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Certifications > MASTER > Flashcards

MASTER Flashcards

1
Q

4 Basic Premises of Traditional Finance

A
  1. Investors are rational
  2. Markets are efficient
  3. Mean-Variance Portfolio Theory Governs
  4. Returns are Determined by risk
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2
Q

Behavioral Finance Assumptions

A
  1. Investors are “normal” (wants/desires/bias) - prone to cognitive mistakes
  2. Markets are NOT efficient
  3. The Behavioral Portfolio Theory Governs
  4. Risk alone does NOT determine returns
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3
Q

Affect Heuristic

A

judging something whether good OR bad

example = do they like/dislike some company based on NON-financial issues

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4
Q

Anchoring

A

attaching/anchoring one’s thoughts to a reference point even though there may be no logical relevance or is not pertinent to the issue in question

also known as conservatism OR belief perseverance

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5
Q

Availability Heuristic

A

relies on knowledge readily available in memory

may cause investors to overweight recent events or patterns while paying little attention to longer term trends

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6
Q

Bounded Rationality

A

rationality limited by available info, tractability of decision problem, cognitive limitations of their minds, & time available to make decision

decision makers act as “satisficers” seeking a satisfactory solution rather than an optimal one

one consequence = having additional info does NOT lead to an improvement in decision making d/t inability of investors to consider significant amounts of info

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7
Q

Confirmation Bias

A

“you do not get a second chance at a first impression”

people tend to filter info & focus on info supporting their opinions

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8
Q

Cognitive Dissonance

A

tendency to misinterpret info that is contrary to an existing opinion or only pay attention to the info that supports an existing opinion

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9
Q

Disposition Effect

A

also known as “Regret Avoidance” or “faulty framing”

investors do NOT mark stocks to market prices

investors create mental accounts when they purchase stocks & continue to mark their value to purchase prices even after market prices have changed

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10
Q

Familiarity Bias

A

investors tend to overestimate/underestimate the risk of investments in which they are unfamiliar/familiar with

example = only invested in employer’s stock because that’s what you know

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11
Q

Gambler’s Fallacy

A

investors often have incorrect understanding of probabilities which can lead to faulty predictions

investors may sell stock when it has been successful in consecutive trading sessions because they may NOT believe the stock is going to continue its upward trend

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12
Q

Herding

A

people tend to follow the masses or the “herd”

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13
Q

Hindsight Bias

A

looking back after the fact is known & assuming they can predict the future as readily as they can explain the past

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14
Q

Illusion of Control Bias

A

people overestimate their ability to control events

example = driving instead of flying even though much more likely to have a car accident vs plane accident because you are driving

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15
Q

Overconfidence Bias

A

investor mostly listens to themselves

mostly rely on skills/capabilities to do homework & make own decisions

causes many investors to OVERSTATE risk tolerance

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16
Q

Overreaction Bias

A

common emotion towards the receipt of news or information

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17
Q

Prospect Theory

A

value gains/losses differently, base decisions on perceived gains rather than perceived losses

investors are “loss averse” & have a symmetric attitude to gains & losses getting less utility from gaining

explains why investors may avoid higher risk investments even w/ strong risk adjusted returns

explains why they over insure against risks through low deductibles

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18
Q

Recency Bias

A

giving too much weight to recent observations or stimuli

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19
Q

Self-Attribution Bias

A

give yourself credit for all good outcomes

any bad outcomes d/t outside factors

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20
Q

Similarity Heuristic

A

used when a decision/judgment is made when an apparently similar situation occurs even though the situations may have very different outcomes

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21
Q

Herd Mentality

A

process of buying what & when others are

buying & selling

herd mentality LEADS TO buying HIGH & selling LOW

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22
Q

Naive Diversification

A

also known as 1/n diversification

equal amounts invested in every option available, common in 401(k) & other ER retirement plans

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23
Q

Representativeness

A

thinking that a good company is a good investment w/out regard to an analysis of the investment

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24
Q

Loss Aversion

A

investors prefer avoiding losses more than experiencing gains

unwillingness to sell a losing investment in hopes it will turn around

investors feel more pain from losses than enjoying gains

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25
Q

Socialization

A

process of acquiring values, beliefs, & behaviors that are acceptable &/or expected by society

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26
Q

Social Consciousness

A

an awareness of & sense of responsibility for problems or injustices that exist w/in society

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27
Q

Multicultural Psychology

A

recognizes that multiple aspects of identity influence a person’s worldview

both universal & culture specific phenomena should both be considered

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28
Q

What are the 4 main areas of GDP?

A

consumer spending

government spending

business investing

net imports/exports

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29
Q

Federal Reserve & Congress 3 Main Goals Fiscal Policy

A
  1. maintain long term economic growth
  2. maintain price levels supported by the economy
  3. maintain full employment
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30
Q

FDIC - Covered vs NOT Covered

A

COVERED = any deposit payable in US, CDs

NOT COVERED = any deposit payable outside of US, MM MFs, stocks, bonds, mutual funds

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31
Q

Debts NOT Discharged Through Chapter 7 Bankruptcy

A

3 years of back taxes

alimony/child support

student loans (unless “undue hardship” - jurisdiction issue)

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32
Q

Emergency Fund

A

3-6 months Nondiscretionary expenses

EF Ratio = Current Assets / Monthly Nondiscretionary Expenses

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33
Q

Current Ratio

A

measure of client’s ability to meet ST obligations

CR = Current Assets / Current Liabilities

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34
Q

Housing Ratio 1

A

no more than 28% of monthly gross income

HR1 = Monthly housing costs (P+I+T+I) / Monthly GROSS Income

Principal, Interest, Taxes (property), Homeowners Insurance

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35
Q

Housing Ratio 2

A

no more than 36% of monthly gross income

HR2 = [Monthly housing costs (P+I+T+I) + all other recurring debt] / Monthly GROSS Income

Principal, Interest, Taxes (property), Homeowners Insurance

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36
Q

Savings Ratio

A

performance ratio; target 10-12%, 20-25% if starting late age 45-55

*important to include ER contributions to 401k, profit sharing plans etc

SR = Annual Savings (EE + ER contributions) / Annual GROSS Income

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37
Q

Education & Financial Aid - Student Aid Index SAI

Students considered independent if they are….

A
  1. over age 23
  2. have legal dependents other than a spouse
  3. married
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38
Q

Financial Aid Programs - NEED Based

A

Federal Pell Grant

Subsidized Stafford Loan

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39
Q

Financial Aid Programs NOT Need Based

A

Unsubsidized Stafford Loan

PLUS Loan (depends on PARENTS CREDIT)

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40
Q

Risk Management Guidelines

A

High Severity High Frequency = Avoidance

High Severity Low Frequency = Transfer (Insurance)

Low Severity High Frequency = Retention/Reduction

Low Severity Low Frequency = Retention

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41
Q

Annuity Withdrawals - LIFO vs FIFO

A

PRIOR to 1982 = FIFO

AFTER 1982 = LIFO

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42
Q

HMO vs PPO

A

HMO - cheaper, doctor IN-NETWORK ONLY

PPO - more expensive, more flexible doctor access

SIMILARITIES - no paperwork if in network

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43
Q

LTC “Qualified”

A

Premiums tax deductible & benefits tax FREE:

  1. NO surrender value
  2. limited to qualified LTC services
  3. dividends to reduce premiums OR increase benefits
  4. meet consumer protection laws
  5. does NOT pay for expenses covered under Medicare
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44
Q

HO Insurance - BASIC Named Perils

A

Fire, Vehicles, Lightning, Smoke, Windstorm, Vandalism, Hail, Explosion, Riot, Theft, Aircraft, Volcano

SLW - FVVVHEART (pronounced slow favorite)

VVV-WEATHR-FS

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45
Q

HO Insurance - BROAD Named Perils

A

Basic Named Perils 1-12 Plus:

Falling objects, Weight of ice/snow/sleet, Accidental overflow of water (NOT flood), Sudden bursting of appliances, Freezing of system/appliance, Damage from electrical current

Basic + FAS-FWD (pronounced fast forward)

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46
Q

Open Peril Policy

A

protects against ALL perils EXCEPT those perils that are SPECIFICALLY EXCLUDED from policy

Exclusions include - neglect (termite damage), flood, & earthquakes

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47
Q

General Exclusions for ALL HO Policies

A
  1. Movement of ground (earthquake/landslide)
  2. Ordinance/Law (regulations regarding construction/demolition)
  3. Damage from water (flood, underground water, sewer backup)
  4. War/Nuclear hazard (including nuclear power plant)
  5. Power failure (such as power plant failure causing a loss)
  6. Intentional act (burning down your own house)
  7. Neglect (must take reasonable means to save property & mitigate loss)
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48
Q

HO-3 Special Form

A

provides coverage on DWELLING & OTHER STRUCTURES on an OPEN peril basis resulting in coverage against ALL physical loss other than those SPECIFICALLY excluded

personal property is covered on a NAMED peril basis

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49
Q

OASDI & Medicare Tax

A

OASDI = 6.2% (BOTH EE & ER) up to wage base $168,600

Medicare = 1.45% (both EE & ER) on UNLIMITED amount of wages

Additional Medicare Tax 0.9% (EE) on income excess of $200k single or $250k MFJ UNLIMITED amount of wages

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50
Q

Social Security Early Benefits Reduction & Delays Increase

A

REDUCED BY:
- 5/9 of 1% each month 1st 3 years
- 5/12 of 1% each month beyond 3 years

3 years early = 20% reduction
4 years early = 25% reduction
5 years early = 30% reduction

DELAYED:
- increases by 8% annual simple interest (2/3 of 1% monthly) each year delayed until age 70

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51
Q

Social Security Definition of Disability

A

disability expected to last for 12 months or disability will result in your death AND cannot perform the duties of ANY occupation

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52
Q

What does Medicare Part B NOT Cover?

A

Dental care & Dentures

Cosmetic surgery

Hearing Aids

Eye exams

Routine Physical Exams (per Medicare.gov)

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53
Q

Initial Margin Loan Amount

A

Loan = 1 - Initial Margin

54
Q

At What Price Does an Investor Receive a Margin Call Price?

A

= Loan / (1 - Maintenance Margin)

55
Q

Research Reports (2)

A
  1. Value Line = ranks stocks
  2. Morningstar = ranks mutual funds, stocks, bonds, & ETFs
56
Q

Ex-Dividend Date

A

own/purchase stock PRIOR to ex-dividend date then receive dividend

if purchased on/after then won’t receive dividend

Trade Settlement = T + 1

Ex-dividend date is now same as date of record

latest an investor can purchase & still receive dividend is day before record date

57
Q

Investment Policy Statement

A

IPS Covers RR TTLLU

Risk, Return, Time, Taxes, Liquidity, Legal, & Unique Circumstances

***does NOT include investment selection

58
Q

Price Weighted Average

A

Dow Jones Industrial Average

single price weighted average

does NOT incorporate market capitalization

59
Q

Value Weighted Index

A

S&P 500

value weighted index

incorporates market capitalization of individual stocks into the average

60
Q

Coefficient of Variation - CV

A

CV = SD / X (mean)

how many units of risk for one unit of return

standardizes the measure of risk per unit of return

useful when comparing 2 assets w/ different avg returns

higher CV = more risky on investment & less likely an investor is to achieve the avg return

performance metric

EXAM TIP = the asset w/ the LOWER CV (risk/return) has the HIGHER Risk Adjusted Return (return/risk)

relative measure

61
Q

Arbitrage Pricing Theory

A

MULTI FACTOR model; take advantage of pricing imbalances

Inputs = factors (F) such as inflation & expected returns & their sensitivity (b) to these factors

**SD & Beta are NOT inputs

R = a + bF + bF + bF + e

62
Q

Holding Period Return - HPR

A

= [SP - PP +/- CFs] / PP or Initial Equity

*NOT a compounded ROR
*NO consideration for TIME investment was held

tax implications on NUMERATOR

63
Q

If required ROR DECREASES, the stock price will?

A

Increase!

64
Q

If dividend expected to INCREASE, the stock price will?

A

Increase!

65
Q

If required ROR INCREASES the stock price will?

A

Decrease!

66
Q

If the dividend is expected to DECREASE, the stock price will?

A

Decrease!

67
Q

P/E Ratio - Price to Earnings

A

Expected Price Per Share = Earnings Per Share x P/E Multiplier
PE = stock price / EPS

useful to value stock IF firm pays NO dividends

P/E multiplier = relationship of price to earnings

P/E ratio = P/E multiplier

how much an investor is willing to pay for each dollar of earnings

stock price as a multiple of company earnings

example = if P/E = 3 then trading @ 3 times its value

68
Q

Dividend Payout Ratio - DPR

A

DPR = Common Stock Dividend / Earnings Per Share

= 1 - Retention Ratio

relationship b/t amount of earnings paid to shareholders in the form of a dividend, relative to earnings per share

HIGHER DPR = more mature the company; may also indicate possibility of dividend being reduced

69
Q

Return on Equity - ROE

A

ROE = Earnings Per Share / Stockholders Equity Per Share

SEPS = Total Equity / Shares Outstanding

measures overall profitability of a company

direct relationship b/t ROE, earnings & dividend growth

70
Q

Dividend Yield

A

DY = Dividend Per Share / Stock Price

states the annual dividend as a percentage of the stock price

71
Q

EMH - WEAK Form

A

HISTORICAL INFORMATION will NOT help investors achieve above market returns

rejects TECHNICAL analysis

72
Q

EMH - SEMI Strong Form

A

NO help from HISTORICAL OR PUBLIC information to achieve above average returns

rejects BOTH TECHNICAL & FUNDAMENTAL analysis

73
Q

EMH - STRONG Form

A

NO help from HISTORICAL, PUBLIC, or PRIVATE information to achieve above avg returns

rejects TECHNICAL, FUNDAMENTAL analysis & INSIDE information

diversify stocks randomly or merely go w/ an index

74
Q

After Tax Yield

A

ATY = Corporate Rate x (1 - Marginal Tax Rate)

NOT ON FORMULA SHEET

75
Q

Bond Yield Summary - Premium & Discount

A

PREMIUM: High to Low:
CR - CY - YTM - YTC

DISCOUNT: Low to High:
CR - CY - YTM - YTC

76
Q

Preferred Stock - Stated/Fixed Dividend Qualities (Debt/Equity Features)

A

DEBT = stated par value; stated dividend rate as a percentage of PAR

EQUITY = price of a bond may generally move w/ price of common stock

77
Q

Preferred Stock Differences (2)

A
  1. dividend does NOT fluctuate like a common stock dividend
  2. NO maturity date like a bond
78
Q

Preferred Stock Tax Advantages

A

*for tax years beginning AFTER 12/31/17

70% dividends received deduction reduced to 50%

80% dividends received deduction for 20% or more owned corporations reduced to 65%

same deduction applies to common stock dividends as well

79
Q

Convertible Bonds - Conversion Value

A

Conversion Value = value of convertible bond in terms of the stock into which it can be converted

= (Par / CP) x Ps

CV - represents conversion ratio; how many shares can the convertible be converted into

80
Q

Black/Scholes

A

Model to determine value of a CALL option

Considers the following variables:
1. Current price of underlying asset
2. Time until expiration
3. Risk-free ROR
4. Volatility of underlying asset
5. Strike (exercise) price

*ALL variables have DIRECT relationship on PRICE of the option EXCEPT STRIKE price; higher the strike price the smaller the call option premium

81
Q

Put/Call Parity

A

attempts to value a PUT option based on the value of a CALL option

82
Q

Binomial Pricing Model

A

attempts to value an option based on the assumption that a stock can only move in ONE of TWO directions

83
Q

Donee’s Basis Gifted Loss Property - At date of gift if FMV < Donor’s Basis

Double Basis Rule

A
  1. If Sales Price > Donor’s Basis = carryover basis & HP
  2. If SP < FMV @ date of gift, Donee’s Basis = FMV @ date of gift, NEW HP starting @ date of gift
  3. If SP is b/t Donor’s basis & FMV (from date of gift) = NO gain OR loss for Donee
84
Q

Donee’s Basis - Appreciated Property w/ Gift Tax Paid

A

Donee’s Basis = Donor’s Basis + [(Net Appreciation in Gift / Taxable Gift) x Gift Tax Paid]

85
Q

Miscellaneous Itemized Deductions NOT Subject to 2% AGI Threshold

A
  1. IRD
  2. Gambling losses to extent of gambling winnings
  3. Impairment related work expenses for handicapped
  4. Annuity losses for decedent annuitant
86
Q

RIA EXEMPTIONS to Registration

A

Meet definition, need NOT register, subject to antifraud provisions of act

VIPs are SaFE from exemptions
1. Advisers all INTRASTATE business
2. NOT providing advice re securities traded on national exchange
3. Advisers whose ONLY clients are INSURANCE companies
4. Advisers solely to venture capital funds
5. Advisers solely to private funds less than $150MM
6. Foreign advisers w/out place of business in U.S.

87
Q

RIA EXCEPTIONS to Registration

A

Need NOT register, generally NOT regulated by Advisers Act

Incidental TABLE
1. Banks/bank holding companies NOT investment companies (loans/deposits only)
2. Any BD advisory services solely incidental to conduct of business (primary business is trades)
3. Lawyers/Accountants/Teachers/Engineers whose advice solely incidental to their profession – LATE
4. Bona fide newspaper, publisher, magazine, periodical of regular circulation
5. Advisers whose advice/services related strictly to securities guaranteed by United States
6. NOT w/ intent of law as SEC may designate

88
Q

Financial Planning Definition

A

A collaborative process that helps maximize a client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal & financial circumstances

Know this definition!

89
Q

Taxable Group Term Life Insurance Including Table 1 Rate

A

First 50K DB NOT taxable, cost of excess determined Table 1 cost

total amount deductible for ER

  1. DB - 50K = ADB (Adjusted Death Benefit)
  2. ADB x Table Cost / 1,000 x 12
  3. Subtract off any premiums deducted from EE’s paycheck (if any) to arrive @ taxable amount
90
Q

Series EE Bonds Exclusion from Income Qualified Education Expenses

A

if ALL interest used for qualified education expenses no tax

Exclusion from income = (Qualified Education Expenses / Redemption Value) x Gain

91
Q

END Mode

A

Save @ end, Spend @ beginning

ALWAYS mortgage & loan pmts even if it says pmt due 1st of the month

ordinary annuity

ALL loans (including mortgage) - 1st pmt due 30 days AFTER closing

savings (unless told otherwise)

92
Q

BGN Mode

A

Save @ end, Spend @ beginning

ADLER
A - Annuity Due
D - Due
L - Leases
E - Education (tuition pmts)
R - CFs during retirement

93
Q

How do I remember all the coverages in HO Policies?

A

Coverage A = ATTACHED structures

Coverage B = space BETWEEN - covers detached garages etc

Coverage C = covers my CRAP

Coverage D = DAMAGE so bad I cannot live there (pays for housing elsewhere during repairs)

Coverage E = Eeekkkk I am in trouble (liability)

Coverage F = someone FELL & I owe them medical payments (LIFE ALERT)

94
Q

Like Kind Exchanges 3 Rules

A
  1. Must recognize gain to extent boot received
  2. If liability assumed from you, count as boot (debt relief = boot)
  3. If parties are related, RED FLAGS GO OFF, if either party sells the asset w/in 2 years of exchange then BOTH have to RECOGNIZE deferred gain in transaction
95
Q

BTL Deductions Schedule A (FROM AGI)

A

“ccommit” spelled badly

C - Charity
C - Casualty losses
M - Medical
M - Miscellaneous
I - Interest
T - Taxes

96
Q

ATL Deductions (FOR AGI)

A

IRA

Alimony

1/2 Self employment taxes

DOUBLE CHECK

97
Q

Community Property

A

Estate = 50% deemed contribution rule

YES 50% of value included in PROBATE

NO auto survivorship feature

YES qualifies for unlimited marital deduction IF spouse is heir/legatee

Property NOT partitionable w/out consent of joint owner

98
Q

Tenancy By the Entirety

A

Estate = 50% deemed contribution rule

NO PROBATE

YES auto survivorship feature

YES qualifies for unlimited marital deduction

Property NOT partitionable w/out consent of joint owner

99
Q

JTWROS

A

Estate = actual contribution rule, % owned, UNLESS spouse, ALWAYS deemed to have contributed 50%

NO PROBATE

YES auto survivorship feature

YES qualifies for unlimited marital deduction IF spouse is joint owner

Property IS partitionable w/out consent of joint owner

100
Q

Tenants in Common - TIC

A

** NO deemed contribution rule for spouse

Gross Estate = % owned

Probate = % owned

NO auto survivorship features

YES qualifies for unlimited marital deduction IF spouse is heir/legatee

Property IS partitionable w/out consent of joint owner

101
Q

Sole Ownership, Fee Simple

A

100% in GROSS ESTATE & PROBATE ESTATE

NO auto survivorship feature

Qualifies for unlimited marital deduction IF spouse is legatee/heir

102
Q

Pooled Income Funds

A

Good for SMALL gifts

charitable gifts of a split interest

contributions pooled in a trust maintained by the charity

income for LIFE to DONOR, remainder to charity

103
Q

Earnings Per Share

A

= [Net Income - PF Dividends] / Avg # Outstanding Common Shares

104
Q

Section 179 Election to Expense Assets

A

can immediately expense up to $1,220,000 of business tangible property placed in service during year

dollar for dollar reduction amounts over $3,050,000

election cannot exceed taxable income (before 179), excess can be carried over, reduces basis currently

Section 179 applies BEFORE MACRS

105
Q

Max Estate Tax/Taxable Gains

A

FIRST $1,000,000 = $345.800

Amount OVER $1MM taxed at 40%

106
Q

Highly Compensated

A
  1. GREATER than 5% Owner
  2. Comp > $155,000 & top 20% EEs ranked by salary
  3. Comp > $150,000 2023 for prior plan year, $135k lookback
107
Q

Key Employee

A
  1. GREATER than 5% Owner
  2. GREATER than 1% Owner & Comp > $150,000
  3. OFFICER & Comp > $220,000
108
Q

ISO Cashless Exercise

A

a cashless exercise IS a disqualifying disposition

an executive exercises an option w/out cash, very common

3rd party lends executive needed cash

executive repays lender almost immediately w/ proceeds & has w-2 income for excess over exercise price

109
Q

ISO Disqualifying Disposition

A

Disqualifying Disposition - NOT taxed advantaged; taxed like NQSO retroactively

sell stock NOT satisfying 2/1 rule

W-2 income appreciation over exercise

ER has tax deduction equal to executive’s W-2 income

110
Q

ISO AMT

A

GRANT - no tax

EXERCISE - AMT adjustment (income) (FMV - Exercise Price)

BASIS - FMV @ exercise

SALE - AMT deduction = the AMT income previously included

111
Q

ISO REG

A

If aggregate FMV of grants > $100k then treated as NQSO

Sale = 2 years from grant, 1 year from exercise

can ONLY be gifted AFTER exercise

taxation for ISOs depending at SALE!

GRANT - no tax if issued current or greater than share price

EXERCISE - no income (AMT ONLY)

BASIS - strike price @ exercise, adjustments?

SALE - 2/1 met = LTCG; NOT = w-2 income, CG LT/ST HP since EXERCISE

112
Q

NQSO

A

GRANT - no tax if issued @ current or greater share price

EXERCISE - w-2 income (FMV - Exercise Price)

BASIS - FMV @ exercise

SALE - capital gain or loss; LT or ST = HP since EXERCISE

ER tax deduction IF EE GIFTS

113
Q

83(b) Election

A

EE election, stock in taxable income @ grant instead of vesting or when restrictions lifted

any gain over grant date = capital gain

if EE does NOT vest = NO tax deductible loss

30 days to file AFTER stock transferred

EE MUST file WRITTEN statement w/ IRS

114
Q

SCIN

A

Self-Cancelling Installment Notes

payments interest & principal over term, SCIN premium paid to cancel note @ seller’s death, SECURED

NO gift IF PV of Note = value of underlying property & SCIN premium is APPROPRIATE

interest CAN be deductible depending on property

used when SELLER in POOR health

term set by seller

buyer’s adjusted basis = purchase price of property

YES collateral interest

115
Q

Private Annuity

A

UNSECURED promise from buyer to make payments to annuitant for annuitant’s LIFE

risk = SELLER lives LONGER

effective = life expectancy < IRS table (SELLER in POOR health)

3 components = interest @ sale 7570, capital gain, tax free basis

CG (yearly) = [FMV - adjusted basis] / # expected payments

Basis = sum of annuity payments made

interest = subtract off CG & basis portion

NO deduction for interest

116
Q

HSA Penalty & Other Considerations

A

age 55 & older catch up = $1,000

distributions NQ medical expenses = income tax + 20% penalty under age 65; age 65 & older = income tax only

completely tax free for qualified medical expenses

117
Q

Alimony

A

NOT discharged in bankruptcy, IS a protected asset

ATL deduction, included in income, earned income, IF signed before 2019 & not materially modified after

do NOT extend beyond death of payee

starting 2019 = alimony is NO longer deductible OR taxable

118
Q

Active Participant - IRA Deductibility

A

DC = $ into account (whether theirs or the company’s)

DB = active when you are ELIGIBLE since you begin accruing benefits once eligible

119
Q

Margin Equity Position/Value

A

= Equity / FMV

120
Q

Capital Market Line Formula - CML

A

uses STANDARD DEVIATION

121
Q

Security Market Line - SML

A

uses BETA

risk & return defined by CAPM

securities above SML = undervalued, BUY

securities below SML = overvalued, SELL short

intersects w/ Y Axis @ risk free ROR

122
Q

TEY Double Tax Free Bond IF Client Itemizes Deductions

A

= Tax Exempt Yield / [1 - (Federal Tax Rate + State Tax Rate(1 - Federal Tax Rate))]

123
Q

Margin Call Amount

A

Loan/Margin Amount = initial share price x initial margin %

Actual Equity = current price - loan amount

Required Equity = current price x maintenance margin

Deposit = (Required Equity x # of shares) - equity if any

124
Q

AMT Formula

A

Regular Taxable Income
+- Adjustments
+- Preferences
———————–
Less AMT Exemptions (on tax sheet)

AMT Tax Rates on tax sheet

125
Q

Tax Formula

A

Income
Less: exclusions from gross income
Gross Income
Less: deductions FOR AGI
AGI The Line
Less: greater of itemized or standard deduction
OBI less deduction for pass through entity if applicable
Taxable Income
Tax on Taxable Income
Less: credits including Fed income tax withheld
Tax Due (or Refund Due)

126
Q

Coverage A - Dwelling Coinsurance Formula

A

IF less than 80% of replacement cost covered, insured receives payment for partial losses as follows (INSURER pays amount):

= [(Amount of Insurance Carried/Amount of Insurance I should have) x Amount of Loss] - Deductible

127
Q

ROR on Investments - ROI

A

Performance Ratio

= (Ending Investments - Beginning Investments - Savings - Gifts Received) / Average Invested Assets

Avg Invested Assets = (Beginning Investments + Ending Investments) / 2

128
Q

Supply/Demand Curve

A

SUPPLY - bottom left to top right

DEMAND - top left to bottom right

129
Q

Beta

A

risk as a measure of volatility relative to that of the market

on formula sheet

measure of systematic risk, volatility of a DIVERSIFIED portfolio

good measure if r squared at least 0.7

130
Q

Brochure Rule

A

Form ADV Part 2 makes up client brochure

REQUIRES WRITTEN disclosure to every client of the following:
- Advisory services/fees
- Types of securities
- Education & business standards
- Participation/interest in securities transactions
- Conditions for managing accounts

This info MUST be given to the client AT OR BEFORE the time of entering into a contract

Compliance w/ the brochure rule is accomplished by providing client w/ ADV Part 2 (outlines fees)

EXAM TIP: Tested Frequently!

131
Q

Tax to Avoid Safe Harbor

A

Underpayment of estimated tax

Most people can avoid paying estimated tax if their withholding & credits equal 100% of the tax shown on the prior year’s return OR 90% of the current year’s tax liability:
- For taxpayers w/ AGI above $150,000 ($75,000 MFS) they will pay estimated taxes based on 110% of prior year or 90% of current year by January 15th of the following year even though the full tax liability is due April 15th
- Taxpayers may NOT rely on this rule, however, if the taxpayer had a short (less than 12 months) taxable year for the previous year
- In addition, a taxpayer does NOT have to pay estimated tax if the taxpayer had NO tax liability for the previous year; the taxpayer was a US citizen or resident for the entire year; & the taxpayer’s tax year covered a 12 month period

The penalty for underpayment of estimated tax is figured the same as interest

First, determine the amount of the underpayment for each period of time & the number of days in that period, then apply an appropriate interest factor; the interest rate is adjusted from time to time based on market interest rates

The due dates for estimated tax payments are April 15, June 15, September 15, & January 15

132
Q

Personalty

A

refers to personal (NON real estate) property

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