High 5 General Financial Planning Principles, Professional Conduct, and Regulation

Question 1

a snapshot of net worth on a given date

Answer 1

statement of financial position or personal balance sheet or net worth statement

Question 2

assets and liabilities should be presented at ____ on a statement of financial position

Answer 2

FMV

Question 3

____ should be used to describe details of both assets and liabilites

Answer 3

footnotes

Question 4

on the CFP exam always pay attention to ____

Answer 4

footnotes

Question 5

a statement that indicated a specific period covered

Answer 5

personal statement of cash flows or cash flow statement

Question 6

difference between cash inflows and outflows

Answer 6

savings level

Question 7

how to calculate the housing cost ratio

Answer 7

all monthly non discretionary housing costs / monthly gross income

Question 8

non discretionary housing costs include _____, ____, ____, and ________

Answer 8

principal, interest, taxes, insurance

Question 9

the housing cost ratio should be ____% or less

Answer 9

28%

Question 10

if the client has high consumer debt balances, a _____ program should be forumulated

Answer 10

debt management

Question 11

typically, priority is given to retire the debt with the highest ____

Answer 11

interest rate

Question 12

what does negative amortization mean?

Answer 12

mortgage balance becomes greater than the home value

Question 13

Adjustable rate mortgages without a cap are ___

Answer 13

risky

Question 14

what is the maximum value of home equity loans that you can deduct the interest for?

Answer 14

$100k

Question 15

true or false?

HELOC debt can be used for any purpose without affecting its deductibility

Answer 15

true

Question 16

True or false?

under the FDIC, deposits in different qualified institutions are insured separately

Answer 16

true

Question 17

if an institution has one or more ____ the main office and all _____ are considered to be one institution under FDIC

Answer 17

branch ; branch offices

Question 18

do VA loans require mortgage insurance?

Answer 18

no

Question 19

do FHA loans require mortgage insurance?

Answer 19

yes

Question 20

do FHA loans require a down payment?

Answer 20

yes

Question 21

do VA loans require a down payment?

Answer 21

no

Question 22

true or false?

Securities, mutual funds, and similar investments are not covered by FDIC insurance

Answer 22

true

Question 23

under the american opportunity tax credit, The maximum credit allowed in a given year is $____ per student, if there are
$_____ of qualifying expenses

Answer 23

$2,500 ; $4,000

Question 24

true or false?

under the american opportunity tax credit, student must be enrolled no less than half time to be eligible

Answer 24

true

Question 25

true or false?

under the lifetime learning credit, the student must be enrolled no less than half time to be eligible

Answer 25

false, half time is not a requirement

Question 26

The Lifetime Learning Credit can be claimed for an _____ years

Answer 26

unlimited

Question 27

the american opportunity tax credit can be claimed for ____ years

Answer 27

first 4 years of post secondary education

Question 28

student loan interest in a(n) ____ the line deduction

Answer 28

above

Question 29

529 plan contributions must be made in the form of ___

Answer 29

cash

Question 30

true or false?

contributing to a 529 plan will move assets out of one’s estate

Answer 30

true

Question 31

what is the maximum contribution allowed to a 529 plan under a split gift?

Answer 31

$140k

$14k x 2 x 5

Question 32

contributions to a coverdell savings account Cannot be made after the beneficiary reaches age ___ unless he is a special needs
beneficiary

Answer 32

18

Question 33

true or false?

a Pell Grant is technically a gift from the government

Answer 33

true

Question 34

what is the biggest difference between grants and loans?

Answer 34

loans have to be repaid but grants do not

Question 35

true or false?
Custodial account assets are considered an asset of the child and are considered in
determining financial aid

Answer 35

true

Question 36

Molly, age 42, and Steven, age 50, have one child, Jennifer, age 17. The couple has been your client for 15 years. They have set up a review meeting with you to discuss funding their daughter’s first year of college, which will begin in 6 months. They estimate qualified expenses of $35,000, of which $20,000 will be covered by an academic scholarship. Also, they have expressed a concern about any tax ramifications of their decision. The couple has a MAGI of $140,000 and itemized deductions of $24,000. The following information is contained on their current statement of financial position:
■ Section 529 Plan - $57,987
■ Series EE Savings Bonds (owned by Jennifer) - $10,000
■ Variable universal life insurance cash value (Steven) - $26,453
■ Roth IRA (Molly) - $5,000
■ Section 401(k) (Molly and Steven combined) - $345,928

Which of the following should be utilized to fund Jennifer’s first year of college expenses?

A. The scholarship and Section 529 Plan.
B. A combination of the Lifetime Learning Credit, American Opportunity Tax
Credit, and a loan from one of their Section 401(k) plans.
C. The Series EE Savings Bonds and a distribution from the Roth IRA.
D. A loan from the variable universal life insurance cash value and a Pell
Grant.

Answer 36

A

Question 37

who controls monetary policy?

Answer 37

federal reserve

Question 38

who controls fiscal policy?

Answer 38

congress

Question 39

Your client, Carlos, would like to refinance his home. There is no reason for him to do so immediately, so he has come to you for advice. You have recently
read that in the near future the Federal Reserve Board (Fed) is planning on expanding economic activity using government securities. Regarding the timing of his refinancing, what would you recommend Carlos do?

A. Wait for the money supply to decrease and interest rates to fall as is expected when the Fed buys government securities to expand economic
activity
B. Wait for the money supply to increase and interest rates to fall as is expected when the Fed buys government securities to expand economic
activity
C. Wait for the money supply to increase and interest rates to fall as is expected when the Fed sells government securities to expand economic
activity
D. Refinance now because the money supply will decrease and interest rates will increase when the Fed sells government securities to expand economic
activity

Answer 39

B

Question 40

Voluntary and involuntary liquidation (bankruptcy) is known as chapter ____ bankruptcy

Answer 40

7

Question 41

Reorganization of persons, firms, and corporations is known as chapter _____ bankruptcy

Answer 41

11

Question 42

Adjustment of debts of individuals with regular income is known as chapter ___ bankruptcy

Answer 42

13

Question 43

Collectively, taxation, expenditures, and debt management of the federal government are called ______

Answer 43

fiscal policy

Question 44

when the government increases purchases

of goods and services while holding its revenues constant, it creates a budget deficit and stimulates aggregate demand

Answer 44

Expansionary (easy) fiscal policy

Question 45

when the government either reduces its

expenditures of goods and services or raises taxes, it causes a budget surplus or a reduction in the budget deficit

Answer 45

restrictive (tight) fiscal policy

Question 46

stimulus programs are often a sign of ____

Answer 46

fiscal policy

Question 47

The Fed will ____ government securities to cause more money to circulate, thus increasing lending and lowering interest rates

Answer 47

buy

Question 48

what’s the biggest difference between subsidized and unsubsidized loans?

Answer 48

when a loan is subsidized the government will pay the interest while the student is in school, but this is not the case for unsubsidized loans

Question 49

For gift tax purposes, 529 contributions can be treated as though they were made ratably over a ____ year period

Answer 49

5

Question 50

true or false?

529 Contributions are not phased out, even at higher AGI levels

Answer 50

true

Question 51

under the lifetime learning credit, The taxpayer must spend $_____ annually on qualified expenses to qualify for the full credit

Answer 51

$10k

Question 52

Debt-to-income ratio (total debt ratio) =

Answer 52

all monthly debt payments and housing

costs from above ÷ gross monthly income

Question 53

the debt to income ratio should be ____% or less

Answer 53

36%