General Principles Flashcards
College funding: Grants and loans for wealthy families
1) Parent Loan
2) Parent Plus Loans - for undergraduate only
–Wealthy parents are a Plus
College funding: Grants and loans for “poorish” families and who does that include
Poorish <= $60,000 income cap
1) Pell Grants
2) Supplemental Education Opportunity Grant
3) Subsidized Stafford Student Loans
American Opportunity Credit
-$2,000 + 25% of next $2,000 expenses
-MAGI phase outs - given
-First 4 years college only
Lifetime Learning Credit
-$2,000 max
-Any higher learning institution - undergrad, grad, continuing ed
-MAGI phase outs - given
Series EE Bonds
To be eligible education expenses (Tuition and fees, only, not Room & Board)
-Purchased in parent’s name, but can be anyone age 24+ at time of issue (except the student)
-Cannot be issued in name of child or in a custodial account
Interest is fully exempt from federal income tax only if above is met, and parents must be within AGI limits (given)
Interest is taxable if above are not met
American Opportunity Credit
Taxpayers receive a tax credit (reducing federal income tax liability $1 for $1) based on 100% of first $2,000 + 25% of next $2,000 (max $2,500) of tuition, fees and course material (NOT Room & Board)
-First 4 years of post-secondary education only
-Cannot be claimed for same student expenses in the same year as the Lifetime Learning Credit
-Expenses paid with grants or scholarships do not qualify for the credit
-Expenses paid from loans, gifts, inheritances, or the earnings of the student qualify for the credit
-Student may NOT have a felony drug conviction
Lifetime Learning Credit
-Credit is a per-period credit rather than a per-student credit, meaning credit is based on qualifying expenses paid by the taxpayer for ALL eligible students
-Based on 20% of the first $10,000 of qualified tuition and related expenses (for a max credit of $2,000)
-Undergrad or Grad
-Unlimited period as long as expenses incurred
Can American Opportunity Credit and Lifetime Learning Credit both be used in the same year?
Yes, as long as they are not used for the same student expenses
Can American Opportunity Credit and Lifetime Learning Credit be used in years when there are also withdrawals from Coverdell ESAs and 529 plans?
Yes, as long as they are not used for the same student expenses
Are compensatory damages taxable?
Yes, exception is damages received in discrimination (age, sex, or race) or other non-physical injury cases are taxable - only damages up to amount of actual medical expenses attributable to emotional distress are tax-free
Are punitive damages taxable?
Yes, exception is damages paid to a beneficiary in conjunction with wrongful death
Fiscal policy
Represents federal taxation and spending designed to level out the business cycle and achieve full employment, price stability, and sustained growth in the economy
-Is independent of monetary policy
Monetary policy
Controlled by Federal reserve board
-def: action taken by the Federal Reserve to influence the growth of the money supply
-Includes:
1) Reserve Requirements
2) Discount Rate = rate Fed Reserve charges its member banks to borrow to meet reserve requirements (NOT the same as PRIME RATE, which is interest rate that all commercial banks charge their most creditworthy corporate customers)
3) Open Market Operations (Repo/Buy bonds v Reverse Repo/sell bonds)
4) Margin rates
Leading Economic Indicators
1) Average weekly hours for production workers in manufacturing
*2) Initial claims for unemployment insurance
*3) New manufacturing orders
4) Vendor performance measured as a % of companies reporting slower deliveries
5) Contracts and orders for plants and equipment
*6) New private housing units
7) Interest rate spread
*8) Stock prices, 500 common stocks
9) Money supply
*10) Index of consumer expectations
Coincident Indicators
These move in tandem with the broad economy
1) # EEs on non-agricultural payrolls
2) Personal income less transfer payments (ex. Social Security, welfare)
*3) Industrial production
Lagging indicators
AKA Confirming Indicators
1) Avg duration of unemployment
2) Avg prime rate charged by banks
3) Commercial and industrial loans outstanding
4) Ratio of consumer installment credit outstanding to personal income
5) Chg in CPI for services
If a person has a reverse mortgage and dies, what can his/her children do?
1) Sell house and use proceeds to pay off reverse mortgage
2) Refinance the mortgage to pay off the reverse mortgage balance
Are attorneys exempt from registering as Investment Advisor?
1) YES, if investment advice is solely incidental to practice
2) NO, if they meet the definition for determining who an investment advisor is:
(A) Advice
(B) Business
(C) Compensation
What can an investment firm disclose to the client orally or in writing, and what must be disclosed in writing only?
Orally or in writing: Material conflicts of interest
In writing only: How the firm is compensated by the client, the terms of the engagement with the client, its Privacy Statement, its services and any bankruptcies or disciplinary history relating to the firm or its principals
How is a fee-based planner compensated?
Fee-based means fees and commissions.
Would need to not receive ANY commissions to be fee only.
What do you call a deposit in any foreign bank that is denominated in dollars?
Eurodollar
How is the increase in principal on a TIP security treated if the security is sold?
The increase in principal creates “phantom income” and becomes part of the basis
How do Mortgage REITs generate income?
Mortgage REIT income comes from the spread between the lending rate and the borrowing rate
