General Principals Flashcards
If the Dow is falling, housing is on a downward trend, consumer confidence is down, and unemployment is rising.. what would the fed want to do?
The fed is going to loosen the money supply
What does the IAA of 1940 require?
Persons or firms advising others about securities investments must register with the SEC
Defines the role and responsibilities of an investment advisor
What is the American Opportunity Credit
Covers 4 years post secondary education
CANNOT have felony drug conviction
Tax credit for max of $2500
Does NOT cover room/board
What is the lifetime learning credit?
Per credit, NOT per student
20% of first 10k of qualified expenses
*max credit of 2k
Undergrad and graduate
Does NOT cover room/board
Unlimited period
PLUS loans
Not need based
Parents can borrow for entire cost of college
Must meet federal standard of credit worthiness
Subsidized Staford loans
Available to students who show financial need AFTER EFC, pell grant, and other aid has been subtracted from cost
Pell Grant
Max is 6k
Undergrad only
Eligibility determined by EFC formula
Based on need. Eligible AGI below 60k
What is the financial need formula
Financial need= cost of attendance - EFC
Who is public service loan forgiveness available to?
Government and nonprofit employees with federal student loans
What industries are typically more affected by a recession?
Capital goods
Consumer durable goods
Do credit unions do business loans?
No
Securities investors protection act of 1970
Established SIPC
insured against failure of brokerage firm
Can you put EE bonds in a UTMA/UGMA
No, because parents own the bonds
PooriSh
Pell Grants
Supplemental Education Opportunity Grant
Subsidized Stanford Student loans
Use for less than 60k income cap
Wealthy
Parent loan
Undergrad Students
Wealthy parents are a PLUS
What are the options for funding for graduate years?
Fulbright scholarship
Stafford loan
529 distribution or coverdell
Lifetime learning credit
What another name for a 529
Qualified Tuition Plan (QTP)
Will refer to it as a QTP on exam
Does the federal reserve control the fed funds rate?
No!!
Does GDP include inflation?
No
It counts economic activity without regard to yearly price fluctuations
What do you need to sell variable contracts
Series 6 or 7
And variable state life insurance license
Are home equity loans deductible?
Only if used for home equity
How will taking out a home equity loan for 25k to make a home improvement affect net worth?
Loan decreases 25k
Improvements increase 25k
*it is a wash
Can a checking account always be used for an emergency fund?
Not it is not always available because it’s balance may be used for regular expenses
Chapter 13 bankruptcy
Reorganization/repayment plan
Payments to creditors are reduced
What is disinflation
Slowing down of price increases
Chapter 7 bankruptcy
Straight bankruptcy-allows you to walk away from debt
Permits debtor to claim either federal or state exemptions
Examples of exempt property: homestead, personal property, equity in a motor vehicle, wages due to head of family, ERISA plans, cash value of LI/annuities
Must satisfy means test
Net inc 60M >10k = not an option
Net inc 60M <10k = allowed
Net inc between 6-10k = can file if net inc is <25% of all non priority unsecured debt
Repo
Fed gives the dealer funds in return for a temporary pledge of gov securities
Buy bonds
Reverse repo
Fed gives the dealer a temporary pledge of gov securities in return for cash
Sells bonds
What is the producer price index
Index of price of various items such a farm products and industrial commodities
This is the leading indicator of inflation trends
What does compliance within the rules of the insurance company fall under
Law of agency
Discount rate
Rate the federal bank charges its member banks to borrow to meet reserve requirements
What is implied authority
Actual authority the agent to carry out business
That in which THE PUBLIC believes
Prime rate
Interest rate that commercial banks charge its most creditworthy corporate customers
This is often an option for exam questions about monetary policy and is WRONG
What effect does paying down mortgage principal have on net worth
Increases net worth
What is a time deposit
CD
Express authority
Written, explicit direction from the insurance company to the agent
Apparent authority
Arises out of negligence to principal
Allows the agent to appear to have authority due to past actions
Common coincident economic indicator
Industrial production
What does GDP measure
Dollar value of all goods and services newly produced within a countries boarder
Difference between durable and non durable goods
Durable-items that don’t wear out quickly
Cars, appliances, home furnishings, electronics
No durable-items that are used up quickly or have a short life span
Makeup, food, paper products, fuel, clothing
List of a few leading economic indicators
Initial claims of unemployment insurance New manufacturing orders New private housing units Stock prices, 500 common stocks Index of consumer expectations
Chapter 11 bankruptcy
For individuals who do not qualify under chapter 13 bc they exceeded debt limit or don’t have regular source of income
What nouns MUST follow CFP
Certificant Practitioner Professional Certification Mark Exam
Who regulates the requirements for form ADV?
Sec
Debts not cancelable by bankruptcy
Student loans Child support Taxes Gov loans Alimony
Is money in a coverdell or 529 creditor protected?
Only if it has been in the account for 2 years or more
What happens when an insurance broker writes an application and it is submitted with misinformation
Actions of brokers authority to not extend to insurers
Insurer is not obligated to pay claim and the carrier would refund the premium
Difference between agent and broker
Agent-acts on behalf of the insurer
Broker- represents policy owner
Who controls the monetary policy for the US
FOMC
What age brackets match up with investments for education accounts?
Age 12 and below- can add stocks
Age 13-16- less risk, bonds with time horizon
Age 17 and up-cash
Can 529 plans be taken during a bankruptcy?
Yes, if the plans have not been established for 2 years
In what stage of the financial planning process are unrealistic goals addressed?
Identifying and selecting goals
What does fiscal policy promote
Federal taxation and spending designed to level out business cycle, achieve full employment, price stability and sustained growth in economy
Do monetary and fiscal policy have the same objective
Yes-stable domestic economy
Is the federal reserve over fiscal or monetary policy?
Monetary policy
What are the 4 ways the fed can ease the money supply
Reduce reserve requirement
Lower discount rate
Buy bonds
Decrease margin percentage required
What are the 4 ways the fed tightens the money supply?
Increase reserve requirement
Raise discount rate
Sell bonds
Increase margin percentage requirement
What is the federal funds rate and how is it set?
Is excess reserves maintained at the fed by member banks
Is the charge for overnight loans from one bank to another
Set by auction
Is a contribution to a coverdell deductible?
No
Is a contribution to a coverdell present or future interest?
Present interest
What balance of a students UTMA will impact the EFC?
20%
What percentage of unprotected assets would be counted in the EFC?
Colleges expect 5.64% of “unprotected” assets toward EFC
Is there a protected amount of student income that is not counted toward EFC?
6k
What is the parent protection allowance for EFC?
17k-37k
How does having more family members in college affect EFC?
Lowers EFC
the lower it is the more aid a family can apply for
Are books or room and board a qualified expense for EE bonds?
No. Only tuition
How much of the AOTC can be a refundable credit?
40% up to $1,000
To use the AOTC how does a taxpayer need to document their payments of tuition and fees?
Form 1098-T
