Answer 4

B. advice, business of advice and compensation

Question 5

Conditions that increase either the frequency or severity of loss are called
A. Subrogation 
B. risks
C. Hazards
D. Perils
E. extenuating circumstances

Answer 5

C. Hazards

Question 6

A contact for variable life insurance may be characterized as

1. Unilateral contact
2. Aleatory contact
3. Conditional contact
4. Personal contact of adhesion
5. All of the above

Answer 6

5. All

Question 7

Which of the following are roles of the adjuster in adjusting losses.
I. To identify a loss as covered or not
II. To specify the method used to determine the amount of loss
III. To assist the insured in the preparation of the proof of loss statement
IV. To classify the loss as standard, substandard or ineligible
A. I and II
B. I and III
C. I and IV
D. II and III
E. II and IV

Answer 7

B. I and III

Question 8

Darian drove his car thru a 25 mph school zone at 45 mph. He struck and injured a parent who stepped off curb. Darian may be fund liable for
A. Negligence
B. negligence per se
C. Strict liability
D. Vicarious liability
E. vehicular homecide

Answer 8

A. Negligence. If would have been a child then negligence per se

Question 9

Which one of the following is a rule of risk management?
A. Purchase as much insurance as economically feasible.
B. consider each loss that may result from separate perils, instead of the overall loss.
C. Retain those risks where the probability of loss is high.
D. The probability of loss is more important than the potential severity of the loss.

Answer 9

C. Retain those risks where probability of loss is high.

Question 10

Long tern benefits may be provided by which of the following?
I. Continuing cre retirement communities
II. Blue Cross/Blue Shield organizations
III. Preferred provider organizations
IV. Life insurance companies

A. I and III
B. II and IV
C. I, II and III
D. I, II and IV
E. I, II, III and IV

Answer 10

D. PPOs do not provide LTC benefits, HM O may provide them but few do.

Question 11

Six years ago, Bill bot a building for $400k. It's current replacement cost is $800k. The building is covered for fire-related perils to $400k, with 80% coinsurance and a $2000 deductible. Last week a fire broke out causing $600k of covered damage. What amount will insurance will pay for this loss?
A. 373,000
B. 398,000
C. 598,000
D. 600,000

Answer 11

A. 373,000. 400,000 div. 640000 x 600000 -2000

Question 12

Coverage A. Coverage B. coverage C. Cov D
Dwelling. Other structure Personal prop. Loss use

HO O2. Broad. Broad. Broad. Broad
HO O3. Open peril. Open. Broad. Open
HO O4(rent. Not Cov Not covered. Broad. Broad(20%
HO O5. Open. Open. Open. Open
HO O6(condo. $1000. Included in A. Broad. Broad(40%
HO O8. Basic Basic. Basic. Basic
-actual cash value used on older homes due to replacement cost

Applies to all HO series policy forms
Coverage E- Comprehensive Liability
Coverage F- medical payments to others, claim, expenses and damage to others property

Answer 12

Know difference

Question 13

What is one characteristic of a comprehensive liability?
A. It generally includes coverage for legal liability that may arise as a result of professional errors or omissions.
B. it provides coverage limited to claims of catastrophic proportions.
C. It provides coverage for legal liability stemming from business activities of the insured by use of a simple extension of coverage amendment.
D. It may be part of a standard ISO homeowners policy or a standalone policy.
E. it provides coverage for losses arising due to acts against the insured by uninsured persons.

Answer 13

D.

Question 14

Which one of the following examples is accurately paired.
A. Risk avoidance: driving slowly
B. risk rention: wearing protective clothing
C. Risk transfer: self insurance
D. Risk sharing: corporation
E. risk reduction : establishing a general partnership

Answer 14

D. Risk sharing - corp.

Question 15

Which one of the following describes the life and 10-year certain income settlement option?
A. Guaranteed periodic payments during the lifetime of the payee
B. guaranteed periodic payments for 10 years beyond the lifetime of payee
C. Guaranteed periodic payments for 10 years beginning after the death of one payee
D. Guaranteed periodic payments for the lifetime of the payee but lasting at least 10 years.

Answer 15

D. Guaranteed periodic payments for the lifetime of the payee but lasting at least 10 years.

Question 16

The expected return of Stock A is 16%. It pays a dividend of 2.10; it’s earning retention ratio is 60%; it’s Beta is 1.25; ROE is 18%. The risk free rate is 6% and estimated return on the market is 11%. Should you buy?
A. Yes, because its return on equity exceeds its expected return
B. no, because its expected return is less than its required return
C. Yes, because its required return is less than its expected return
D. No, because its required return cannot be calc with data given

Answer 16

C. Calc required return

6+[11-6] 1.25= 12.25. Which is less than expected return of 16

Question 17

Fred has been investing for 30 years and believes the market will always come back and dismisses any possibility that this time may be different. He invests in both bull and bear markets with long term perspective. What's the closest behavioral biases?
A. Conformation 
B. regret aversion
C. Status quo
D. Anchoring

Answer 17

A. Confirmation

Question 18

Assume that the price of movie tickets increases by 15%. What is the likely impact of this action on price of DVD movie rentals, assuming that all other factors are equal ?
A. The price of DVD rentals will increase because of increase in demand for DVD rentals.
B. the price of DVD rentals will decrease because of DVD rental stores will lower prices to encourage increase demand.
C. No change as movie tickets has no relationship to DVD rentals.

Answer 18

A. The price of DVD rentals will increase because of increase in demand for DVD rentals.

Question 19

Which one of the following factors would be the strongest indication that interest rates might rise?
A. Selling of dollar-denominated assets by foreign investors
B. decreasing US govt debt
C. Decreasing rates of inflation
D. Weak credit demand by the private sector of the US economy

Answer 19

A. Selling of dollar-denominated assets by foreign investors

Question 20

Which of the following statements concerning supply and/ or demand is true?
1. If demand increases and supply simultaneously decreases, equilibrium price will rise.
2. There is an inverse relationship between price and quantity demanded.
3. If demand decreases and supply simultaneously increases,equilibrium will fall
4. If demand decreases and supply remains constant, equilibrium price will rise.
A. 1, 2, 3
B. 1 and 3
C. 2 and 4
D. 4
E. 1,2,3,4

Answer 20

A. 1,2,3

Question 21

Which one of the following combination is expansionary economic policy?
A. Decrease bank reserve requirements; increase tax rates
B. sell govt securities; decrease corp tax rates
C. Buy govt securities ; decrease govt spending
D. Decrease the discount rate; increase govt spending

Answer 21

D. Decrease the discount rate; increase govt spending

Question 22

In a recession, which one of following actions likely?
A. Lower discount rate; fiscal policy
B. increase govt spending; fiscal
C. Decrease taxes; monetary
D. Sell govt Sec; monetary

Answer 22

B. increase govt spending; fiscal
Fiscal policy is govt spending and taxes
Monetary is open market operations, discount rate and reserve requirements

Question 23

Which is an equity REIT?
A. They receive income from the rental or lease of real estate properties
B. they provide less opportunity for capital gains than do mortgage REITS
C. They often invest in GNMA
D. They usually are considered less risky than mortgage REITs
E. they receive monthly income from underlying loan consisting of principal and interest

Answer 23

A. They receive income from the rental or lease of real estate properties. Stock ownership. Mortgage REIT just gets the interest and principal repayments

Question 24

In determining the allowable annual additions per participant to a defined contribution pension plan account for the year, the employer may not include
A. Compensation exceeding $200,000
B. compensation exceeding $250,000
C. Compensation exceeding the defined-benefit limitation in effect for that yr
D. Bonuses

Answer 24

B. compensation exceeding $250,000. For dc plans its 250k but for DB plans its 200k.

Question 25

Calc max contribution for employee age 53, earning $260,000 in a 401k with max deferral, no employer contribution and a money purchase pension with 12% of salary 
A. 30,000
B. 47,000
C. 50,000
D. 52,500
E. 55,500

Answer 25

D. 52,500.   Max is 250k x .12=30,000
17,000
  5,500
30,000
-------
52,500

Question 26

Which of the following statements are characteristics of tax-sheltered annuities

1. Salary reduction contributions are not reported
2. Maximum salary deferral limit is $17k for a newly hired
3. Employer contributions are deductible
4. Loans and catchup contributions may be permitted

A. 4 only
B. 1 & 3
C. 2& 4
D.  1,2,3
E. 1,2,3,4

Answer 26

C. 2& 4q

Question 27

What are the alternatives under RMD for grandkids for IRA of Del who was 67?
I. Grandkids, Edwin and chuck may choose to distribute the entire account balance by end of the fifth yr following Del death.
II. Edwin and Chuck may split the amount, each taking distributions over their life expectancy.
III. Edwin and Chuck may elect to take distributions over Chuck’s life (who is older) expectancy, beginning by Dec. 31 next yr
IV. Edwin and chuck may elect to begin distributions by Dec. 31 of the year in which Del would have attained 70.5
A. I and II
B. II and III
C. I, II, III
D. II, III, iV

Answer 27

C. I, II, III . IV only applies to spouse

Question 28

Rex granted NQSOs 5 yrs ago with exercise price of $15 per share (issued when company was trading at $15) his grant of 4000 shares, which he exercises (but doesn’t sell) 2 yrs later when stock trading at $50 per share. Correct..
A. Upon exercise, Rex will owe taxes (W-2 income and payroll taxes on $200000( 4000sh x $50)
B. upon exercise, Rex will owe taxes (W-2 income, payroll taxes on $140,000 (diff of $50-15= 35 x 4000= 140,000
C. Upon exercise, Rex will be subject to AMT
D. Upon excise , Rex will not owe any regular income taxes

Answer 28

B. upon exercise, Rex will owe taxes (W-2 income, payroll taxes on $140,000 (diff of $50-15= 35 x 4000= 140,000

Question 29

Fringe benefits can discriminate on parking as long as its under $240 for parking and $125/mo for public trans

Answer 29

Know

Question 30

Terms guaranteed renewable–premium can or cannot increase?

Noncancelable–premium can/can’t

Answer 30

Guaranteed renewable-premium may change

Noncancellable–premiums stay same

Question 31

Child & Dependent care credit

• dollar for dollar and no phase outs
• care for dependent under age 13 or spouse unable to care for themselves
• 20% of qualified expenses up to $3000 for 1 child, $6000 for 2 or more

Answer 31

Other dollar for dollar offset against tax liability

• low income housing
• historic rehabilitation
• child care

Question 32

The provisions of all of the following types of statutes can be altered by expressed provisions in a will except:
A. Simultaneous death statutes
B. ademption
C. Abatement 
D. Elective share statutes

Answer 32

D. Elective share statutes, which is the right to or the amount of a surviving spouses elective share can not be altered since based on preventing a disinheritance of the spouse.

Question 33

A mutual fund with an investment objective of growth and income has an alpha of +4, a beta of 1.1 and a Sharpe of 1.15. The fund
A. Should not be bot, because it has a low level of return in relation to risk
B. should NOT be bot, even though the rate of return compensates for the level of risk
C. Should be bot since the rate of return is high in relation to risk
D. Should be bot since it has a relatively low level risk in relation to return

Answer 33

C. Should be bot since the rate of return is high in relation to risk. Positive alpha indicates the fund performed better than it should have on an risk-adjusted basis. Alpha of 4 is high

Question 34

What are the biggest difference from S Corp and LLC?

Answer 34

Partnership and C corp don’t allow losses to flow through offset of spouses income. Losses are only deductible up to taxpayers basis in activity. If borrow funds,LLC does establish a basis but S Corp doesn’t.

Question 35

What are the 2 requirements for using the alternate valuation date?
1. This election can be made only if it will decrease the value of the decendent’s gross estate
2. If this election is made, the date of filing estate taxes is automatically extended by six mos.
3. If made, the value of all assets of the estate as of six mos after the death must be used
4. This election can be made for probate as well as nonprobate.
A. 1 and 4
B. 1 and 3
C. 2 and 3
D. 2 and 4

Answer 35

A. 1 and 4

Question 36

Gary grant made all of the following gifts within three years of his death
1 funded a charitable remainder annuity trust (crat) naming himself and his spouse as income benes and a qualified charityaf to receive the remainder
2 funded a grantor retained income trust (with a term of 10yrs) that named his children as remainder benes
3 Funded an irrevocAble life insurance trust (ilit) with an existing Term policy on his life’s
4 assigned to his children his life estate granted to him by is father in a mountain cabin
Which of the above listed asset are included in Garys gross estate?
A. 1 and 2 only
B. 2 and 4 only
C. 3 and 4 only
D. 1 2 and 3 only

Answer 36

D. 1, 2, 3. CRAT was included in gross estate due to retained interest.

Question 37

16. You are advising lois streets who is the personal representative of her late husbands estates, which has a tax base in excess of the applicable exclusion amount for the year of death. Lois has few asset of her own other than her residence, furnishings and an automobile, all of which she owned I joint tenancy with right of surv with her husband. The entire balance of her husbands estate is to be used to fund a QTIP trust, in which lois is the income benef and her husbands children by his first marriage are the remainder benefs. Lois is trying to decide whether or not to make the QTIP election.
    You should inform her that
    1 making the election will cause all trust assets remaining at her death to be taxable in her estate.
    2 NOT making the election will,in effect turn the QTIP trust into a bypass trust for for tax purposes
    3 making the election will cause the corpus of the trust to be payable to her estate at her death
    4 NOT making the election will reduce the amount that initially funds the trust
    A 1 only
    B 2&3 only
    C 3&4 only
    D 12&4 only

Answer 37

D making the QTIP election means that assets in the trust will receive a marital deduction. If the election is to made the asset will not receive a marital deduction and will be subject to tax thus decreasing amt of assets that can be funded to the trust. (Yes, included in spouses gross estate. No, they will bypass the spouses estate.)

Question 38

17. Which of the following transfers will qualify for the estate tax marital deduction?
    1 survivorship benefits from the decendent’s qualified pension plan that the decedents surviving spouse receives as the benef of the account.
    2 the grant of a general power of appointment to the decedents surviving spouse over property included in an irrevocable trust for the benef of their only child in which the spouse had no other interest
    3 a testamentary trust that names the decedents spouse and children as income benefs and gives the spouse a general power of appointment over the corpus exercisable by will
    4 the surviving spouses share of real estate that is left to the surviving spouse and the decedents children In equal shares
    A 1&3 only
    B 1&4 only
    C 2&3 only
    D2&4 only

Answer 38

B. both options 1&4 involve outright transfers to the decedents spouse. Outright transfers ,always qualify for the marital deduction. Options 2&3 do not q.

Question 39

18. Which of the following statements regarding marital estate planning are correct?
    1 a Decedents spouse can be given a special power of appointment over the corpus of a bypass trust
    2 in a marital trust, the surviving spouse can be one of several income benefs
    3 a QTIP trust can be taxed as either a marital or bypass trust
    4 if theQTIP election is made in a Q trust, the surviving spouses estate will receive a distribution of corpus from the trust equals to the estate taxes due on trust assets
    A 3 only
    B 1&2 only
    C 1&3 only
    D 2&4 only

Answer 39

C a QTIP trust is taxed as a marital trust if the QTIP election is made. Not-taxed as a bypass

Question 40

20. Your client who has made no lifetime taxable gifts has asked you to review her current estate plan which disposes of her $6.24 m estate as follows:
    $5.12m to a QTIP trust
    $1.2m to a power of appointment trust
    Which of the following statments regarding this estate plan is correct?
    A your client needs to change the QTIP trust into a bypass trust so that she can use her full applicable credit amt
    B both of these trust will auto qualify for the marital deduction
    C your client will be able to use her full applicable credit amt without changing anything
    D your client can avoid having more of her estate subject to estate tax than necessary only by having the applicable exclusion amt in the QTIP trust

Answer 40

C the client will be able to use her full app credit amt if her taxable estate at least equals the appl exclusion amt fr the year if death

Question 41

22 which one of the following lifetime transfers would not be entitled to an annual exclusion?
A a life estate given to the donors spouse
B a transfer to a charitable lead trust
C a transfer to a revocable trust
D a transfer to a power of appointment trust

Answer 41

C for it to be annual exclusion the donee must be able to use,possess,enjoy gift immediately

Question 42

25 which of the following statements regarding the applicable credit amt are correct?
1 its use is optional
2 it can be used to pay gift and estate tax liability on taxable transfers equal to the applicable excusion amt
3 use of the full gift tax credit during life will have no effect on the donors estate tax calc
4 in calc estate tax only the unused portion of the estate tax applicable credit amt can be applied against the tentative estate tax
A 2 only
B 3 only
C 1&3 only
D 1 2&4 only

Answer 42

A a credit can be applied only against a tax liability

Question 43

Your client wants to establish a single trust with the following characteristics and provisions:
- the income will be distrib to his gchild at the discretion of the trustee until the gchild reaches 21
- the remaining trust assets will then be disable equally between the gchild and his children
-the client would be entitled to the maximum possible annual exclusion for any assets placed in the trust
Which of the following trusts can have all of these characteristics or provisions?
A crummy trust
B section 2503b mandatory income trust
C section 2503c minors trust
D unfounded irrevocable life insurance trust ILIT

Answer 43

A crummy trust is most flexible and can be drafted to accomplish all those objectives

Question 44

38. Your client Sherman has just given some stock that he purchased two years ago for $12k to his new bride as a wedding present. The stock has a date of gift fair market value of $7k.
    Which one of the following stmts is correct regarding an income tax implication of this transfer?
    A Sherman will be entitled to take a long term capital loss
    B Sherman’s spouse has a basis in the stock if $7k
    C if sherman spouse sells the stock for $6k she will incur a loss of $1k
    D if Sherman’s spouse sells the stock for $8k she will incur a gain of $1k

Answer 44

C since it was gifted there is a carryover and no recognition of gain or loss. Basis determined upon sale. If at loss, basis is $7 if $7-$12 neither and if over $12 her basis is $12.

Question 45

Rex established an irrevocable trust for the benef of his two adult children. Rex named himself as trustee and provided that trust income was to be distrib at the sole discretion of trustee. At the end of the ten year trust term, the corpus and any undistrib income is to be distributed equally to his two children.
Which of the following stmts regarding this trust are correct?
1 Rex will be entitled to two annual exclusions when the trust is funded
2 this is an example if a complex trust
3 distributions at the end of the trust term will be subject to gift tax
4 if Rex dies while acting as trustee the trust asset will be included in his gross estate
A 2 only
B 1&3 only
C 2&4 only
D 1 3&4 only

Answer 45

C this is a complex trust since income can be accumulated. He cannot take annual exclusions year of funding. Distrib are not additional gifts bc the gift occurred when funding.

Question 46

44 which of the following stmts are correct regarding the inclusions of a crummy power in a ILIT?
1 it makes the ILIT a grantor trust
2 it limits the available annual exclusion to the lesser of the crummy power or the maximum allowable annual exclusion
3 the grantor of the trust has made a gift of the fair market value of the crummy power
4 the crummy power is a type of general power of appointment
A 2 only
B 4 only
C 1&3 only
D 2&4 only

Answer 46

D. Since a crummey Power allows the holder to demand distrib of assets, it is a general power of appointment.

Question 47

Pt1:18 Todd & Kristen Johnson have asked you to help them determine the amt of life insurance on k life that would be needed to provide adequate retirement income for Todd. Todd is 34 and the Johnson's want his retirement income to begin at age 68. They estimate that he will need a retirement income of $50k in today's \$\$ at the beginning of each year. K retirement plan at work should provide an income of $30k in today's \$\$. They do not want to include any social security benefits in the calc. T wants to plan for retirement income until age 100 and he wants the annual income to be adjusted for inflation. Using inflation rate of 3% and a yield of 5% what amt is needed if k were to die today?
A $244085
B $246166
C $248967
D $250946

Answer 47

D

Question 48

Pt1:28 for which of the following articles are floater policies generally available? 
1 installed wall to wall carpet
2 21" standard tv
3 boats
4 wedding presents
A 1&4 only
B 3&4 only
C 13&4 only
D 23&4 only

Answer 48

B installed items covered under HO policy not floaters.

Question 49

Pt1:43 which of the following are primary factors that are reasonable to use in determining the quality of an insurance company to be selected?
1 lapse ratio
2 am best ratings
3 form of distrib (agent vs brokers vs direct)
4 historical performance
A 2&4 only
B 12&4 only
C 13&4 only
D 23&4 only

Answer 49

B form of distrib is incorrect because use of agents does not determine quality

Question 50

Pt1 IP:25 a client has a portfolio of blue chip stocks that were purchased many years ago by her spouse. The spouse is of deceased and the client is considering her needs for income and feels the dividends yield on the stocks is not sufficient. You have decided she should be in 60% fixed income. Which one of the following sets of factors related to the recommended changes in the portfolio is the most important for the portfolio advisor to review?
A tax issues, liquidity, and legal constraints
B risk tolerance level, liquidity, and social investing
C tax issues, risk tolerance, and client goals
D client goals, cash flows, and legal constraints

Answer 50

C long held investments have a low tax basis or are worthless and can be used as a tax deduction while the risk is unknown and ay not be compatible with rt level and goals

Question 51

Pt1 ip:41 frank page has an equity mutual fund portfolio consisting if large cap values and growth funds, small cap value and growth funds, international stock funds, and emerging market funds. He has asked you to evaluate the performance of his portfolio. Which one of the performance evaluation approaches listed would be most appropriate?
A treynor index
B holding period return index
C capm index
D sharpe index

Answer 51

A when a portfolio is fully diversifed, then beta is the appropriate risk measure. Treynor uses beta.

Question 52

Pt1ip:47 the economy has had low unemployment, manufacturing capacity utilization has been high, and consumer and investor confidence is high. The federal reserve can be expected to
A decrease the money supply and lower interest rates to decrease capital spending and encourage consumer spending
B decrease the money supply and raise interest rates to reduce inflation and discourage capital investment and consumer spending
C increase money supply and lower interest rate to encourage capital investment and consumer spending
D increase money supply and raise interest rates to reduce inflation and increase spending

Answer 52

B when economy is overheating, a decrease in the money supply and higher interest rates will discourage bus capital investment and consume spending fighting inflation.

Question 53

Pt1:ip 51 a client whom you classify as an aggressive investor has made an excellent return on stock short sales recently. The market fall was a consequence of interest rate tightening by the fed to avert an inflationary threat. The client does not follow the bond market and has asked if there may be an opportunity in bonds for capital gains,you have reviewed the yield curve below. Both you and the client believe all interest rates will fall over the next year a s inflation declines. (Curve slopes down from left to right)
Can you recommend any capital gains opportunities for your client in the bond market?
A no the yield curve is inverted
B yes bonds with maturities at 6 years where the yield curve flattens offer best opp
C yes when interest rates falls bonds with maturities exceeding 29 years offer greatest opp
D no an inverted yield curve means that long term interest rates will continue to rise causing losses not gains.

Answer 53

C long term bonds with high duration are best

Question 54

Pt1:ip 57 you are about to invest in foreign mutual funds and have decided to invest in country funds as opposed to a single diversified international mutual fund. Your single biggest concern is the fact that the US dollar has been rising dramatically against the currency of this country. Which one of the following points is most important?
A the foreign currency should be fully hedged
B the correlation between the foreign market and the us market should be as high as possible,
C if the us mutual funds hold only large cap stocks, the foreign funds should include only small cap stocks
D the correlation between he foreign market and the us market should be as low as possible

Answer 54

A for greatest diversity, the correlation coefficients should be low, zero or negative

Question 55

Pt1:it 55 frank a taxi driver intentionally fails to report approx. $6200 of his tips recd during tax year and does not deposit them into a bank account to ensure they are not detected. If the IRS imposes a penalty due to the under reported income, it would most likely impose a penalty equal to
A 20% of the deficiency
B 50% of the deficiency
C 75% of the deficiency
D 20% of the deficiency plus 50% of the interest

Answer 55

C the civil fraud penalty (intentional disregard) is 75% of amt. the penalty for negligence is only 20%.

Question 56

Pt1:it 67 as a planner, you have grown increasingly concerned about the impact of the alternative minimum tax. Which of the following clients is least likely to have exposure to the alternative minimum tax?
A client who is invested in oil and gas activities
B client who’d has excercised incentive stock options during tax year
C client who has no itemized deductions
D client who is heavily invested in private activity muni bonds

Answer 56

C least likely- one with no itemized deductions.

Question 57

Pt1:it 74 LMN corp owns 5% of the outstanding stock of the STU corp. During the current year, LMN receives $10k of dividends
From STU corp. Both corps are domestic corps. Which of the following correctly identifies the tax treatment of the dividends received by LMN?
A the divs received are fully excluded
B the divs may be 70% excluded
C the divs may be 80% excluded
D the divs are fully included

Answer 57

B 70% may be excluded if recipient corp owns 20% or less of the distributing corp. 80% if over 20% to 80% ownership, 100% exclusion if over 80% ownership.

Question 58

Pt1:retire 27 Jane has participated in the states 457 plan for 12 years and has made maximum contributions. She just turned 63 and entered the last 3 years if employment before she plans to retire. She plans on increasing both her deferrals to the plan and her contributions to her Roth IRA. Which if the following correctly describe provisions of a section 457 plan?
1 non lump sum distributions are subject to ordinary taxation
2 income tax withholding applies to benefits that are Actually received but not to those that are constructively received.
3 distrib from a 457 plan (gov & nonprofit) are subject to 20% mandatory withholding
4 if a participant has named a no spouse beneficiary and later dies at age 73, after distrib have begun, the remaining account balance at be distrib. Over the benes life expectancy or rolled by direct rollover to a separate inherited Ira
A 12&3 only
B 12&4 only
C 1&4 only
D 23&4 only

Answer 58

C 1&4 all distrib. Are subject to ordinary income taxation. From gov 457 plans-20% if not rolled over. Nonprofit- federal income WH only.

Question 59

Pt1: retire 53 all of the following describe contrasting characteristics of qualified and non q plans except the:
A timing of the tax deductibility of the employers contrib. to the plan
B availability of rollover provisions to preserve tax deferral after a distrib.
C ability to defer the employees tax liability until actual receipt of the funds at retirement
D availability of forward averaging tax treatments Ann a lump sum distribution

Answer 59

C ability to defer because both q and non q plans can enable the employee to defer

Question 60

Pt1: retire 84 which of the following are correct stmts about the top-heavy rules?
1 the sponsor of a top heavy plan cannot use the 5 year cliffs or 7 yr graded vesting
2 an employers contribution to a top heavy money purchase pension plan must be at least 3% of compensation per year for each employee
3 for purposes of applying the top heavy test, benefits include any distrib. Due to separation from service, death, or disability made during the current plan year.
4 any employee having annual earnings from the employer in excess of $200k is considered to be a key employee.
A 1&2 only
B 1&3 only
C 2&4 only
D 1 2&4 only

Answer 60

B 1&3 only

Question 61

Pt1: estate 33 your client, Irving, has stated that he plans to make a gift of commercial property worth $1m to his son. You have ascertained that 10 years ago Irving purchased the prop for $200k and has installed $100k in improvements . Irving is 80 years old and in poor health. Which of the following correctly states reasons why Irving should consider making this transfer by will, assuming death in 2012, rather than as an inter vivos transfer?
1 the transferwould be subject to the three year rule anyway
2 the commercial property would be entitled to a step up in basis in 2012 to wipe out all of the gain
3 a transfer by will would allow Irving to use ore of his applicable credit amount since the property will probably be worth more later
4 the property is considered loss property, so it has a zero basis if it is gifted
A 2 only
B 1&2 only
C 1&4 only
D 3&4 only

Answer 61

A. If given at death the asset would be eligible for a step up basis. The proposed transfer would not be subject to a three year rule. Even loss prop when gifted has a basis

Question 62

Pt1: estate 37 which of the following situations correctly state concerns that a single person might have that would not be as critical for a married individual?
1 establishing a lifetime gifting program
2 executing a health care proxy
3 executing a document stating his or h preference of persons to be appointed as his or her guardian and or conservator
4 executing and giving someone a durable power of attorney
A 1&2 only
B 3&4 only
C 12&3 only
D 23&4 only

Answer 62

C 12&3 only. Bc marital deduction is not available at death to delay taxation of wealth. Health care proxy more important bc no one to help with care, and bc a court could appoint a guardian who not have been chosen by individual.

Question 63

Pt1: estate 42 which one of the following is an incorrect stmt about the gift tax charitable deduction?
A to qualify for a charitable deduction a gift must be of cash or property
B a charitable deduction is given only for th portion of the contrib in excess of any value the donor receives from the donee charity
C a gift if a partial interest will qualify for a charitable deduction only if it meets the requirements of the iNternal revunue code and IRs regulations
D the charitable deduction is unlimited for both gift tax and income tax purposes

Answer 63

D the charitable deduction is only unlimited for transfer tax purposes. Fr income tax, the deduction has limits based on the type of charitable donee, type of prop, and the donors AGI.

Question 64

Pt1: estate 44 if you are reviewing an estate plan with a client that includes the establishment of a qualified terminator interest property (qtip) trust, you should always advise your client of all of the following except:
A that if the qtip election is made for all trust accts, his or her surviving spouse will have to pay estate tax on any amount remaining in the trust at his or her death
B that if the Qtip election is NOT made, all assets in the trust at the death of his or her spouse will pass to the remainder men of the trust free f any further estate tax
C that the clients children by a prior marraige can be both income and remainder benes
D that less than all of the assets in the trust can be qualified for the marital deduction

Answer 64

C in order for the assets placed in a trust to be eligible for he marital deduction, the grantors spouse must be the sole income benef, all other stmts are true regarding a qtip trust.

Question 65

Pt1: estate 98 your client who is executor of an estate has asked you to advise him on the requirements and considerations involved in selecting the alternate valuation date for estate assets. Which of the following are correct stmts regarding this postmortem election?
1 this election can be made only if it will decrease the value of the decendent’s gross estate
2 if this election is made, the date for filing the estate tax return is automatically extended by six months
3 if this election is made, the value of all assets of the estate as of six months after the date of death must be used.
4 this election can be made for probate as well as nonprobate assets
A 1&3 only
B 1&4 only
C 2&3 only
D 2&4 only

Answer 65

B 2 requirements for using alternate valuation date: 1 the value of the decendent’s gross estate must be reduced 2 the transfer tax owed by the estate must be reduced. Assets are valued at their date of death value.

Question 66

Pt2 retire: 19 in a multiple plan situation consisting of a defined benefit pension plan and a profit sharing plan PSP that does not have a 401k feature, which of the following is the general rule for determining the max combined contribution?
A if the DB plan is not covered by PBGC, then up to 6% can be contrib. to the PSP plan, regardless of the amount contrib to the DB plan
B if the DB plan is covered by PBGC, then up to 6% can be contrib to the PSP plan, regardless of the amount contrib to the DB plan
C 25% of participants compensation
D 100% of participants compensation

Answer 66

A if a sponsor provides 2 plans a DB and a PSP, the DB plan is it covered by PBGC, then up to 6% can be contrib to PSP.

Question 67

Pt2: retire 28 which one of the following is a gap in medicares part a coverage that a patient must pay?
A costs for a hospital stay beyond 150 days
B the $140 annual deductible for doctors services
C all costs above the $50 hospital deductible for a 30 day stay in the hospital
D the approved costs of care in a skilled nursing facility for the first 10 days

Answer 67

A. B is wrong bc that applies to part b and c is wrong bc Medicare pays for 60 days not 30 and c is wrong bc it is 20 days that it has to exceed not 10

Question 68

Pt2: retire 69 which one of the following correctly describes a characteristic or income tax implication of a fully insured group health insurance plan?
A dismemberment benefits from accidental death and dismemberment coverage are taxable to the employee
B benefits from a comprehensive medical expense plan are always tax free to the employee
C death benefits from accidental death coverage are taxable to the employees beneficiary if the contract does not meet the definition of a life insurance contract
D employer paid premiums are deductible by the employer if the benefits are payable to the employer and are considered additional reasonable compensation

Answer 68

C. If coverage meets definition of a LI contract (issued after 12/31/84) benefits are exempt

Question 69

Pt2: retire 71 assume that a retirement plan participant dies before retirement and that there is a cost basis associated with his or her account. Which of the following correctly states the benef income tax liability due to death benefits paid from a qualified plan as either life income or installment payments?
1 when the benefits are from life insurance, the cash value portion is taxed under the annuity rules
2 if the benefits are not related to life insurance, the employees cost basis becomes the cost basis for the benef
3 if the benefits are not related to life insurance, the includable amount is taxed as ordinary income
4 when the benefits are from life insurance, the amount deemed to be pure insurance is excludable from gross income
A 1&3 only
B 2&3 only
C 12&4 only
D 123&4

Answer 69

D. The annuity rules govern the taxation of the cash value portion of the benefits. The benef assumes the employees tax basis if the death benefits are not from the life insurance, and this cost basis is used to determine the taxable portion of a distrib. Pure insurance death benefits are received income tax free.

Question 70

Pt2: retire 80 which of the following requirements is a possible disadvantage of a simplified employee pension (sep) for an employer?
A the SEPS trustee is subject to ERISAs prohibited transaction excise tax penalties
B a Sep must have a fixed contribution formula that is nondiscriminatory
C the vesting requirements for a sep prohibit forfeitures
D employer contributions to a sep are subject to payroll taxes

Answer 70

C sep contrib must be 100% vested. Prohibited transaction excise tax penalties do not apply to seps.

Question 71

Pt2: retire 86 Jerry age 48 works for Parts Unlimited and earns $350k. The company provides a non elective contib under a simple 401k plan. Assume the section 401(a)(17) annual limit on includable compensation Is $250k in 2012. What would be the max that could be contrib to Jerry's account this year?
A $5k
B $11,500
C $16,500
D $50,000

Answer 71

C $16500 under a simple the employee could defer up to $11500 but the employers compensation (2%) was limited by the section 401(a)(17) annual limit on includible compensation. The max for the employer is $5k. 11500+5000

Question 72

Pt2: retire 91 (omg this is long one) frank and daughter Joan own and operate a gravel pit. Frank is 55 and hopes to retire when he reaches age 65. Joan is 33 and plans to continue operating the biz after Frank retires. Currently frank owns 70% of the biz and Joan owns 30%. Franks income is $72k and they have established a target benefit plan, franks account has been earning 8% and the balance is currently $67,590. Based on an analysis of franks cash flow, you and he have determined that he will need annual retirement income of $54k in today’s dollars.
With this info, which of the following stmts best describes how the target benefit plan will provide for frank and Joan’s retirement?
1 considering Joan’s age, a money purchase plan would be more beneficial to her
2 frank can anticipate that the age weighted nature of the target benefit plan will provide the bulk of his needed retirement income.
3 based on the present investment return, the target benefit plan may provide frank with less than 40% of the income that he will need at retirement
4 for frank, a target benefit plan will not provide adequate income because of the 25% limit on deductions for employer contrib. additional methods of saving need to be explored
A 2 only
B 1&2 only
C 1&3 only
D 13&4 only

Answer 72

D 13&4 only. Even If the company contrib. is 25% of participant compensation, the current acct balance and future contrib will not be enough

Question 73

Pt2: retire 79 your client owns two corp bonds
1 PMH corp-aa-4.75%-12 years to maturity
2 BKH corp-Bbb-6.5%-8 years to mat
Which of the following stmts are true about the relationship between bond prices and bond features? (Single feature)
1 the lower coupon makes PMNs bond more volatile than BKHs
2 the longer maturity makes PMNs bond more volatile than BKhs
3 the higher coupon makes BKHs bond more volatile than PMNs
4 BKHs lower rating makes its volatility higher than PMNs volatility
A 1&2 only
B 1&4 only
C 23&4 only
D 12&4 only

Answer 73

D. 12&4, bonds with lower coupons, longer maturities and lower risk ratings are more volatile than bonds with higher coupons,shorter mat, and higher risk ratings

Question 74

Mr. M enters into split dollar life insurance agreement with employer. What is correct?
A. The premiums paid by M’s employer under this agreement are deductible as a necessary and reasonable biz expense.
B. M may have to include a portion of the premium payments made By employer as income
C. M and employer will be considered equal owners
D. The a employer’s share of any death proceeds will be subject to income tax

Answer 74

B. M may have to include a portion of the premium payments made By employer as income

Question 75

Bettie Brrown was just notified that she has won a civil action suit. Now she has to decide whether to receive annual payments of $50K (increasing at 3% per year) at the beginning of the next 15 years, or a lump-sum payment today. Bettie estimates that inflation will average 3% over the next 15 years and that she can safely earn a 5% compound annual return on her money. What lump sum does Bettie need to receive today to equal the $50K  annual serial payments at the beginning of the next 15 years.
a. $645,272
b. $657,802
c. $861,041
d $877,760

Answer 75

B. $657,802
$50k pymt, 15 # of periods, 5 is return and 3 is inflation rate. Use the inflation-adjusted interest rate in the calc. [(1.05 / 1.03)-1] x 100. Done in Begin mode.

Question 76

Joseph Carter is 45 and has been the owner of a $500k whole life insurance policy for 15 years. With no children at home, Joseph feels he may no longer ned all the insurance coverage and doesn’t want to continue paying the premiums. He would like to maintain some permanent death benefit and still owes $250K on his home mortgage (14 yrs remain) so he wants to keep some insurance. Using the following nonforfeiture values, make a recommendation for Joseph that best meets all his criteria.
Amts per $1000 of policy Face amt: 500
End of Policy year: 15
Cash or Loan Value: $250
Reduced Paid-Up insurance: $565
15 Extended Insurance: 14 yrs. 30 days
a. use the cash surrender value to pay down the mortgage, then use the reduced paid-up insurance option for a small permanent death benefit
b. take the cash value and invest it
c use the extended ins option, since it provides coverage during the mortgage repayment term
d. use the reduced paid-up insurance optio

Answer 76

d.use the reduced paid-up insurance option
since this will provide $282,500 of ongoing insurance coverage ($565 x 500 [from face amt]). THis amt will cover the mortgage and provide a permanent death benefit, while allowing Jospeh to stop paying insurance premiums. The extended ins option will cover the mortgage but not provide the desired on-going (permanent) insurage coverage.

Question 77

22 Bruce and Betty currently have salaries that total $74K annually. Their current housing costs (PITI) are $1450 per month. THey have two auto loans that have combined monthly payments of $525. They pay $800 per month on their credit card balances. Their current taxes, income, OASDI, and hospital insurance, total $10,600. Which of the following statements regarding their debt is correct?
A. THeir housing costs are reasonable, but their consumer debt and total debt are excessive.
b. their housing costs are reasonable, their total debt is reasonable, buth their consumer debt is too high
c. their housing costs are too high, but their consumer debt and total debt are acceptable.
d All measures of their debt indicate that their expenditures are reasonable.

Answer 77

A. housing is reasonable but consumer & total are excessive
Housing debt is less that 28% of gross income. Consumer debt is in excess of 20% of net income (Gross income less taxes) and total debt, housing costs plus consumer debt, exceeds 36% of gross income.

Question 78

34 Which one of the follwing is generally Not done in the “data gathering” stage of the financial planning process?

a. financial stmt analysis
b. determine the client’s time horizons
c. Determine the client’s risk tolerance
d. obtain applicable client records and documents

Answer 78

a Financial stmt analysis
Analysis of financial stmts and other docs is generally done in the Analyzing and evaluating the Client’s financial Status step (step 3)

Question 79

39 Bernie and Betty purchased their home eight years ago for $239,500. They made a 20% down payment and financed the balance using a 30-year mortgage with a 5.15% interest rate. Taxes and insurance increase the payment by $300 per month. How much have they paid in total interest?
a $67,159
b $73,904
c $82,770
d $92,381

Answer 79

b $73,904
12 pymts per yr. Calc in end mode. 20% down payment of $47,900 means that Bernie and betty financed the balance of $191,600 and this is used as the PV in the calc. Because we must first calc the reg monthly payment, n=360 (or 30 yrs x 12 mo/yr) The interest =5.15 and all that needs to be done is to calculate the paymt $1046.19.
In calc 8 yr of pymts, 96 pymts

Question 80

40 Barry Merriweather is meeting Jeff and Judy for the first time and just explained in detail all aspects of the comprehensive financial planning serv he can offer them. Jeff, who knows that Barry has recently passed the CFP exam, turns to Judy and says, “You know his guy is a CFP, he covers everything.” Barry, who has not yet completed the experience requirement CFP certification smiles and says nothing. The meeting moves on and Barry outlines his fee structure, which includes commissions on certain products. DId Barry violate any of the Rules of Conduct?
a. Yes, Barry cannot accept commissions
b. Yes, Barry misled them by not correcting them when Jeff assumed Barry was a CFP Practicitioner
c No, Barry does not have a duty to Jeff & Judy until they are officially clients
d. No the rules of conduct apply only to CFP certificants and Barry is not yet a CFP certificant.

Answer 80

d. he is not yet a certificant.
Though Barry’s lack of response is not quite ethical, Barry is not a certificant and thus is technically not subject to rules of conduct.

Question 81

52 Which one of the following terms is correctly defined as it applies to disability income insurance?
a. maximum monthly benefit s the total amount of monthl benefit an insured can receive over his or her lifetime.
b The presumptive disability clause states that if you meet certain criteria, such as losing your sight or hearing, you are presumed to be disabled, and will receive benefits.
c Partial disability benefits are paid in most policies immediately upon becoming disabled, even if you are not and have not been totally disabled.
d. The waiting period is the period of time during which the indiv policy must be in forece before the insured is covered.

Answer 81

b. presumptive disability is based on the concept that the loss of certain bodily functions (sight, hearing) of the loss of body parts such as both hands, both feet, or one of each, effectively disable an individual. Most policies will pay a full benefit under these circumstances.

Question 82

59 Bernie and Betty purchased their home eight years agoa for $239,500. THey made a 20% down payment, and financed the balance using a 30-yr mortgage with a 5.15% interest rate. Taxes and insurance increas the payment by $300 per month. What is their outstanding principal balance?
a $129,524
b $164,365
c $165,071
d,$206,338

Answer 82

c $165,071

Question 83

60, What is the difference between direct loans and the FFELP?
a Stafford loans are direct loans, PLUS loans are FFELP loans
b Perkins loans are low-interest FFELP loans; Stafford loans are direct loans at current rates
c The source of the borrowed money is the difference
d Direct loans may or may not be needs based, whereas FFELP loans are not needs based.

Answer 83

c. Direct loans are made with government money; FFELP loans are made by private/commerical lenders.

Question 84

70. Which of the following is required to make an insurance contract enforceable?
    a The insured ust specifically agree to all conditions and clauses
    b It must be in writing and printed
    c There must be adequate consideration
    d Both the insurer and applicant must be able to negotiate all contract provisions.

Answer 84

c There must be adequate consideration.
The premium and the promise are deemed to be adequate consideration for one another. Policies do not have to be in writing, nor does the insured have any right to negotiate the terms of the contract.

Question 85

76 Which one of the following insurance policy provisions is correctly defined?
a Subrogation is a provision that is designed to prevent the insured from making a profit on a claim.
b The misrepresentation provision protects the insurer only if the applicant gives a false anwer to a direct question.
c The concealment allows the insurer to cancel the policy if it is found that the applicant lied in order to induce the company to issue the policy.
d The conditions section of a policy defines what perils come under the policy.

Answer 85

a subrogation
The spedific purpose of the misrepresentation provision is to allow the insurance company to cancel the policy if the applicant intentionally provided incorrect information in order to have the company provide insurance on any basis other than the appropriate basis, considering all of the relevant facts. Concealment is the failure of the insured to voluntarily disclose material facts. The conditions section spells out in detail the duties and rights of both parties.

Question 86

81 Belle purchased a Mexican Restaurant. The purchase pricefive years ago was $300K. After making a number of improvements, she was told she could sell the property for $750K. Subtracting the value of the land, the building’s replacement cost would be $625K. Over the years, she has increased the property insurance to its current level of $575K. Last week, a gas leak caused an explosion, blowing out one wall. The cost to repair the building will be $125K. Her plicy has an 80% coinsurance clause and a $5K deductible.
How much will her insurance company pay toward repair of the damage?
a $110,000
b $110,400
c $114,792
d $120,000

Answer 86

d $120,000– SInce the amount of insurance exceeds 80% of the replacement cost (.8 x $625K = $500K) the company will pay the amount of the loss, less the deductible.

Question 87

83 In accordance with CFP Board’s Standard of Prof Conduct, A CFP certificant must do which of the following regarding the funds and /or other property of clients?
a Keep a complete record of all funds and or property under the control of discretionary authority of the CFP certificant
b The CFP certificant may control or use discretionary authority over funds and/or property of a client in such a manner as he or she believes is in the best interest of the client
c He or she may not commingle client funds, regardless of the quality f record keeping that may be used to identify each client’s share.
d The CFP certificant who has control of or exercises discretionary authority over a client’s funds and/or other property must provide an accounting of those assets not less than quarterly to the client.

Answer 87

a Keeping complete records is required of a CFP Certificant

Question 88

87 Which of the following are provisions of the Fair Credit Reporting Act?
1 Credit card holders are liable for unauthorized charges only to $50.
a 1 and 2 only
b 1 and 4 only
c 2 and 3 only
d 2 and 4 only

Answer 88

d 2 and 4 only
The fair credit reporting act addresss only issues relating to creddit reorting, such as who may see a consumer’s credit report and prcedures to follow in correcting erros in a report. The cardholder’s limited liability for unautorized charges and rules relaing to the issue of credit cards are addressed by the consumer Credit Protection Act.

Question 89

93 Tom offered to pay John $2,500 to cut down his next-door neighbor’s tree, which interfered with Tom’s view of the lake. John agreed to do so.
Which requirement is Not in place to make this a legally enforecable contract?
a adequate consideration
b legal object
c legal form
d competent parties

Answer 89

b legal object

No contract that involves illegal activity is legally enforceable

Question 90

95 Beth and Bryan are both age 35, and they have two chidlren, ages 6 and 3. Beth earns $75K per yr and Bryan earns $35K. The income Bryan needs at teh beginning of each year is $60K and expected annual imcome and benefits to him from all cources equal $45K.
Using an annual inflation rate of 3% and a yield of 6%, what amount of life insurance is needed if Beth were to die today, to provide a pre-retirement income fund for Bryan from the time the youngest child reaches age 18 until Bryan reaches age 68?
a $134,117
b $135,114
c $138,141
d $139,046

Answer 90

d 139,046
The answer is calculated by finding the future value of $15K ($60K - $45K) in 15 years (when the youngest child turns18) at 3% inflation. Then calculate the present value of the series of inflated payments ($23,370) at the beginning of each year for 18 years (until age 68) at an inflation-adjusted rate of return of 2.9126% ($333,232). Then, calculate the present value of $333,232 discounted at 6% for 15 years ($139,046)

Question 91

96 Tom and Jan Paisley are your clients. They have just purchased their first house for $192K with a $40K down payment and have taken out a 30 yr mortgage with a 4.26% interest rate. By how much will they reduce the principal balance paid on their house at the end of 10 years if they pay $500 extra each month during the first 10 years of ownership?
a $14,644
b $31,206
c $60,000
d $74,643

Answer 91

d $74,643

Long calc answer…

Question 92

98 Which one of the following regarding Perkins loans is correct?
a Perkins loans are available from both the government and private lenders.
b Perkins loans are available to students with exceptional financial need
c Perkins loans are genereally made with an interest rate equal to the prime rate
d Perkins loans are available only to undergraduate students

Answer 92

b. Perkins loans are intended to help students with exceptional financial need. The loans are provided by the student’s school, with government funds and at a very low iterest rate. (5%) to undergrad and grad students who meet the criteria.

Question 93

109 Under the Personal Auto policy, the term “covered auto” includes which of the following?
1 any vehicle shown on the declarations page
2 a car purchased during the plicy period, provided the insured requests insurance on it within 14 or 30 days (depending on the state and/or policy)
3 any utility trailer owned by the insured
4 a “loaner” car used as a temporary substitute for the insured’s car while being repaired
a 1,2 & 3 only
b 1,2 & 4 ony
c 1,3 & 4 only
d 1,2,3 and 4

Answer 93

d all of these are considered a “covered auto”

Question 94

134 Nick came in for his annual review. Three months ago, his youngest child graduated from college. He says that this is important because, in his divorce decree of nine years ago, he was required to name his ex-spouse as an irrevocable beneficiary of a life insurance policy to make sure the children were adequately taken care of financially until they all reached age 21 or graduated from college. Unfortunately, his ex-wife will not authorize him to change the beneficiary on his policy.
Which one of the following is an option that will allow Nick to gain control of his life insurance?
a stop paying premiums on that policy and take out a new one
b borrow out all of the cash value and offer to buy out his ex-wife
c surrender the policy so she does not have anything to approve
d send a copy of the divorce decree to the insurance company with a erquest to change the beneficiary

Answer 94

a stop paying premiums
The only thing a policy owner can do with a policy that has an irrevocable beneficiary is stop paying premiums. If it is a term policy, it will lapse with no value. If it is a permanent policy, the cash value will either provide for extended term insurance or a reduced face amt of ins. The owner may not normally surrender or borrow from a policy that has a named irrevocable beneficiary. Policy is separeate and independent of a divore decree.

Question 95

143 Which of the following coverages are common to both unendorsed HO 00 03 policies and HO 00 04 policies?
1 broad form coverage on personal property
2 broad form coverage on loss of use
3 open peril coverage on personal property
4 open peril coverage on the dwelling
a 1 only
b 4 only
c 1 & 2 only
d 3 & 4 only

Answer 95

a 1 only
Both forms have “broad form” coverage on personal property. An HO 00 15 rider can be added to an HO 00 03 policy to provide open perils coverage on personal property.

Question 96

144 Heather & Jason want to start building an education fund for their daughter, dorothy, who is 4 years old. The Winslows assume Dorothy will begin four years of college at age 18, and want to have a fund based on $15,000 per year in expenses in today’s dollars. They also assume that college costs will iflate at 5% per year, and that they can earn 7% annually on their money (including during the peorid when Dorothy is in college) When dorothy starts college, the Winslows want to have an amount in their fund equal to all four years of expected college expenses, including anticipated inflation-related increases.
What periodic payment should they make at the end of each month, to reach this goal?
a $399
b $404
c $407
d $508

Answer 96

c $407

Long calc answer

Question 97

147 For tax purposes, Bernie and Betty would like to know precisely how much interest has been paid this year on their mortgage loan. They purchased their home eight years ago for $239,500. They made a 20% down payment, and financed the balance using a 30-yr mortgage with a 5.15% interest rate. What is the amount of loan interest they have paid this year?
a $6930
b $8575
c $8612
d $10,765

Answer 97

c $8612

Long calc answer

Question 98

157 Carter and Helen have a major medical plan with a $5 milion maximum benefit. It has a $300 individual deductible and a $900 family deductible. The plan also has 80/20 coinsurance and an individual stop-loss limit of $5000 for each person. Early in the year, Careter had an operation, incurring $10K in covered medical expenses. Throughout the year, the Howard’s two children each acculmulated $2500 in covered medical bills. In May, Helen had a major surgical procedure, with covered expenses totaling $75K.
How much of the total expenses of $90K will be paid by the Howards under their major medical plan?
a $3780
b $4900
c $5200
d $17820

Answer 98

a $3780

Question 99

C Corp gets preference of liquidation of biz thru preferred stock. True or false?

Answer 99

True

Question 100

Low coefficient of determination indicates Beta not reliable. It also is not a risk index. T or F

Answer 100

True

Question 101

Max pension benefit is 200k

Answer 101

True

Question 102

Disability checks: 60 day elimination, benefits start on 61st day then pay 30 days later. Hence 90 days will get first check.

Answer 102

True

Question 103

Section 1244 allows 50k loss for sgl and 100k for jt

Answer 103

True

Question 104

Tax free transportation is 125/ mo and 240/mo for parking

Answer 104

True

Question 105

403b are nonqualified and same rules apply. But qualifies for exception to the penalty if participant is at least 55 and separates from service

Answer 105

True

Question 106

The limitation on compesnation does not apply in making an employer contribution under which of the following (SIMPLE)?
1-SIMPLE IRA with employer making a matching contribtuion
2-SIMPLE IRA with emplyer making a nonelective contrbution
3-SIMPLE 401K with employer making a matching contribution
4-SIMPLE 401K with employer making a nonelective contribtuion
A-1 only
B-1 & 2 only
C-1 & 3 only
D-1,2,3, &4

Answer 106

A: 1 only
*limit does not applu for purposes of thematching contribution with a SIMPLE IRA, but does apply under SIMPLE IRA if employer provides a nonelective contrbution. Note that the limitation applies to a SIMPLE 401K whether the employer provides a match or a nonelective.

Question 107

Cheryl ia a sole proprietor with a net profit of $180k in 2012. The SS wage base is $110,100 & the limit on compensation is $250k. Cheryl contributes 20% of compensation to her 2 employees money purchase HR-10 plan accts. The contribution for her 2 employees has already been deducted from Cheryl's gross earnings to obtain the net profit of $180k. How much can Cheryl contribute to her own acct for 2012?
A. 28,466
B. 31,192
C. 43,568
D. 50,000

Answer 107

A. 28,466
**her self emply tax would be $16,271. Subract a portion of the self-employ tax(9,235) from her net income leaves $170,765. Max compthat can be considered in 2012 is $250k, so the full comp applies. She contributes 20% into the MPP for her employees, the contribution for Cheryl would be 16.67%x170,765=28,466.

Question 108

Which of the following statements are correct regarding a Medicare HMO enrollee’s options to go outside of the HMO for health care?
1-Neither HMO’s that have risk contracts with Meicare nor Medicare itself will pay for care outside the HMO, except in Emergency.
2-HMO”S that have cost contracts with Medicare will pay for care outside of the HMO, subject to copays & dedictibles.
3- Only Emergency serices & urgent care are covered when a Medicare HMO enrollee goes outside the HMO for care.
4-Medicare HMO enrollees have the freedom to chosse any provider, but may have to pay an additional $10 if they receive care outside the HMO.
A-1 & 2
B-2 & 3
C-1,2,&3
D-2,3,&4

Answer 108

A-1 & 2 only

Question 109

Which of the following legal requirements apply to ESOP’s?
1-ESOPS must permit age 55 participants who have at least 10yrs of participation the opportunity to diversify theiraccts.
2-ESOPS cannot be integrated with SS.
3-An employers deduction for ESOP contributions & amounts made to repay interest on an ESOP’s debt cannot exceed 25% of the participants payroll.
4-The mandatory 20% income tax w/h requirement does NOT apply to distrbutions of employer stock from an ESOP.
A. 1 & 2
B. 2 & 3
C. 1,2,& 3
D. 1,2, & 4

Answer 109

D. 1,2, & 4
**1 & 2 correctly stae the diversification rule. There is no limit on amounts used to pay interest on ESOP debt. ESOP distributions of employer stock only are NOT subject tot he 10% income tax w/h

Question 110

Distributions from which of the following types of plans may be eligible for favorable forward averaging tax treatment on lump sum distributions?
1-a corporate qualified plan
2-Keogh plan for a common law employees seperating from service.
3-simplified employee pension plan
4-tax sheltered annuity
A. 1 & 2
B. 1, 2 & 4
C. 1, 3 & 4
D. 2, 3, & 4

Answer 110

A. 1 & 2
** SEPS & tax sheltered annuities do not qualify for forward averaging, they are not qualified plans. Lump sum distributions must come from a qualified plan.

Question 111

Ed, a sole proprietor, realized net profit of $120k in 2012. The SS wage base is $110,100. Ed plans to contribute the max possible to the SEP. He has asked you to determine how much he can contribute to his own acct because he was advised he could not make a contribution since the SBJPA 96 does not allow SEP's with salary reductions to be established after 12/31/96. The max contribution for his 2 employees has already been deducted from Ed's gross earnings to obtain the net profit of $120k. How much can Ed contribute to his own SEP for 2012?
A. 12,171
B. 14,870
C. 18,470
D. 22,314

Answer 111

D. 22,314
**Eds self employment tax would be $14,664. Subrtact a portion of the self employemnt tax ($8430) from his net income leaves $111,570.
The max compensation that can be considered is $250k, so the full compensation applies. He contributes 25% (the max) into the plan for his employees, the contribution for Ed would be 20%x$111,570=$22,314.

Question 112

The Johnson’s are both 48 and want to retire at 65 lasting to 90.They will need a lump sum retirement fund of $4million, their assets will amount to $2.5 mil at the first retirement yr, leaving $1.5 mil to be saved over the preretire period.
If their after tax rate of return is 8% inflation at 4.5%, & they want their required annual saving deposit to be adjusted for inflation, what must they deposit for the forst yr of their plan?
A. 31,664
B. 33,089
C. 66,917
D. 69,929

Answer 112

B. 33,089
**FV=1500000, PMT=0, I/yr=4.5, N=17
therefore, PV=709764.58 Thn, FV=709764.58, PV=0, I/yr=3.34928, N=17..so
PMY=31663.89 31663.89 x 1.045=$33,089

Question 113

CSC has contributed 25%of covered payroll to is PSP for the currrent yr. Forfeiture reallocations for the yr amounted to 8% of covered payroll. The Pres of the co received a salary of $160k. The investments in his acct earned 10% for the yr. Which of the following statements are correct regarding CSC’s PSP?
1-CSC wil be allowed to deduct 7% of covered payroll for its plan contrbution.
2-CSC will be allowed to deduct 25% of covered payroll for its plan contribution.
3-The plan will be in compliance with Sec 4159c) limits on annual additions.
4-The annual additions to the Pres acct for the yr will be limited to $40k.
5-The potential annual additions to the Pres acct total 33% of his salary.
A. 1 & 3
B. 2 & 5
C. 1, 3 & 4
D. 2, 3, & 5

Answer 113

B. 2 & 5

**The max employer deduction for contributions into a PSP is 25%. The Pres total employer contributions(25%), employee contributions(0), & forfeiture realloc (8%) is 33% ($52,800)…below the 100% of compensation but greater that the $50k limit for annaul additons in 2012.

Question 114

Don's sole proprietorship yielded net profits of $165k in 2012. The SS wage base is $110,100 & the limit on compensation was $250k. Don contributes 18.5% of his 2 employees compensation into the company's money purchase HR-10 plan. This contribution has already been deducted from Don's gross earnings to obtain the net profit of $165k. How much can Don contribtute to his own money purchase plan acct for 2012?
A. 23,352
B. 24,346
C. 25,756
D. 28,189

Answer 114

B. 24,346
**Don’s Self emply tax would be $18,071. The above the line deduction for the se tax would be $9034. Subtract this from the $165k results in $155,966(amount to base his contrbution) He contributes 18.5% for his employees, the contribution for Don would be 15.61%….thus it would be $155,96 x .1561=$24,346

Question 115

The max service requirement that a Thift plan may impose as a condition of participation is:
A. 6  mo
B. 1 yr
C. 1 1/2 yrs
D. 2 yrs

Answer 115

D. 2 yrs
** An employee must become a participant in a thrift plan on the next plan entry date following the later of attainment of age 21 or 2 yrs of service. The max for a 401k plan is 1 yr.

Question 116

Which of the following general requirements are necessary to exempt a qualified plan loan from prohibited transaction treatment?
1-reasonable rate of interest
2-dollar limitations
3-term of the loan
4-adequate security
A. 1 & 4
B. 2  & 3
C. 1, 2, & 3
D. 1, 2, & 4

Answer 116

A. 1 & 4
**The prohibited transaction exemption rules require that loans bear a reasonable rate of interest & they be adequately secured. A loan will be treated a a taxable distribution if it does not meet the dollar limits and term requirements.

Question 117

Which of the following are correct statments about the permitted disparity reuls (SS integratin rules) for defined benefit plans?
1-A plan which provides a benefit for wages up to the integration level, plua a higher benefit for wages that exceed the integration level, is an integrated defined benefit excess plan.
2-A plan which provides that an employee’s benefit otherwise computed under the plan formula is reduced by a fixed amount or formula amount is an integrated defined benefit offset plan.
3-Covered compenation is the average of the participants compensation NOT in excess of the taxable wage base for the three-consecutive-yr period ending with or within the plan yr.
4-The base benefit % is determined by calculating the benfits provided by the plan based on compensation below the integration level & expressing these benefits as a % of the compensation below the integration level.
A. 1 & 2
B. 1 & 3
C. 2 & 4
D. 1, 2, & 4

Answer 117

D. 1, 2, & 4

Question 118

Which of the following statments describes a DISADVANTAGE to a participant in a money purchase plan?
A. The plan places investment risj with the employer.
B. The plan has high admin expenses.
C. It is difficult to communicate to empoyees about the plan.
D. The participant does not know what the ultimate retirement benefit will be.

Answer 118

D. The participant does not know what the ultimate retirement benefit will be.

**A money purchase plan is a defined contribution plan, the ultimate retirement benefit cannot be determined, as it will depend upon both the amount of contributions & the return on the investments.

Question 119

Blake granted ISOs of $6000 and exercised @ 90000. He makes $110000. What’s withholding withheld ?

1. 25000
2. 18000
3. 0
4. 20538

Answer 119

ISOs not taxed at grant nor exercise. Bargain element value is $84000, results in AMT adjustment. ISO exempt from section 409A and not subject to FICA, FUTA or federal withholding

Question 120

Joint couple ages 42, with AGI of 101k, she participates in simple Ira and he in money purchase plan. How much can they deduct ?
A. 0
B. 5500
C. 10,000
D. 12,000

Answer 120

B. 5500. Phaseout range 92,000 to 112,000. The (112,000 - 101,000) divided by 20,000=.55. Then .55x5000=2750. Each can do totaling 5500.

Question 121

Flat percentage formula pays benefit equal to fixed percent of earnings like last 5 years. T or F

Answer 121

True

Question 122

For IRA deductible rules, if both participate in plans, range is 92-112k and if one participant is 173-183.

Answer 122

True

Question 123

The PBGC may initiate an involuntary distress termination proceedings if a pension plan benefits when they become due. Only defined benefit plans are required to pay PBGC premiums; pension plans may include contributory plans as well.

Answer 123

True

Question 124

Which of the following represents a biz objective for owner?
A. Provide employee with retirement income
B. estate planning consideration
C. Maximize tax benefits for owner
D. Recruit and retain employee

Answer 124

D. Recruit and retain employee , reduce income taxes paid by biz, rewarding key employees, motivating employees, increasing employee satisfaction

Question 125

The 2% non elective contribution is subject to the 250k limit on simple IRA but not subject to compensation limit. Penalty for withdrawal in under 2 yrs is 25%.

Answer 125

True

Question 126

Which of the following are correct statements about the permitted disparity ruels(SS integration rules) for qualified plans?
1-An integration level for a defined contribution plan that exceeds the current yrs taxable wage base may be selected.
2-The pernitted disparity level in a defined benefit plan must be reduced for early retirement.
3-It is NOT possible to have a defined benefit formula in which lower pid employees receive No benefit.
4-The max permitted disparity provided under a defined benefit plan is 25.25% for a flat benefit plan and 0.75% for unit credit plan.
A. 1 & 2
B. 1 & 3
C. 2 & 4
D. 2, 3, & 4

Answer 126

D. 2, 3, & 4
**The permitted disparity level must be reduced if participant retires early. It is no longer poss to have an “integrated excess” plan does not provide any benefitd to employees with wages below the integration level. The integration level selected cannot exceed the current yrs tax wage bas, BUT it may be less.

Question 127

A qualified plan must allow a 22yr old employee who satisfies the plans 1 yr service requirement to commence participation in the plan NO LATER THAN which of the two of the following?
1-the earlier of the first day of the plan yr beginning after the date on which the employee satisfies such requirements.
2-the last day of the plan yr duing which the employee satisfies such requirements.
3-the date 6 mo after the date on which the employee satisifes such requirements.
4-the first day of the plan yr in which the empoyee satisfies such requirements.
A. 1 & 2
B. 1 & 3
C. 1 & 4
D. 2 & 3

Answer 127

B. 1 & 3

Question 128

Jeff has a company with 2 execs he wants to retain, The company currently provides a money purchase plan, & these 2 are already at the Sec 415 limit. Jeff has an interest in offering them phantom stocks.
Which of the following are applicable to phantom stock arrangements?
1-The units added to each execs acct will mirror the value of stock in the company.
2-The value of div paid on companys stock can also be added to each execs acct, but must be considered as taxable income to them in the yr the value of a div is added to the accts for each.
3-Since the value of the units reflects the value of the company, the value of the phantom stock will be a reflection of the performance of the execs.
4-After the execs have served the company for a prearranged period of time, the phantom stock can be paid out in cash or in compnay stock.
A. 1 & 2
B. 1, 2, & 4
C. 2, 3, & 4
D. 1, 3, & 4

Answer 128

D. 1, 3, & 4
**Under phantom stock the units only mirror the value of the employer’s stock. The value of div paid bythe co stock may also be added to the accts, but are merely a measuring device. The empoyee does not actually own or receive any stock. After the prearranged time, the value of the units may be paid out subject to tax at ordinary tax rates.

Question 129

Mr. Stowe established a money purchase plan at his company that is a C Corp and Mr. Stowe owns 75% of the stock. the Co Money purchase plan provides for a contribution of a flat 20% of compensation. Mr. Stowe’s annual retirement savings need is $30k, his annual income is $180k. Mr. Stowe is the only 5% owner-employee, but there are three other highly compensated emloyees at the Co. He is getting a divorce & his retirement savings need has increased to $47k. He wants to find the most favorable way to save the extra $17k annually. His personal tax rate is higher than the corporations tax rate. He also doesn’t feel the co can make a significant increase in the contributions to the money purchase plan with 57 employees particiapting. Which of the following descibes the most favorable recommendation for Mr. Stowe?
A. An excess benefit plan could be established for employees who have income in excess of the Sec 415 limitation.
B. Establish an offset SERP that would be designed to provide the retirement income need of Mr. Stowe minus the benefit provided under the qualified plan.
C. The Co. could add a PS 401k plan for Mr. Stowe to defer part of his earnings.
D. The plan can be evaluated to see if moving to SS integration would increase the contribution for Mr. Stowe w/o having a significant increase in the total contribution for the plan.

Answer 129

B. Establish an offset SERP that would be designed to provide the retirement income need of Mr. Stowe, minus the benefit provided under the qualified plan.
**An excess benfit plan could increase his futre benefit but he needs more than the 20% specified in the plan. With a SERP, the total benefit can be greater than the formula provided under the MPP.

Question 130

On 1/24/09, Dve was granted 5,000 incentive stock options with an excersise price of 430. The stock price was $30 on that date. On 2/2/12, he exercised all 5,000 options at $67. Which are true?
1-Dave will have ordinary income & cap gaind if he sells the stock he acquired with the options in March 2013.
2-When he exercises them, a portion of Dave’s options cannot be ISOs.
3-Dave will not have an AMT income adj if he sells the stock acquired with ISOs in June of the same year.
4-Dave wil have additional income taxed as wages in 2012.
A. 1
B. 1 & 3
C. 2 & 4
D. 2, 3, & 4

Answer 130

D. 2, 3, & 4
** 1 is false, since cap gains would apply in 2013.
2 is true, becuase the value of ISOs exercised in any yr may not exceed $100k.
3 is true due to the early sell(

Question 131

Dr. B & Dr. S have been approached about a VEBA for their clinic, they currently have a retirement plan and want your opinion. The info they have brought you indicates that the plan would provide severance pay based upon compensation & length of service. benefits would be payable due to termination caused by events such as disability or retirement. Which of the following statements would be an appropriate response?
A. The trust would qualify under the requirements to provide welfare benefits for the members of dependents.
B. One disadvantage of the VEBA is that the biz must report as taxable incme annual earnings within the trust in yrs that the earnings exceed the benfits paid thru the VEBA.
C. The trust would satisfy the IRC Sec 501(c) 9 requirements that VEBAs are created to rpvide “life, sickness, accident, & other” benefits intended to safeguard or improve the health of a member.
D. Id does not appear that the trust would qualify as a VEBA.

Answer 131

D. It does not appear that the trust would qualify as a VEBA.

Question 132

Which of the following are correct statements about the legal requirements for pensionplans that are subjuect to Pension Benefit Guaranty Corp coverage(PBGC)?
1-The PBGC may initiate a standard termination proceeding if the pension plan is unable to pay benefits when due.
2-PBGC-guaranteed benefits exclude medical ins benefits, benefits in excess of the PBGC limit, and lump sum benefit payouts.
3-The amendment of a defined benefit pesnion plan into a money purchase pension plan will result n termination of the defined benefit plan.
4-Pension plans are required to pay premiums to the PBGC.
A. 1 & 2
B. 2 & 3
C. 1, 2, & 3
D. 1, 2, & 4

Answer 132

B. 2 & 3

Question 133

Which of the following techniques would enable a biz owner who is setting up a defined benefit plan in his co. to provide a retirement benefit equal to 1.5% of employees highest 5 yrs earnings times yrs of service?
A. flat % formula
B. unit benefit formula
C. career-avg pay formula
D. flat amount formula

Answer 133

B. unit benefit formula

Question 134

A qualified retirement plan may provide “incidental” death benefits through insurance. Which one of the following is correct regarding the max benefit tht still meets the incidental benefit rules safe harbor?
A. cost of term or UL ins cannot exceed 50% of the cost of all plan benefits.
B. cost of whole life cannot exceed 50% of the cost of all benefits.
C. the death benefit cannot exceed 50 times the expected monthly benefit.
D. the death benefit cannot exceed 100 times the unexpected annual benefit.

Answer 134

B. cost of whole life cannot exceed 50% of the cost of all benefits.
**cost of term or UL cannot exceed 25% of the cost. Safe Harbor rules state DB cannot exceed 100x expected monthly benefit.

Question 135

Blake granted ISOs of $6000 and exercised @ 90000. He makes $110000. What’s withholding withheld ?

1. 25000
2. 18000
3. 0
4. 20538

Answer 135

ISOs not taxed at grant nor exercise. Bargain element value is $84000, results in AMT adjustment. ISO exempt from section 409A and not subject to FICA, FUTA or federal withholding

Question 136

Joint couple ages 42, with AGI of 101k, she participates in simple Ira and he in money purchase plan. How much can they deduct ?
A. 0
B. 5500
C. 10,000
D. 12,000

Answer 136

B. 5500. Phaseout range 92,000 to 112,000. The (112,000 - 101,000) divided by 20,000=.55. Then .55x5000=2750. Each can do totaling 5500.

Question 137

Flat percentage formula pays benefit equal to fixed percent of earnings like last 5 years. T or F

Answer 137

True

Question 138

For IRA deductible rules, if both participate in plans, range is 92-112k and if one participant is 173-183.

Answer 138

True

Question 139

The PBGC may initiate an involuntary distress termination proceedings if a pension plan benefits when they become due. Only defined benefit plans are required to pay PBGC premiums; pension plans may include contributory plans as well.

Answer 139

True

Question 140

Which of the following represents a biz objective for owner?
A. Provide employee with retirement income
B. estate planning consideration
C. Maximize tax benefits for owner
D. Recruit and retain employee

Answer 140

D. Recruit and retain employee , reduce income taxes paid by biz, rewarding key employees, motivating employees, increasing employee satisfaction

Question 141

The 2% non elective contribution is subject to the 250k limit on simple IRA but not subject to compensation limit. Penalty for withdrawal in under 2 yrs is 25%.

Answer 141

True

Question 142

Frank owns warehouse bot for $196,000. Used straight line method of cost recovery for $35,000. Sold property for $230k. What nature of gain?
A. 7k of ordinary gain
B. 34000 section 1231 gain, 35,000 ordinary income
C. 69,000 ordinary income
D. $69,000 section 1231 gain

Answer 142

D. $69,000 section 1231 gain. Since no excess depreciation.

Question 143

Compute portfolio stats. A weighted average is used to calc?
A. Beta
B. portfolio yield
C. Port total return
D. Standard deviation
1. A, D
2. B,C
3. A,B, C
4. B,C,D

Answer 143

3. A,B, C–beta, yield, total return. Not standard deviation

Question 144

which fiscal and monetary policy activity is expansionary?
I. Increasing bank reserves
II. Tax cuts
III. Expanding the money supply
Iv. tax rebates
V. goverment spending

a. I, III
b. ii, III, Iv, v
c. II, IV, V

Answer 144

B

Question 145

In the gathering-data step of the financial planning process, there are two types of data.  Which of the following is an example of qualitative data?
A. Client's date of birth
B. Amounts invested in stocks and bonds
C. Client's desire to retire by age 65
D. Names of financial advisors
E. Copy o ILIT

Answer 145

C. Client’s desire to retire by age 65.

Question 146

during an inflationary period,comapny A is using LIFO form of inventory control. If it changes to FIFO, which of the following will be true?

a. net business income will be higher
b. net business income will be lower
c. tax liability will be lower
d. inventory cost will be understated

Answer 146

A. net income will be higher.

Question 147

studying Capital Asset Pricing Model. which is correct with SML and CML?
1. There is a positive relationship between risk and return as measured by either line.
2. The security market line measures total risk by looking at standard deviation.
3. In both lines the measure of return is the same
4. The capital market line measures the risk of return at the portfolio level.
A. 1,2,3
B. 2, 4
c. 3,4
d. 1,3,4

Answer 147

D. 1,3,4

Question 148

Which correctly describes the efficient frontier in portfolio theory?
A. it indicates the highest return for given levels of risk
B. it illistrates the optimal tradeoff between long and short term gains
c. it quantifies the systematic and unsystematic risk
d. it indentifies the optimal portfolio for the investor

Answer 148

a. At any point along the eff. front the highest return for a given risk. the optimal portfolio is the point on the eff front that intersects with the investors indifference curve.

Question 149

Characteristics of banker’s acceptances?
1. they are issued at face value
2. have a higher yield than corporate bond
3 they are guaranteed by the accepting bank
4. they are used to facilitate international trade
A. 1,3
b. 3,4
c. 1,3
d. 2,4

Answer 149

B. 3 & 4

Question 150

Correct statement on Ginnie Maes if interest rates increase
1. the price falls
2. the price rises
3. the speed at wich they are retired increases
4. the speed at which they are retired decreases
A. 1,3
b. 1,4
c. 2,3
d. 2,4

Answer 150

b. 1, 4

Question 151

Which are leading economic indicators?
1. initial claims for unemployment insurance
2. building permits for new home construction
3. changes in manufacturer’s unfilled orders for durable goods
4. the level of unemployment
A. 1,2
B. 1,2,4
C. 1,2,3
D. 2,3,4

Answer 151

C. 1,2,3. Level of unemployment is not a leading indicator.

Question 152

If an American holds foreign securities and is concerned about the exchange rate risk, the investor may hedge by
A. buying American securities in europe
B. selling the futures contract for delivery of dollars
C. buying the futures contracts for delivery of dollars
D. diversifying the portfolio into many foreign sec.

Answer 152

C. buying the futures contracts for delivery of dollars

Question 153

A client had a tax liability last year of $150k. What is the min. annual tax payment to avoid an underpayment penalty tax?

a. 90% of last year’s return
b. 100% of last year’s return
c. 90% of this year’s return
d. 100% of prior year’s return

Answer 153

c. 90% of this year’s or 110% of the prior year when AGI over 150k. If under this AGI, then 100% of prior yr.

Question 154

The best source for obtaining information about the intent of a very recent change in the tax law?

a. RIA federal tax coordinator
b. congressional committee reports
c. treasury regulations
d. tax court reports

Answer 154

b. congressional committee reports

Question 155

If setup where the company lends you money instead of a salary and don’t plan on repaying debt. This is considered?

a. sham transaction
b. substance over form
c. step transaction
d. assignment of income

Answer 155

b. substance over form

Question 156

John is found guilty of tax fraud in a substance over form violations. what is penalty?

a. pay 75% of deficiency amount attributed to fraud
b. pay 50% of deficiency amount attributued to fraud plus 75% of the interest or underpayment
c. 20% of the deficiency due to fraud
d. 75% of the deficiency amount attributable to fraud plus 50% of late interest

Answer 156

a. 75%of the deficiency amount attributed to fraud.

Question 157

Tom concerned about his disability policy. When bot policy, the agent told him the company could not change the premium. What should he look for in policy?

a. Loss of income
b. guaranteed renewable
c. own occupied
d. non-cancelable
e. unilateral

Answer 157

d. non-cancelable

Question 158

Loretta started receiving substantially equal annual payments from her IRA at age 58. She stopped receiving payments at age 61 (a total of 3 payments). what is the amount of recapture tax she is subject to?

a. none, she attained 59.5
b. none, she ceased receiving payments
c. the recapture amount will be 10% of the total payments received before attained age 59.5 and interest
d. 10% of the 3 payments and interest
e. 10% of the value of the IRA and interest

Answer 158

c. 10% of the total payments before 59.5 and interest.

Question 159

Bob retired. He had ESOP. Stock basis of 50k was contributed to. Stock valued at 125k was distributed at Bob’s retirement. Six months after his retirement, Bob sells all of the shares for $150k. What is tax?
a. $50k was taxed as ordinary income at the time of retirement; $75k will be taxed at LTCG rates at time of sale and $25k will be taxed at STCG at time of sale
B. 150k will be taxed at LtCG at time of sale
C. 100k will be taxed at LTCG
D. $50k will be taxed at ordinary income at time of retirement; 100k will be taxed at LTCG at time of sale.

Answer 159

A. $50k was taxed as ordinary income at the time of retirement; $75k will be taxed at LTCG rates at time of sale and $25k will be taxed at STCG at time of sale

Question 160

Corporate annual reports do not include which of the following?
A. Depreciating methods
B. Stock options
C. Profitability projections
D. Inventory methods
E. Outlook of the firm’s products in various industries in which it operates.

Answer 160

C. Profitability projections

Question 161

A home has a FMV of $450k and land $100. Home is partially destroyed by fire. Damages of $100k. Home insured for $250k with replacement cost coverage. Home much will homeowner get (ignore deductible)
A. 0
B. $55,556
C. $71,143
D. $89,286
E. $100,000

Answer 161

D. $89,286. 450-100=350 350x.80= 280. 250/280=.8929 x 100k= $89,286

Question 162

Barb and kate were 50/50 owners of BK. When started BK, Barb and Kate took out 2 $1,000,000 key person term life ins. Over the years, company paid $5k of premiums on Barb’s policy and $4000 on Kate’s. Barb and Kate decide to use the policies to cross-purchase buy-sell. If Barb buys Kate’s policy for the premium paid by BK, what will be result if Kate dies within one year?
A. Barb will be 1M income tax free
B. The policy will be subject to transfer for value
C. the policy will be included in Kat’s estate (3 yr rule
D. the policy will increase the value of BK by 1M

Answer 162

B. The policy will be subject to transfer for value. 3 yr rule doesn’t apply when transfer of value.

Question 163

If an investor’s expected return is not met, then which is correct?
A. the realized return was less than the return earned by market
B. the required return exceeded the realized return
C. the investor constructed a poorly diversified portfolio
D. the investor’s portfolio had excessive diversification

Answer 163

B. the required return exceeded the realized return

Question 164

The best measure of risk for oil and gas MF is the funds"
A. covariance
B. standard deviation
c. alpha
d. beta

Answer 164

B. standard deviation for undiversified risk

Question 165

Which of the following reasons an investor might buy a stock index call option instead of an individual stock call option?
A. He is more confident about performance of an ind. stock than the market as a whole
B. He wants to hedge his existing port against market decline
C. It is the best way to fully diversified against unsystematic risk
D. It reduces the level of systematic risk.

Answer 165

C. It is the best way to fully diversified against unsystematic risk

Question 166

An investor who owns a sector fund has substanstial unsystematic risk and would like to know how a portfolio manager performed on a risk-adjusted basis whould use which one
A. Sharpe Index
B. Jensen
C. treynor
d. beta

Answer 166

A. Sharpe Index–uses standard deviation and assumes the portfolio is not well diversified and measures total risk.

Question 167

When the Fed Reserve buys govt securities, which occurs
A. stock and bonds prices will rise
B stock prices fall and bonds rise
c. stock and bonds fall
d. bonds fall and stocks rise

Answer 167

A. stock and bonds prices will rise

Question 168

Which of the following occurs when a 10% stock dividend paid?
A. the firm's retained earnings decrease
B. the firm's equity increases
C. stock's par value is decreased
D. stock's price is increased

Answer 168

A. the firm’s retained earnings decrease