High 5 General Financial Planning Principles, Professional Conduct, and Regulation Flashcards
a snapshot of net worth on a given date
statement of financial position or personal balance sheet or net worth statement
assets and liabilities should be presented at ____ on a statement of financial position
FMV
____ should be used to describe details of both assets and liabilites
footnotes
on the CFP exam always pay attention to ____
footnotes
a statement that indicated a specific period covered
personal statement of cash flows or cash flow statement
difference between cash inflows and outflows
savings level
how to calculate the housing cost ratio
all monthly non discretionary housing costs / monthly gross income
non discretionary housing costs include _____, ____, ____, and ________
principal, interest, taxes, insurance
the housing cost ratio should be ____% or less
28%
if the client has high consumer debt balances, a _____ program should be forumulated
debt management
typically, priority is given to retire the debt with the highest ____
interest rate
what does negative amortization mean?
mortgage balance becomes greater than the home value
Adjustable rate mortgages without a cap are ___
risky
what is the maximum value of home equity loans that you can deduct the interest for?
$100k
true or false?
HELOC debt can be used for any purpose without affecting its deductibility
true
True or false?
under the FDIC, deposits in different qualified institutions are insured separately
true
if an institution has one or more ____ the main office and all _____ are considered to be one institution under FDIC
branch ; branch offices
do VA loans require mortgage insurance?
no
do FHA loans require mortgage insurance?
yes
do FHA loans require a down payment?
yes
do VA loans require a down payment?
no
true or false?
Securities, mutual funds, and similar investments are not covered by FDIC insurance
true
under the american opportunity tax credit, The maximum credit allowed in a given year is $____ per student, if there are
$_____ of qualifying expenses
$2,500 ; $4,000
true or false?
under the american opportunity tax credit, student must be enrolled no less than half time to be eligible
true
true or false?
under the lifetime learning credit, the student must be enrolled no less than half time to be eligible
false, half time is not a requirement
The Lifetime Learning Credit can be claimed for an _____ years
unlimited
the american opportunity tax credit can be claimed for ____ years
first 4 years of post secondary education
student loan interest in a(n) ____ the line deduction
above
529 plan contributions must be made in the form of ___
cash
true or false?
contributing to a 529 plan will move assets out of one’s estate
true
what is the maximum contribution allowed to a 529 plan under a split gift?
$140k
$14k x 2 x 5
contributions to a coverdell savings account Cannot be made after the beneficiary reaches age ___ unless he is a special needs
beneficiary
18
true or false?
a Pell Grant is technically a gift from the government
true
what is the biggest difference between grants and loans?
loans have to be repaid but grants do not
true or false?
Custodial account assets are considered an asset of the child and are considered in
determining financial aid
true
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.
A
who controls monetary policy?
federal reserve
who controls fiscal policy?
congress
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
B
Voluntary and involuntary liquidation (bankruptcy) is known as chapter ____ bankruptcy
7
Reorganization of persons, firms, and corporations is known as chapter _____ bankruptcy
11
Adjustment of debts of individuals with regular income is known as chapter ___ bankruptcy
13
Collectively, taxation, expenditures, and debt management of the federal government are called ______
fiscal policy
when the government increases purchases
of goods and services while holding its revenues constant, it creates a budget deficit and stimulates aggregate demand
Expansionary (easy) fiscal policy
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
restrictive (tight) fiscal policy
stimulus programs are often a sign of ____
fiscal policy
The Fed will ____ government securities to cause more money to circulate, thus increasing lending and lowering interest rates
buy
what’s the biggest difference between subsidized and unsubsidized loans?
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
For gift tax purposes, 529 contributions can be treated as though they were made ratably over a ____ year period
5
true or false?
529 Contributions are not phased out, even at higher AGI levels
true
under the lifetime learning credit, The taxpayer must spend $_____ annually on qualified expenses to qualify for the full credit
$10k
Debt-to-income ratio (total debt ratio) =
all monthly debt payments and housing
costs from above ÷ gross monthly income
the debt to income ratio should be ____% or less
36%
