I Don't Know It Flashcards
What is the arbitrage pricing theory (ABT)?
A multi-factor asset pricing model based on the idea that an asset’s returns can be predicted using the linear relationship between the asset’s expected return and a number of macroeconomic variables that capture systematic risk
When must a Report of Foreign Bank and Financial Accounts (FBAR) be submitted? (And by default, a form 114)
When the aggregate value of all foreign asset accounts exceeds $10k
What are the MFJ foreign asset thresholds for filing Form 8938?
$100k on last day of year or $150k at any time during the year
Disposition
Seeks to confirm pride and avoids regret
Sells winners too fast to prove correct
Holds losers too long to avoid admitting incorrect
What do you do with P.S. 58 payments?
It should be in a qualified plan that contains life insurance. It is subtracted from the cash value (tax-free) amount of the qualified plan
What are the 3 non-exceptions for qualified plan early withdrawals (HHH)?
Homebuyer
Heathcare
Higher edcuation
What is the one non-exception for trad IRA and IRA-funded plans?
Separation of service before age 55
What are the 4 home coverages (A-D)?
A - home coverage amount
B - detached structures, usually 10% of A
C- contents, usually 50% of A
D - loss of use, usually 20% of A
What is the coinsurance clause formula for paying for damages?
.8 * replacement value = coinsurance req
(Coverage A / coin req ^) * damage cost - deductible = insurance payment
What is the formula for determining stop loss?
Calculate the stop-loss limit on a health insurance policy with the following information:
$1,500 deductible
80/20 coinsurance
$17,500 maximum-out-of-pocket limit
(MOOP - Deductible) ÷ Insured’s Coinsurance Percentage
($17,500 - $1,500) ÷ 0.20 = $80,000
What is the insurable loss called?
The peril
What is chpt 11 bankruptcy?
Intended for businesses but also accommodates those who exceed chpt 13 limits
What are liquidity ratios?
Used to determine the ability to meet short-term obligations
-Current ratio
-Quick ratio
-Working capital
What are activity ratios?
Used to determine the relative efficiency of financial management
-Inventory turnover
-Days to sell inventory
-Acct’s receivable turnover
-Receivable collection period
What are profitability ratios?
Used to measure relative profitability
-Gross profit margin
-Operating profit margin
-Return on Assets
-Return on Equity
What are debt ratios?
Used to determine the ability to meet long-term obligations
-Debt to equity
-Times interest earned
-Debt ratio
What are the 5 categories and their percentages of weight for a credit score?
Payment history (35%)
Accounts owed (30%)
Length of credit history (15%)
New credit (10%)
Credit mix (10%)
What is PITI?
Principle
Interest
Taxes
Insurance
Which optional feature of an individual disability income insurance policy allows for a larger amount of additional coverage to be added to a policy at a specified age, after a specified number of years, or at after specific life event, such as marriage?
Guaranteed Insurability Option
Automatic Benefit Increase
Cost-of-Living Adjustment
Principal Sum Benefit
Guaranteed Insurability Option
What are the three forms of payments for an annuity?
Withdrawals - Partial and full
Life annuity
Annuity certain - fixed period and fixed income
According to the triple-trigger theory, identify the category of insurer whose policy was in force when the disease developed.
Exposure
Manifestation
Exposure-in-residence period
Covered perils
Exposure-in-residence period
How do you determine how much money needs to be deposited back into an account to meet margin?
Stock price * mx margin = required amount
Stock price - debt = current account value
Required amt - current value = amt to deposit
Who are related parties for the purpose of IRC 267?
Spouse
Child
Grandchild
Parent
Sibling
An entity with more than 50% ownership
How does a disallowed loss move through related party sale to unrelated party sale?
Dad sells to son at a loss
Son sells to unrelated party for a gain (realized gain/loss)
Subtract Dad’s loss from son’s gain and get son’s Recognized loss
Passive activity: what are the two types of passive activities and what are the ROTs?
Private and Public (PTP).
Private gains/losses can be balanced against each other
Public (PTP) gains/losses can only be taken against themselves, as in the specific investment
What is the formula for disallowed losses from rental property?
AGI - 100,000 / 2 = disallowed loss
Disallowed loss - actual loss = allowed loss
Jonah and Janelle are in the process of compiling information for the completion of their daughter Vivian’s FAFSA form. Vivian will be attending Upstate University in the coming academic year. Tuition and fees are $55,000. The following income and assets have been documented:
$100,000 Equity in primary residence
$15,000 Brokerage account (Jonah & Janelle)
$80,000 AGI [after allowances, over protection amount] (Jonah & Janelle)
$50,000 529 in Vivian’s name (Jonah & Janelle)
$250,000 IRA (Jonah)
$10,000 Earned income (Vivian)
$7,500 Joint checking account (Jonah & Janelle)
$5,000 UTMA (Vivian)
Assume the rate of income inclusion for the parents is 24% & the maximum asset inclusion rate applies for the parents. Assume $0 in asset protection for the parents. Calculate the financial need using the EFC formula.
$15,096
$22,016
$25,804
$29,231
$29,231
Equity in a primary residence and retirement assets are non-includible in the EFC + Financial Need calculations. Thus, the home equity and IRA are omitted.
$80,000 AGI → Parent Income (24% rate) = $80,000 x 0.24 = $19,200
$7,500 [Joint Checking] → Parent Asset (5.64%) = $7,500 x 0.0564 = $423
$15,000 [Brokerage Acct.] → Parent Asset (5.64%) = $15,000 x 0.0564 = $846
$50,000 [529] → Parent Asset (5.64%) = $50,000 x 0.0564 = $2,820
$10,000 [Income] → Student Income (50% above protected amt.) = $10,000 - $7,040 = $2,960 x 0.50 = $1,480
$5,000 [UTMA] → Student Asset (20%) = $1,000
EFC = $19,200 + $423 + $846 + $2,820 + $1,480 + $1,000 = $25,769
Cost of Attendance (COA) = $55,000
COA – EFC = Financial Need → $55,000 - $25,769 = $29,231
What are some of the main differences between NQSOs and ISOs?
NQSOs: Usually subject to vesting, Can be transferred or gifted, corporation receives deduction
ISOs: Corporation may never receive deduction, may create AMT, No more than $100,000 per year granted
What type of workers can a qualified plan exclude?
Those part-time EEs who don’t work more than 1000 per year
What is the annual exclusion to a non-US citizen spouse?
$164k
What is the best charity trust to use in a period where interest rates are low?
A CLAT is the best Charitable Lead Trust (CLT) choice when interest rates are lower, since smaller annuity payments to a charity result in a greater value of the trust corpus for the remaindermen.
When are CLUTs best utilized?
When there is a concern about GSTT because there is a deduction of the full interest value going to the charity
What makes a Grantor trust, a Grantor trust?
Control over the assets. If the Grantor retains control, then its a Grantor trust.
How many years maximum, are CLTs and CRTs usually established for?
20 years
What AGI deduction percentage can be taken when using the FMV of the appreciating assets in a CRUT?
30%
What kind of charitable trust is necessary for an income deduction to be taken?
Grantor?
or
Non-Grantor?
Grantor
What does Beta measure or mean?
It compares a fund volatility to a market index: 1 being the market average
What statistical measure is used to value total market risk to a fund?
Alpha
Beta
Std Deviation
CV
Std deviation
Proper AMT planning will result in which of the following outcomes?
AMT liability equals the regular tax liability.
AMT liability is greater than the regular tax liability.
The regular tax liability is greater than the AMT liability.
None of these.
AMT liability equals the regular tax liability.
If a taxpayer is subject to AMT in the current tax year:
Accelerate income into the AMT year
Defer tax deductions until a regular tax year
The optimal strategy would be to do as above until the AMT liability equals the regular liability.
An investor is anticipating a large drop in interest rates. What strategy could they employ with their bond portfolio for best results?
Increase both the duration and the yield of the portfolio
Increase the duration and reduce the yield
Reduce both the duration and the yield of the portfolio
Reduce the duration and increase the yield
Increase the duration and reduce the yield
If someone super-funds a 529 and the annual gift exemption goes up in the following years, how much can that same person then contribute to the 529 in the last of those 5 years?
Only the amount difference, per year, to get up to the exemption. If the exemption was $15k at super-fund and it goes up to $16k in successive years, then that person can add $1k per year
How do you get to the taxable estate from the gross estate?
Gross - expenses, losses, taxes, debts =
Adjusted gross - minus marital and charitable deductions =
Taxable estate
NUA: what counts as basis for beneficiaries of someone who took a lump sum then subsequently died?
Basis is the contributions (ordinary income) + any gains after the lump sum.
When are early withdrawal penalties able to be claimed?
Only in the year that they are experienced
Tommy, a CPA, has $60,000 of earned income, $2,000 of interest from CDs, qualified dividends of $3,000, and $4,000 of margin interest. How much of the margin interest is deductible?
$3,000
$4,000
$2,000
$5,000
$2,000 - losses up to NII
NII does not include qualified dividends. If they were non-qualified, than NII would include it
What are the limitations of a Coverdell?
$2000 p/beneficiary p/year
Phase out
The beneficiary needs to be under 18
An asset of the parent
What are the requirements of I/EE bonds?
Bond buyer must be at least 24 years old
Must be issued in parent’s name
How much is the maximum contribution to an ABLE account?
The annual exclusion
What expenses can a Coverdell cover?
K-12, wide range of expenses. Tuition, books, meals, some room and board.
Shawn and Renee made $13,000 of contributions to their daughter’s 529 ABLE account this year. The couple is in the 24% marginal tax bracket and will be itemizing their deductions this year. The contributions were made in cash.
Calculate the amount of the contribution that is deductible to Shawn and Renee this year.
$0
$4,800
$6,500
$13,000
$0
Contributions to a 529 ABLE account are non-deductible. For federal gift tax purposes, however, 529 ABLE contributions are considered completed gifts, and donors can utilize their annual exclusion amount in a given year.
When funds are pulled from Trad IRAs for education, what is the tax and penalty result?
Ordinary income - the penalty is waived.
The Lifetime Learning Credit is different from the American Opportunity Tax Credit. However, they do share some of the same requirements. Which of the following requirements is true for both education credits?
-There is no limit to the number of years the credits can be claimed.
-Expenses related to noncredit courses are allowed as qualified education expenses.
-The credit is available for only the first four years of postsecondary education.
-To be eligible for either of the education credits, taxpayers must use any filing status other than Married Filing Separately.
To be eligible for either of the education credits, taxpayers must use any filing status other than Married Filing Separately
Your current ratio was 1.135 in 2021 and has changed to 1.355 in 2022. Is your ratio improving or declining?
Improving
Declining
Not enough information is provided
Improving
150/125 = 1.2
150/75 = 2
Under the provisions of the Equal Credit Opportunity Act, a potential borrower must receive a response from a creditor within _________ after an application indicating whether the request has been approved or denied.
7 days
14 days
30 days
60 days
30 days
What are the 6 policy forms of coverage?
HO-2
HO-3
HO-4
HO-5
HO-6
HO-8
HO-2 - broad form, basic coverage
HO-3 - special form, better coverage
HO-4 - renters (crap only)
HO-5 - Comprehensive form, best coverage
HO-6 - Condo, studs inward
HO-8 - historical coverage
What are the 6 homeowners policy parts?
A
B
C
D
E
F
A - address (home)
B - backyard (detached structures)
C - Crap (contents)
D - destroyed (non-use)
E - exposure to legal (liability)
F - funds for others to fix femur (medical)
What is HO-15?
An HO-03 policy that adds HO-15 open perils (HO-5)
3x5=15
What is the coinsurance formula?
(“Did have” / “should have”) x loss amount - deductible
The policy will never pay more than the face value and the deductible will always be taken
While driving home through a rural area at night recently, a deer ran in front of Jill’s car. Jill swerved but could not avoid hitting the deer, causing significant damage to the front of the car and windshield. If this type of claim is covered under a personal automobile policy, which coverage applies?
Coverage A., Liability for Property Damage
Coverage D.1., Collision Loss
This type of claim is not covered under a PAP
Coverage D.2., Other than Collision Loss
Coverage D.2., Other than Collision Loss
Loss resulting from contact with an animal is covered under D.2., Other than Collision Loss. This coverage is sometimes referred to as “Comprehensive.” Typically, a deductible applies.
Keith buys one call and one put:
April GHI call @ $43 GHI selling @ $39
January RST put @ $61 RST selling @ $68
What is the intrinsic value of the two options?
GHI: $4 / RST: $0
GHI: $0 / RST: $0
GHI: $4 / RST: $7
GHI: $-4 / RST: $-7
GHI: $0 / RST: $0
Can’t have negative intrinsic value
What is “shorting” and “longing” with call and put options?
[S]hort = [S]ell
Long = buy
Which of the following best describes a collar strategy?
Long the stock; long the call; long the put
Long the stock; short the call; short the put
Long the stock; short the call; long the put
Short the stock; short the call; long the put
Long the stock; short the call; long the put
Bought if you already own stock and are worried about it losing value. You buy a protective put to ward against losses and sell a call to fund the put. You will have limited upside and downside when you do this.
Anne, Gloria, and Hank started a small specialty tech manufacturing corporation 5 years ago. Each invested $500,000. The company is growing rapidly, and the owners implemented an entity-purchase buy-sell agreement, based on a valuation of $9,000,000. Within a year, Hank died unexpectedly, and the buy-sell agreement was executed. Following the buy-sell, what is Anne and Gloria’s respective basis in the company?
$500,000
$1,000,000
$4,500,000
$3,000,000
$500,000
Basis does not step-up with an entity purchase plan
Anne, Gloria, and Hank started a small specialty tech manufacturing corporation 5 years ago. Each invested $500,000. The company is growing rapidly, and the shareholders want to implement an entity purchase buy-sell agreement, based on a valuation of $9,000,000. What total amount of life insurance will each shareholder purchase to fund the buy-sell agreement?
$9,000,000
$4,500,000
$3,000,000
$0
$0
Shareholders don’t buy entity purchase plans. The business does.
What happens to the basis at the conclusion of a QPRT?
It carries over
What is the estate tax formula flow to “taxable estate”?
Gross estate
-Minus: expenses, debt, taxes, losses
Adjusted gross estate
-Minus charitable and marital deductions
Taxable estate
Grantor recieves charitable income tax deduction for the PV of the charity’s income interest
Charitable lead trust
A separate legal entity, either a not-for-profit corporation or a tax-exempt trust
Must distribute a minimum of 5% of the trust per year
Private foundation
Funds cannot be invested in tax-exempt securities
Donor pays income taxes on the income received from the fund
Additional gifts can be added to the fund to increase payment to donor
Pooled income fund
Two acronyms for determining intrinsic value.
COME
Call Option = Market value - Exercise price
POEM
Put Option = Exercise price - Market price
Who needs a long hedge?
Someone who is short a product
Who needs a short hedge?
Someone who is long a product
What is the options matrix?
(Call the bull)
(Put the bear down)
Buy Sell
Call BULL bear
Put bear BULL
What is a protective put?
You are long the stock. You buy a put.
What is the rule for use-unrelated tangible property tax deductions?
Lesser of basis or FMV
What is the $ amount that separates a charity reciept from a donor letter?
$250
What is a straddle?
A put and a call are purchased or sold with the same strike price and same expiration date.
Do this if the seller/buyer is concerned about market volitility, but is unsure which direction the market will go
What is a strangle?
A put and a call are bought with the same expiration date, but with a different strike price
Protects from downward market turn, but allows for unlimited gain
What are the two events that differ from the usual 36 months of COBRA coverage?
Termination = 18 months
SS disability = 29 months
What is the PIA calculations based on?
The highest 35 years of earning (most likely the last 35 years)
How much SS is withheld prior to and in the year one reaches FRA? (tax tables)
From eligibility to the year prior to FRA = $1 for every $2 above $19,560
In the year of FRA = $1 for every $3 above $51,960
What are the income percentage thresholds for Single, MFJ, and MFS when taxing social security?
MFJ $0 — 0% —> $32k — 50% —> $44k — 85% —>
Sin $0 — 0% —> $25k — 50% —> $34k — 85% —>
MFS $0 — 85% —>
What is the Medicare Part B coinsurance post deductible?
80/20
