General Principles Flashcards
Stan and Fran Mann pay off CCs monthly from cash flow. They pay their mortgage pmts from cash flow (yearly principal $2k, interest $8k, taxes $1k, and insurance $500). They save $50/month in a money market acct. (Interest earned and reinvested for the year is $100). How much will the Mann’s net worth increase in the current year?
$2700. Danko GP 3-5
Mortgage Princ + Annual Savings + Interest from MM Acct
After completing a fact finder then constructing a complete financial statement, cash flow, and identifying goals/priorities, you have found the following weaknesses. In what order do you address the following?
- Lack of disability insurance
- No umbrella coverage
- No emergency fund
- Total monthly debt is >40% of gross income
4, 3, 1, then 2. GP 3-19
Laura will have to make pmts of $10k per year 6 years from now. She will have to make a series of 5 yearly pmts at the beginning of the 6th year. She feels she can make an 10% after-tax return on a fund she sets aside now. How much does she have to put into the fund today to make future pmts?
$25,892
GP 4-7
1) How much does she need to make the pmt? BEG $10k PMT, 10 i 5 n = $41,699 PV
2) She needs to make the pmts at the BEG of the 6th year. that means she only has 5 years to fund the $41,699, not 6. $41699 FV 10 i 5 n = $25,892 PV
Fill in the blanks:
If NPV is positive, the IRR is ____ the ROR
If NPV is negative, the IRR is ____ the ROR
If NPV is 0, the IRR is _____ the ROR
Greater than, (more than required)
Less than, (less than required)
Equal to (exactly the rate required)
GP 4-12
Tom and Sue had W-2 earnings of $100,000 last year. They deposited $5,000 into each of their
IRAs from money that was in their checking account. They also sold their five-year-old car for
$1,000 less than it was worth. Due to a slow-down in the housing market, the value of their
home decreased by $25,000. What is their change in net worth?
A. No change
B. Minus $19,000
C. Minus $26,000
D. Plus $9,000
E. Plus $74,000
C
GP Sig Exam
4. Which of the following information should be gathered in the planning process in regards to the client's life insurance contracts? I. Premium and Dividend Options II. Property Insured III. Ownership IV. Policy Loans A. All of the Above B. I, II, III C. I, III, IV D. I, III E. IV
C
GP Sig Exam
- Lisa is in her first year at the local university; Lisa earns about $300 per month from a part-time
job and lives with her mother who does not work outside the home. Her mother receives
$2,000 per month in alimony and $500 in child support. Lisa or her mother may qualify for
which of the following?
A. Parent Loan to Undergraduate Students, American Credit Opportunity, earnings, UGMA
B. Pell Grant, American Opportunity credit, Coverdell withdrawal, educational gift
C. Subsidized Stafford Student Loan, Coverdell withdrawal, earnings, 2503(c)
D. Stafford Student Loan, Lifetime Learning Credit, 529 distribution, earnings
Answer: C
Lisa’s mother probably will not qualify for a Parent Loan to Undergraduate Student (PLUS). She
isn’t wealthy (answer A). Answers B and D will not work because of the coordination rules.
Answer C is the best answer.
GP Sig Exam
- Phil is a firefighter who recently was divorced from his wife Phyllis. They were married for 10
years. Phil agreed to pay Phyllis $2,000 per month in alimony for 5 years and give her the family
home in lieu of her attaching his pension. Phil owns a lawn service in addition to working for the
department. He charges people $500 per month to maintain their lawns. If he agrees to with
Phyllis to mow her lawn and also pay her $1,500 per month PITI payment, then how much of the
payment will be deductible?
A. $2,000
B. $1,500
C. $4,000
D. $3,500
Answer: B
The question is simply asking about the PITI payment. The $2,000 of alimony is not part of the
question. The value of services is not considered alimony. GP Sig Exam
12. Which of the following is a coincidental economic indicator? A. Industrial Production B. Stock Prices, 500 Common Stock C. Money Supply D. Index of Consumer Expectations
A. GP Sig Exam
- To sell variable life insurance contracts, a financial planner must hold which of the following
license?
A. A series 6 and a series 63
B. A series 7 and a state variable life insurance license
C. A series 63 and be a registered investment advisor
D. A series 6 and a series 7
Answer: B
They could have a Series 6 and still qualify, but a Series 7 will do.
GP Sig Exam
- Andee was injured in a fall at a grocery store and received $50,000 in compensatory damages.
However, because the store owner had failed to clean up a spill, she also received $100,000 in
punitive damages. While she was recovering, she won a $500,000 jackpot in the lottery. She
did not want anyone to know about the lottery win until the action related to the fall was
settled, so she waited for 9 months to claim her lottery winnings, which were to be paid out as
an annuity (used 60-day window of notification) over 10 years. If all these events occurred in
the same year, how much must she report as income?
A. $650,000
B. $600,000
C. $150,000
D. $100,000
Answer: C
Both the punitive damages ($100,000) and lottery winnings are taxable. The annuity was
selected within 60 days of notification to the lottery ($500,000/10 = $50,000).
GP Sig Exam
- The DJIA just fell another 350 points; housing starts are on a downward trend; consumer
confidence is down; new claims for unemployment are continually rising. What action is the
Federal Reserve likely to consider taking?
A. Sell government securities using a “reverse-repo”
B. Lower the prime rate
C. Raise reserve requirements
D. Buy government securities using a repurchase agreement
Answer: D
The Fed should buy securities to loosen the money supply. The Fed cannot lower the prime
rate, the banks do that. Answers A and C would tighten the money supply.
GP Sig Exam
- Which of the following is not true about Coverdell ESAs?
A. Contributions are considered to be a gift of a future interest until the student actually uses
the money for qualified education expenses
B. Account gains are tax-free if the funds are used for qualified education expenses
C. The funds must be distributed by the time the beneficiary reaches 30 or rolled to a new
beneficiary
D. The account assets are considered to be an asset of the parent for federal aid purposes
. Answer: A
Contributions are considered to be a gift of a present interest.
GP Sig Exam
20. Which of the following agencies does not monitor or oversee Commercial banks? A. FDIC B. Freddie Mac C. Comptroller of Currency D. Federal Reserve
Answer: B
Freddie Mac issues mortgage-backed securities that are packaged, guaranteed, and sold to
investors.
21. Bob and Sally Hutchinson have the following accounts at one bank: • Bob $200,000 in a checking account • Bob and Sally $200,000 in a money market deposit account • Bob and Sally $600,000 in a joint CD How much is FDIC insured? A. $250,000 B. $500,000 C. $900,000 D. $700,000 E. $1,000,000
Answer: D
Singular accounts are insured to $250,000, and joint accounts allow for each individual to
maximize his and her full $250,000 in joint accounts ($500,000 in joint). Total = $200,000 +
200,000 + 300,000 JT
