FP 99 Flashcards
Sam is a financial advisor who always uses the financial planning process (consistent with the factors laid out by the CFP Board) when dealing with clients. In which of the following situations would Sam be practicing single-purpose financial planning?
I. when he sells key-person life insurance to a single client who owns a small business
II. when he assists a single client with the client’s income, gift, and estate tax planning
(A) I only
Which of the following statements regarding the use of insurance for risk financing is (are) correct?
I. Insurance involves the transfer of risk to an insurance company for a relatively small premium.
II. The use of insurance is especially appropriate when both the frequency and severity of the loss are high
(A) I only
All of the following statements concerning the laws of intestate succession (or intestacy) are correct EXCEPT
(A) Distribution of assets under intestacy laws is identical in all states.
(B) If Alison dies without a valid will, her assets will be transferred according to the laws of intestate succession.
(C) Distributing assets under intestacy may make one’s estate subject to more taxes and other administrative expenses.
(D) State intestacy laws also apply to transfers under a will that is deemed invalid.
(A) Distribution of assets under intestacy laws is identical in all states.
Which of the following statements regarding a testamentary trust is (are) correct?
I. It is created under the will of a testator.
II. It becomes part of a deceased’s nonprobate estate.
(A) I only
Which of the following forms of jointly owned property becomes part of the probate estate at an owner’s death?
(A) property owned as a tenancy by the entirety
(B) property owned as a joint tenancy with right of survivorship
(C) property owned as community property
(D) property owned as a tenancy in common
Correct Answer
(D) property owned as a tenancy in common
All of the following statements concerning a taxpayer’s standard deduction are correct EXCEPT
(A) The amount of the standard deduction depends on a taxpayer’s filing status.
(B) The taxpayer may elect either the standard deduction or itemized deductions.
(C) The standard deduction amounts are indexed annually for inflation.
(D) The standard deduction is a type of “above the line” deduction.
(D) The standard deduction is a type of “above the line” deduction.
Which of the following individuals will have his or her Social Security benefits reduced or terminated because of the Social Security earnings test?
(A) Adam, a retired worker aged 62, who earns $35,000 annually from interest and dividends
(B) Barbara, a retired worker aged 64, who earns $35,000 annually from self-employment
(C) Charles, a retired worker aged 68, who earns $35,000 annually from consulting work
(D) Diane, a retired worker aged 64, whose only other income is $35,000 annually from an employer-provided pension
(B) Barbara, a retired worker aged 64, who earns $35,000 annually from self-employment
All of the following are methods for measuring an investment’s return EXCEPT
(A) current yield
(B) nominal rate of return
(C) holding-period return
(D) approximate yield
(B) nominal rate of return
Which of the following statements regarding long-term disability income plans is (are) correct?
I. Most long-term disability income policies provide benefits of 90 to 100 percent of the insured’s earnings.
II. Long-term disability income plans are commonly called sick-pay plans.
Correct Answer
(D) Neither I nor II
Which of the following statements concerning Social Security disability benefits is correct?
(A) Most claims for Social Security disability benefits are approved within 3 months.
(B) When a claim for Social Security benefits is approved, the benefits begin during the first full month after the disability is incurred.
(C) The definition of disability under Social Security is identical to the definition found in most individual DI insurance policies.
(D) The definition of disability under Social Security is very strict, which makes it difficult to get approved for benefits.
(D) The definition of disability under Social Security is very strict, which makes it difficult to get approved for benefits.
All of the following are examples of common exclusions in liability insurance coverage for a homeowners policy EXCEPT:
(A) Defense of the insured against groundless, false, or fraudulent lawsuits
(B) Liability arising out of the sale of a controlled substance
(C) Bodily injury to the insured
(D) Losses caused intentionally
(A) Defense of the insured against groundless, false, or fraudulent lawsuits
The Social Security and Medicare programs are important to financial advisors and their clients for which of the following reasons?
I. The most significant insurance expense for most individuals is their FICA contributions to these programs.
II. These programs form the foundation on which employee benefits and individual insurance plans are built.
(C) Both I and II
All of the following statements regarding traditional long-term care insurance premiums are correct EXCEPT
(A) The longer the elimination period selected for a policy, the lower will be the policy’s premium.
(B) Most insurers offer a premium discount if both spouses purchase coverage from the company.
(C) Inflation protection is typically included in most policies without additional premium costs.
(D) The longer the maximum benefit period selected for a policy, the higher will be the policy’s premium.
Correct Answer
(C) Inflation protection is typically included in most policies without additional premium costs.
Bill owns a municipal bond with a tax exempt yield of 4 percent. Bill is in the 33 percent marginal income tax bracket for 2016. What is Bill’s equivalent fully taxable yield from the bond?
(A) 4.00% x (1 + 0.33)
(B) 4.00% ÷ (1 – 0.33)
(C) 4.00% x (1 – 0.33)
(D) 4.00% ÷ (1 + 0.33)
(B) 4.00% ÷ (1 – 0.33)
All of the following are a “core benefit” in Medicare Supplement (Medigap) policies EXCEPT
(A) payment of the Part B percentage participation (usually 20 percent) for Medicare-approved physicians’ charges
(B) payment of all prescription drug benefits (after an initial deductible)
(C) payment for the first 3 pints of blood each year
(D) extended hospital coverage for an additional 365 days after Medicare coverage ends
(B) payment of all prescription drug benefits (after an initial deductible)
Which of the following statements regarding tax credits is (are) correct?
I. They are expense items that reduce the amount of a taxpayer’s income subject to taxation.
II. They are beneficial to a taxpayer but not as valuable as deductions of an equal amount.
(D) Neither I nor II
Bob is moving into a condominium that he bought, and he wants a homeowners insurance policy to protect the unit and its contents. As Bob’s insurance advisor, which of the following homeowners forms would you recommend that he buy?
(A) HO-2
(B) HO-4
(C) HO-6
(D) HO-8
(C) HO-6
All of the following are considered roadblocks to retirement saving EXCEPT
(A) unexpected expenses
(B) frequent employment changes
(C) a large inheritance
(D) inadequate insurance coverage
(C) a large inheritance
The growth of employee benefits stems from all of the following factors EXCEPT
(A) falling employee productivity
(B) increasing urbanization
(C) cost advantages
(D) government legislation
(A) falling employee productivity
All of the following are common definitions of disability found in a DI policy EXCEPT
(A) own-occupation
(B) any-occupation
(C) modified any-occupation
(D) modified own-occupation
(C) modified any-occupation
Which of the following statements concerning investment companies is correct?
I. A mutual fund is a closed-end investment company.
II. At formation, a closed-end investment company issues a given number of shares and rarely, if ever, issues additional shares.
(B) II only
Step 6 (Implementing the Recommendation(s)) of the financial planning process is when the advisor
(A) reviews changes in the client’s circumstances and the financial environment
(B) identifies the strengths and weaknesses in the client’s present financial condition
(C) does fact-finding by gathering considerable information from the client
(D) motivates and assists the client in completing each of the steps to implement the entire financial plan
(D) motivates and assists the client in completing each of the steps to implement the entire financial plan
Which of the following types of retirement plans can be adopted only by tax-exempt organizations and public schools?
(A) 403(b) plans
(B) SEPs
(C) SIMPLEs
(D) 401(k) plans
(A) 403(b) plans
Which of the following statements concerning investing and speculating is correct?
(A) Purchasing a lottery ticket, for most people, is a method of investing.
(B) Purchasing “penny stocks” is a common form of investing.
(C) Investing is purchasing an asset with consideration and knowledge of its expected return and/or risk.
(D) A recommended planning strategy for accumulating retirement funds is to have approximately 10 percent of one’s portfolio in penny stocks.
(C) Investing is purchasing an asset with consideration and knowledge of its expected return and/or risk.