Missed Questions Flashcards
What is the formula for calculating self-employment tax?
Self-employment tax = self-employment income x 0.1413 (0.9235 x 0.1530)
Deductions for investment interest are limited to ___________
Net taxable investment income (interest, dividends, annuities, and royalties) (qualified dividends, capital gains, and tax-exempt interest are NOT included)
Interest paid for business use or the production of income, is deductible (for/from) AGI
For AGI
Interest paid for personal use (investment interest and qualified residence), is deductible (for/from) AGI
From AGI
Who is covered under Section II of the homeowners policies?
- the named insured and spouse
- family members residing in the household
- other persons under the age of 21 in the care of the insured
Immunization is used to reduce _____ and _____ risks in a bond portfolio
Interest and reinvestment rate risks
Chapter 11 Bankruptcy allows a business to:
Negotiate with creditors for most of the debts of the business.
Exceptions to negotiated debts include debts that are provided for in the plan of reorganization and certain nondischargeable debts.
To be on a corporation’s books as a holder-of-record, and thus have a right to the next dividend payment, the investor must purchase stock ____________
Before the ex-dividend date
Conversion Value of Bond =
= (Par / Conversion Price of security) x current market price of security
Conversion Price = current market value of security x # of convertible shares
Open market operations consists of:
Buying or selling Treasury securities depending on the Fed’s desired objective
You (can/cannot) deduct non-business casualty loss expense
Cannot
Counseling Theory - Classical Economics Approach
Clients choose among alternatives based on objectively defined cost-benefit and risk-return tradeoffs
Counseling Theory - Behavioral Approach
Planners attempt to substitute negative beliefs with positive attitudes that should result in better financial results
Counseling Theory - Economic and Resource Approach
Financial planner is considered an agent of change, and the focus is on obtaining and analyzing quantitative data
Formula - Donee’s basis when the donor has paid gift taxes
donor’s adj. basis + (unrealized appreciation / (FMV - donor’s annual exclusion amount used for gift)) x gift tax paid
The receipt of boot will result in
1) the recognition of gain if there is a realized gain
2) no recognition if there is a realized loss
Calculating AMTI:
Regular taxable income
+ positive AMT adjustments
- negative AMT adjustments
+ tax preferences
______________________________
= AMTI
Calculating AMT:
AMTI
- AMT exemption
_______________________
= minimum tax base
x AMT rate
________________________
= tentative AMT
- regular income tax on taxable income
__________________________
= AMT
This Act regulates the actions of investment advisors….
The Investment Advisors Act of 1940
This Act permits the SEC to regulate UITs, managed investment companies, and variable life products…..
The Investment Company Act of 1940
If you participate in a qualified retirement plan, can you deduct Traditional IRA contributions?
Yes, but you must abide by the phaseout limits. If your spouse does not participate in a qualified retirement plan, they can deduct the full $6,500
Probation period of a disability income policy is…..
The time the insured must wait after the issue of the policy before the specified conditions will be covered
What can you do to defer the recognition of any gain on the payout of insurance proceeds? (i.e., basis of building is $125,000, but insurance policy paid $195,000)
Insurance proceeds which exceed the current basis of destroyed property will not be taxable if the taxpayer replaces the property with similar property within a two-year period from the end of the year in which realization resumed if a natural disaster (fire) occurred, or three years from the end of the year in which realization occurred in the event of a government taking (eminent domain).
Coverdell Education Savings Accounts can be transferred to….(person)
- Brother/sister
- Step brother/sister
- Son/daughter
- First cousin
Conversion provision in life insurance policy
The insured may exchange term insurance for permanent insurance without having to show evidence of insurability
Four elements of insurable risk:
1) there must be a sufficiently large and similar sample of individuals or events to make the losses reasonably predictive
2) the loss must be measurable and definite
3) the loss must be accidental
4) the loss cannot be catastrophic
Calculating Duration
Use cash flows - YTM % as i
Add PV of each year, add PV x YR # for each year
Get total for each
Divide PV x Yr # total by PV total to get duration
NAIC model legislation states that
LTC contracts must be guaranteed renewable or noncancellable. They must have a 30-day free look period and an expected loss ratio of 60%. If the policy is a replacement policy, the insurer must waive the time period regarding pre-existing conditions. Contract cannot require a prior hospital stay for benefits. The contract cannot provide skilled nursing care coverage only.
Student loan interest (for/from) AGI and what is the limit?
1) For AGI
2) Limit is $2,500 annually
Assets with expected returns that lie ABOVE the security market line (SML) are:
Undervalued; their expected returns are higher than the required rate of return represented by the SML
What triggers Roth IRA RMDs?
Death of the account owner; the beneficiary will need to take RMDs
How many days before the date of record must an investor purchase a stock in order to receive a dividend?
Two days
Elastic vs. Inelastic demand
Elastic: increase in price would lead to a decrease in the total amount spent on purchases of the product
Inelastic: an increase in price would lead to an increase in the total amount spent on purchases of the product; INelastic = INcrease in revenuue
Perfectly Elastic: increase in price would have no effect on the total amount spent on purchases of the product
When evaluating the return of two investment managers, the performance measurement approach generally used is the:
Time-weighted return; compounded rate of return calculation that allows for a more accurate comparison based on the security’s cash flows
An investor would like to know how a portfolio manager performed relative to how the manager was expected to perform on a risk-adjusted basis would use which indicator?
Jensen index (alpha)
- To compare a portfolio manager’s performance to that of the market using Sharpe or Treynor models, once must calculate the results of both of these models on other portfolios or on a market being used as a benchmark, as well as the portfolio in question
Which risk type can be eliminated using a “buy and hold” strategy with regard to fixed income securities?
Interest rate risk; the price changes when interest rates change, but if you don’t sell the bond then the price change doesn’t really matter. You still get $1,000 par value at maturity.
Branch of government charged with interpreting and enforcing state insurance code rulings that have the force of law?
Executive; Enforcing (E and E)
Judicial; interprets and renders opinions
Which is included in the holding period for determining whether the gain is long-term or short-term? Day of disposition or day of acquisition?
Day of disposition is included
Long-term capital gain = one year or longer or longer than one year?
Longer than one year
MLPs, aka publicly traded partnerships (PTPs), are bought and sold on:
an organized exchange or over the counter as if they were shares of stocks
Favorable tax treatment ISOs
Favorable tax treatment lost if sold within two years from the grant date and one year from the date of exercise - taxed at ordinary income since it’s a disqualifying disposition - taxed at ordinary income is the difference between FMV of the stock at exercise and the exercise price of the option
To receive LT cap gain treatment, ISO must be sold after one year from the date of exercise and two years from the date of grant
ISO Bargain Element
AMT adjustment to the extent the FMV exceeds the option exercise price
Responsible for monitoring the actions of a retirement plan fiduciary ?
Department of Labor
Savings & Loan Associations
-Also known as thrift institutions
- Not permitted to provide demand deposits (checking accounts)
- Regulated by the Office of the Comptroller of the Currency
- Main purpose is to accept savings and provide home loans
Tenancy by the Entirety is only available to ________
Married couples
Life Insurance Needs Methods
1) Capital Retention
2) Human Life Value
3) Financial Needs Analysis
1) How much life insurance is needed to generate an income that is equal to the support needed? Overstates life insurance needs typically
2) Replace an individual’s economic value; considers the income of the individual though remaining work-life expectancy, including raises. What is PV of this total?
3) Factors include family expenses that will remain after the wage earner dies, the number of dependents, and income that can be generated by the surviving spouse
Calculating taxable gifts vs. total gifts
Taxable gifts: use basis to calculate
Total gifts: use FMV
If interest-free loan is less than $________, you do not need to include as a gift
$10,000
To establish a SIMPLE, and employer (can/cannot) maintain another qualified or tax-advantaged plan.
Cannot
The employer can, however, also have a non-qualified plan such as a 457 plan.
Under the RMD rules for IRAs, a penalty tax of ___% is assessed on the amount of distribution not taken before the RMD date
25%
Can be reduced to 10% if the shortfall is withdrawn proptly
Income replacement ratio
Amount of one’s paycheck that is replaced by Social Security. Ratio is lower for higher earning individuals, and higher for lower earning individuals.
403(b) - 15 years of service rule
An employee with more than 15 years of service may contribute an extra $3k to their retirement plan. Counts toward the $66k annual additions limit
The objective of ERISA is to
To require plan sponsors to provide full and accurate information about qualified retirement plan activity and funding to plan participants and appropriate regulatory agencies (e.g., IRS)
Age-weighted profit sharing plans are capped by ______________
the annual additions limit
