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CFP Flash Cards > General Principals > Flashcards

General Principals Flashcards

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1
Q

Current assets

A

Cash equivalents, accounts receivable, marketable securities and inventory

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2
Q

Piti-principal interest taxes insurance acceptable

A

28% of gross income

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3
Q

Acceptable of total debt

A

36% of gross income

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4
Q

Acceptable of total debt

A

36% of gross income

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5
Q

What does a balance sheet have on it

A

Assets, Liabilities, Net worth
No cash flow

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6
Q

Three step calculation-what are we calculating in each step

A

Step 1-FV of inflated amount needed
Inflation rate
Step 2-PV needed for lump sum
Beg and real rate
Step 3-PV or PMT needed to fund goal. FV giving or from step 2
Interest

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7
Q

MAGI limits for child credits

A

160-180k
RTFQ
Plus loan for parents making too much money

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8
Q

Kiddie tax
Interest and dividends
$2700

A

Income $2700
Standard deduction -$1300
Taxable at 10% -$1300 =$130 tax
Parents tax rate (24%) $100=$24.00
Total tax is $154

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9
Q

Qtp

A

Qualified tuition program or 529
A gift of current interest

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10
Q

Unmarried domestic partner estate plan

A

Revocable trust and tenant in common titling
Why?

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11
Q

Cobra exception

A

Under 20 employees

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12
Q

Cobra-voluntary or involuntary termination or change from full time to part time

A

Terminated employees and dependents can get up to 18 months of coverage

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13
Q

Cobra- employee’s death, divorce, legal separation or eligible for Medicare, loss of dependent status (marriage, reaching dependent age limit

A

Spouse and dependents up to 36 months

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14
Q

Structured settlement

A

Stream of tax free (because did not take receipt of the funds) income from a negligent accident to support to meet medical and living expenses.
Could be settled privately or in court

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15
Q

Compensatory damages

A

Typical tax free but interest is taxed
Damages from age sex or race is taxed unless needed for the emotional distress like psychiatric care (tax free)

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16
Q

Punitive damages

A

Generally taxed
Intended to punish wrongdoing, not for injuries
Damages to beneficiaries in wrongful death is tax-free

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17
Q

Prizes and awards

A

Taxed on whole amount unless annuities over 10 years. If over tax years taxed as received

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18
Q

Fiscal policy

A

The fed controls money supply. Federal taxation and spending to level out business cycle, achieve full employment, price stability, and sustained growth in economy

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19
Q

Monetary policy

A

The fed reserve influences the money supply to loosen or tighten the flow of credit

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20
Q

Reserve requirement

A

Example: Reserve requirement is 10% bank can lend 90% of deposits
Easy money-reduce requirements
Tight money-increase requirements

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21
Q

Discount rate

A

Rate the fed charges its member banks to borrow to meet the reserve requirement
Not prime rate
Easy money-lower rate
Tight money-higher

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22
Q

Open market

A

Fed buys and sells securities daily
Repo/buy bonds-easy money/injection
Reverse repo/sell bonds/taking money

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23
Q

Margin rate

A

Reg T
Decrease margin percentage-easy money
Increase margin percentage-tight money

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24
Q

Fed funds rate

A

Set by auction

25
Q

Supply

A

Supply is the amount of goods a producer is willing to sell
Price
Cost of production
Level of technology

26
Q

Demand

A

Is the amount of goods or services that buyers are willing to purchase
Price
Price of other goods
Consumers’ incomes and tastes

27
Q

Leading economic indicators

A

Anticipate move or change in the economy
Unemployment claims
New manufacturing orders
New private housing units
Stock prices, 500 common stock
Index of consumer expectations

28
Q

Coincident indicators

A

Move in tandem with economy
Industrial production
Personal income less social security, welfare
Non farm payroll

29
Q

Lagging indicator

A

Confirming indicator
Average duration of unemployment
Average prime rate charged by banks
Commercial and industrial loans
Credit outstanding to income
Change cpi

30
Q

CPI

A

Consumer price index basket of goods in various cities
CPI-U is widely reported

31
Q

CPI categories

A

Food and beverage
Apparel
Education and communication
Housing
Transportation
Recreation
Medical care

32
Q

Producer price index (PPI)

A

Farm products and industrial commodities
The leading indicator to cpi is ppi
As producer cost rise, they are passed to consumers

33
Q

Disinflation

A

The slowing down of price increases

34
Q

Yield curve

A

The direction of interest rates move determines what happens to bonds.
The curve shows market rates of different maturities with the same rating

35
Q

Positive yield curve

A

Shows that as maturities lengthen, yields increase. Investors demand better yield with added risk

36
Q

Negative or inverted yield curve

A

When the fed tightens and raises interest rates, the short-term rates are more attractive then long term rates

37
Q

Yield curve components

A

Yield to maturity
Same tax status
Term-to-maturity
Same bond quality

38
Q

Couple getting a divorce

A

Can represent one, both or neither
Suggest they get separate attorney’s

39
Q

Divorce alimony pre 2019

A

Paying the payee’s mortgage
Paying the premium on the payee’s life insurance
Making a payment for the payee ie IRA
Not deducting-Paying of child support

40
Q

Business cycle peaks

A

When consumers have enough of everything so business activity ages

41
Q

Unsecured debt

A

Consumer borrows on credit worthiness and no collateral is pledged
Signature only debt

42
Q

Adjustable-Rate Mortgage(ARM)

A

Interest rates fluctuates with the economy. Limits on the change, how much and how often

43
Q

Biweekly payments for mortgage

A

Payments due every two weeks, loan will be paid off faster

44
Q

Balloon payments

A

Long term mortgage at given interest rates. Example after 5 years the unpaid balance is due or you have to refinance

45
Q

Secured overnight financing rate(sofr)

A

Benchmark rate used by financial institutions for adjustable rate mortgage loans

46
Q

Federal housing administration (FHA)

A

Government insurance that reduces risk to the lender for low and middle income individuals to have a down payment or meet the requirements for a conventional loan

47
Q

Mortgage payment

A

Due at the end of the month
Positive PV
I
Periods
N
Remember: Solve for payment
1-input

48
Q

Lease vs own

A

Lower years, consider leasing due to cost of owning

49
Q

Client wants to sell a house at a loss

A

Consider keeping it until it recovers

50
Q

Pro forma statements

A

Future financial statements are expected results for the next year or longer

51
Q

Through to recovery

A

Auto sales/manufacturing historically lead the business cycle to expansion

52
Q

Defensive industries

A

Like public utilities and pharmaceuticals are defensive and have little impact with business cycles

53
Q

Commodities

A

Like gold are an inflation hedge
Inflation typically happens at the peak of a business cycle

54
Q

Not researching in a security

A

Negligence leads to unintentional tort and is a violation of the fiduciary duty

55
Q

Elderly client looking for fixed income and yield curve is declining

A

Lock in long term bond in case in interest rates continue to increase

56
Q

PITI

A

Mortgage+home insurance+taxes/All gross income (don’t subtract retirement plan contributions)

57
Q

Emergency fund

A

-RTFQ
-If someone is having a kid perhaps 6 months is needed depending on their work
-fixed and variable expenses, no taxes

58
Q

Payment to UTMA

A

Leaves parents/grandparents ownership and is owned by the child
Reduces net worth

CFP Flash Cards (8 decks)

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