General Principles

Question 1

Monetary Windfalls

Answer 1

Structured Settlements: stream of tax free payments from voluntary agreement between personal injury victim & defendant

Compensatory Damages: Injury or sickness generally tax free. Discrimination or non physical injury taxable

Punitive Damages: Taxable award for wrongdoing by highly negligent defendant.

Question 2

CPI vs PPI

Answer 2

Consumer Price Index: Market basket of goods & services in various cities across the country.

• Food & beverage
• Apparel
• Education & communication
• Housing
• Transportation
• Other goods & services
• Recreation
• Medical care

Producer Price Index: leading indicator of inflation trends

Question 3

Agent vs Broker

Answer 3

Agent is loyal to the company

Broker is loyal to the customer

Question 4

Sales Related Compensation & Related Parties

Answer 4

Fee only: May not receive sales related compensation in ANY manner

Fee based: Compensation through commissions & fees

Sales related: compensation received when client buys or sells an asset

Related parties: former spouse & every other family member

Question 5

Reverse Mortgage

Answer 5

Repayment: death of individual owner, conclusion of term or absence of elder homeowner minimum 1yr

Available to homeowners 62+ on condos & single family

Doesn’t have to be owned free & clear

Question 6

Economic Indicators

Answer 6

Leading (5 out of 10)
1. Initial unemployment claims
2. New manufacturer orders
3. Private housing units
4. Stock prices
5. Consumer expectation index

Coincident: Industrial products (1 of 3)

Question 7

Income Contingent Repayment Plan

Answer 7

Percent of discretionary income: 20%
Calculation of discretionary income: AGI 100% poverty level
Repayment: 25 yrs (300 payments)
Monthly payments: Adjusted income, family size, total direct debt
Eligibility: Direct Loans ONLY

Question 8

Income Based Repayment Plan

Answer 8

Percent of discretionary income: 15%
Calculation of discretionary income: AGI 150% poverty level
Repayment: 25 yrs (300 payments)
Monthly payments: AGI, family size, total student loan debt, 10-15% discretionary income
Eligibility: FFELP & Direct Loans, partial hardship

Question 9

Pay As You Earn Repayment Plan

Answer 9

Percent of discretionary income: 10%
Calculation of discretionary income: AGI 150% poverty level
Repayment: 20 years (240 payments)
Monthly payments: AGI, family size, total federal student loan debt, 10% discretionary income
Eligibility: ONLY direct loans, partial hardship, new borrower on or after 10/1/07 disbursed on or after 10/1/11

Question 10

Revised Pay As You Earned Repayment Plan

Answer 10

Percent of discretionary income: 10%
Calculation of discretionary income: AGI 150% poverty level
Repayment: Undergrad 20years Grad 25 years
Monthly payments: AGI, family size, 10% discretionary income, total federal student loan
Eligibility: Some direct loans

Question 11

College Years

Answer 11

Having wealthy parents are a PLUS (parent loan undergraduate student)

PooriSh: Pell grants, Supplemental education opportunity, grant subsidized Stafford loans

American Opportunity Credit: Max $2500, no drug conviction, 1st 4yrs only

Lifetime Learning: Max $2000, any higher learning (undergrad, grad, CE)

Coverdell withdrawal: Must be used by 30; tax free

529 withdrawal: NO MAGI phase out; tax free

Question 12

Education Funding Years

Answer 12

UTMA/UGMA: Subject to kiddie tax, present gift, kid owned

EE bonds: parent owned

Coverdell ESA: $2000 non deductible contribution

529 (QTP): $17000 or $85000 within 5 years, 1st cousin eligible

Question 13

Broker/Dealers

Answer 13

Dealers are individuals/firms acting as principal in a securities transaction. Principals trade for own account and risk

Brokers match buyers & sellers

SEC regulates brokerage companies via FINRA

Question 14

Bank Regulation

Answer 14

Comptroller of Currency/Federal Reserve/FDIC: Regulate federally or nationally charted banks

State/Federal Reserve/FDIC: Regulate state charted banks

Question 15

Serial Payments

Answer 15

Allow client to achieve their goal by making inflation adjusted payments rather than fixed payments

i.e. Couple desires to retire in 10yrs & have $1MM and withdraw $150,000 end of each year with life expectancy of 25yrs and would like to leave $1MM to family

Keystrokes:
-1,000,000 CFo
0 CF1
10 gold Nj
150,000 CF
25 gold Nj
1,000,000 CF
gold IRR/YR

Question 16

Net Present Value (NPV)

Answer 16

How much will said investment earn, in dollars, relative to my required rate of return

CFo = negative input (initial investment)
I/YR = required rate of return
gold, NPV = solve

Question 17

internal Rate of Return

Answer 17

Also called dollar weight return, unequal cash flows solving for the return

CFo = initial investment
gold, IRR/YR = solve

Question 18

Unequal Cashflow

Answer 18

Calculating PV of an investment with unequal cashflow

How much should someone pay for the investment

CFo = 0 ALWAYS input ) for 1st input

Cf = cash flow +/-
gold NPV = solve

Question 19

Capitalized Value

Answer 19

Projected flow of income from a business converted into a present value

annual income/cap rate = capitalized value

Question 20

CFP Disciplinary Actions

Answer 20

PUBLIC letter of admonition
Suspension
Revocation
PRIVATE censure

Question 21

Coverdell ESAs

Answer 21

Set up in a trust or custodial type account
Contributions limited to $2000
Qualified expenses such as academic tutoring, special needs services, room & board

Question 22

American Opportunity Credit

Answer 22

Tax credit 100% of first $2,000 plus 25% of the next $2,000 (max credit $2,500) of tuition, fees and material NOT room & board. Can be combined with multiple children

Question 23

Monetary vs Fiscal Policy

Answer 23

Monetary action taken by Federal Reserve to influence money supply.

Fiscal represents federal taxation & spending. Think fiscal, financial, federal taxation