Incorrect Exam Questions Flashcards
Joe bought a home for $300,000 subject to a mortgage of $280,000 some years ago. If the mortgage principal is $260,000 and the fair market value of the home is $340,000 today, how large of a home equity loan can Joe take out and deduct the interest?
$80,000
Qualifying home equity debt cannot exceed the difference between the current FMV ($340,000) and the current indebtness ($260,000). If the current FMV was $360,000, then the home equity interest allowance could have been $100,000. (GP-6)
John wants to fund college for his son, age 3. He feels college will cost $20,000 per year in “today’s dollars.” He feels that inflation will be 3% and that he can make 7% after tax on the funds in the account. What amount of yearly contribution does John need to make to his son’s account at the beginning of each of the next 15 years?
The son is 3. Use begin mode for steps 2 and 3. (This is in Prestudy lesson 6)
Step 1) First year of school: $20,000 PV, 15 n, 3 i = $31,159.35 FV
Step 2) College years: $31,159.35 + PMT (begin), 4 n, 3.883* i = * 1.07 : 1.03 -1 x 100 = 3.883% $117,822 PV
Step 3) Payment now: $117,822 FV, 15 n, 7 i = $4,382 PMT (begin)
Ken and Kathy Young bought a house for $100,000 ten years ago. The original mortgage was $80,000 at 9.75% for 30 years. Now with lower interest rates they have decided to refinance the remaining principal at 4% for 15 years. They want to know how much they will save per month by refinancing?
$151.31 +/- $1. (687.32 - $536.01)
Step 1: Calculate payments (use end mode)
(9.75 enter 12 : i) ($80,000 CHS + PV) (360n) = $687.32 (PMT)
Step 2: Amortization key strokes (use end mode)
9.75 / 12 = i .8125
80,000 PV (enter as positive)
687.32 CHS PMT (enter as negative)
120 f AMORT = -74,942.10 first 120 months of interest
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What is dollar weighted return of Portfolio XYZ that has the following characteristics:
Beginning of year 1: $100,000
Capital Withdrawals:
end of year 1 $ 4,000
end of year 2 $ 5,000
end of year 3 $ 6,000
Market value end of year 3: $120,000
10.92% This is an unequal cash flow question. Withdrawals are positive cash flow. A withdrawal from a fund becomes a deposit into the client’s check book. Solve for IRR.
100,000 CHS g CFo 4,000 g CFj 5,000 g CFj 126,000 g CFj f IRR
Your client wants to buy an investment that will produce positive cash flows of $6,000, $7,000, and $8,000 over a three-year period, respectively. At the end of three years, he will sell it for $115,000. He needs to make a return of at least 12%. What amount should he pay for the investment?
$98,486.47
0, g, CFo 6,000, g, CFj 7,000, g, CFj 123,000, g, CFj 12, i f, NPV
A client deposited $100,000 into an investment. The investment produced positive cash flows of $6,000, $7,000, and $8,000 over a three-year period, respectively. Then at the end of three years, he sold it for $115,000. If the client had a required rate of return of 12%, what was the NPV?
- $1,513.53 (negative)
100,000, CHS, g, CFo 6,000, g, CFj 7,000, g, CFj 123,000, g, CFj 12 , i f, NPV
During the analyzing and evaluating step of financial planning, which of the following would likely occur?
Development of a statement of financial condition
Identification of strengths and weaknesses
What amount should Frank and Kathy allocate to their emergency fund?
They need 6 months’ expenses … Take 1/2 of Fixed and Variable expenses (6 months) not taxes. Be prudent for the exam as we realize this is a subjective question/answer.
A CFP® certificant shall notify the CFP Board of a change in his/her physical business address within how many days?
45 days
