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CFP (Self Created) > Missed Questions (2nd time through) > Flashcards

Missed Questions (2nd time through) Flashcards

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CFP® flashcards
1
Q

During analyzing and evaluating step of financial planning, what would likely occur?

A
  • Development of a statement of financial condition

- Identifying strengths and weaknesses.

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2
Q

Conflicts of interest are disclosed under which principle?

A

“Fairness”

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3
Q

True or false: An engagement letter signed by the planner and client must be in place before personal financial planning services take place.

A

False, it does not need to be.

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4
Q

What regulates brokerage companies - SEC or FINRA?

A

FINRA

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5
Q

Are securities held at a brokerage company insured?

A

Yes - via SIPC insuring against losses arising from the failure of a brokerage firm.

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6
Q

True or false: the aggregate contribution on behalf of a beneficiary for a Coverdell ESA cannot exceed $2,000.

A

True!

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7
Q

True or false: Coverdell ESA earnings must be distributed when the beneficiary reaches age 30.

A

True.

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8
Q

Is selling a home or refinancing a home a way to access home equity?

A

yes

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9
Q

Does your home need to be owned free and clear to qualify for a reverse mortgage?

A

no

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10
Q

Can a Series 6 sell a Mutual Fund traded on a major exchange? Why or why not?

A

They cannot - this qualifies as a closed end fund. To do this you need a Series 7.

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11
Q

A financial planner who enters into a plan with a client is exposed to what kind of legal concept / risk.

A

Contract law / contract exposure

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12
Q

Do QDROs apply to IRAs or 401(k)s / Qualified Plans?

A

401ks and other qualified plans are affected by QDROs. IRAs can’t be touched by QDROs.

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13
Q

When is a CFP professional thought to be engaged with a client?

A

If the client reasonably relies on information or service provided by the CFP. Payment does not indicate engagement.

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14
Q

Which regulatory body establishes initial margin regulation requirements?

A

Federal Reserve Board

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15
Q

Does a client’s age affect the computation of available deductions for medical expenses?

A

Yes - if they are over age 65 the medical expenses need to exceed 7.5% of their AGI rather than the normal 10% of AGI to be eligible for deductibility.

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16
Q

How would the price of a call option with 3 months to expiration compare to a call option with 9 months to expiration?

A

The price of the 3 month option will be lower because it has a smaller time premium.

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17
Q

If a client is subject to AMT, for which items may the client receive a tax credit in future years:

1) ISO
2) Interest from Private Activity Bonds
3) Depreciation adjustments
4) State income taxes paid

A

ISO and Depreciation Adjustments.

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18
Q

Can distributions on EARNINGS of a Roth IRA be tax-free?

A

YES - if the taxpayer has met the 5 year holding period AND they are 59.5 years old.

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19
Q

How do you find the basis of an annuity?

A

Multiply premiums by number of years paid.

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20
Q

Backing into another car while parking. What kind of liability is this?

A

Negligence

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21
Q

What is true about policies written by a participating insurance company?

A

They overcharge for premiums due.

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22
Q

Would babysitting be considered a “negligent” situation?

A

no

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23
Q

What does the term “break point” mean in a major medical policy?

A

The insurer begins to pay 100% of expenses.

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24
Q

Are outpatient services covered under Medicare part B?

A

Yes.

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25
Q

What are the major differences between HSAs and MSAs?

A

HSAs have smaller deductibles and they have catch-up provisions.

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26
Q

Does Universal Life have a guaranteed cash value?

A

No, but it has a guaranteed minimum interest rate.

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27
Q

Can a company deduct premiums on an entity purchase buy-sell agreement?

A

NO, they cannot.

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28
Q

How would an annuity be taxed held by a corporation?

A

Ordinary income - not owned by a “natural person.”

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29
Q

How would an annuity be taxed if held by a “natural person”?

A

Taxation is deferred. Annuities do not declare capital gains.

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30
Q

How long is the waiting period for Social Security disability?

A

5 months

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31
Q

Do disability type group policies have conversion features?

A

no they do not

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32
Q

Are the premiums paid for group term life insurance a deductible business expense by the company?

A

Yes they are a deductible expense.

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33
Q

Can an FSA account pay for premiums?

A

No.

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34
Q

Can a cafeteria plan provide for nonqualified deferred compensation?

A

No.

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35
Q

Is an FSA subject to FICA taxes?

A

No.

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36
Q

What are some characteristics of a Unit Trust?

A
  • Passive investment
  • They self liquidate
  • Can be traded on secondary market
  • Payments can be income and or return of principal.
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37
Q

Which is a measure of total risk - Beta or Standard D?

A

Standard Deviation.

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38
Q

What is the geometric return:

8%, 12%, -6%

A

(1.08 x 1.12 x .94) = (1.137)

FV = 1.137
PV = -1
N =3 (3 return numbers)

i =

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39
Q

Name some examples of probability distributions.

A

Normal
Triangular
Uniform
Lognormal

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40
Q

What are some details on Dow Theory

A

It identifies the top of a bull market and bottom of a bear market. It is based on trends, not day to day fluctuations.

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41
Q

Would ownership of a REIT be considered a “current asset”?

A

Yes.

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42
Q

Would a 401(k) balance be counted as a “current asset”?

A

No.

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43
Q

Under Black/Scholes, which of the following variables will decrease the value of a call option?

A

An increase in the strike price.

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44
Q

What is a Eurodollar?

A

A deposit in any foreign bank that is denominated in U.S. dollars.

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45
Q

T Bill and T Bond - which is callable?

A

A treasury bond is callable. A T-Bill is not.

46
Q

Would Muni Bond interest be counted towards AGI?

A

no.

47
Q

How is the Child CARE Credit found?

A

Multiply 20 percent by either 3,000 (one dependent) or 6,000 (two dependents).

48
Q

Are compensatory damages taxable income?

A

No.

49
Q

What is the basis of an S-Corp?

A

Cash + Direct Loans. Does NOT include bank loans.

50
Q

How do you calculate AMT payable?

A

Subtract regular tax liability from AMT.

51
Q

How does donation of short-term capital gain property to a public charity work?

A

Using BASIS, you can take up to 50% of your AGI.

52
Q

How does donation of long-term capital gain property to a public charity work?

A

Using FMV, you can take up to 30% of your AGI.

53
Q

How far can Net Operating Loss be carried backwards?

A

Two years.

54
Q

To what would you refer to in order to obtain the intent of a change in tax law?

A

Congressional committee reports

55
Q

For itemized deductions, overall reduction cannot exceed ______

A

80%

56
Q

Self employment tax liability - General Partnership or Limited Partnership?

A

General partnership - K1 distributions.

57
Q

Can a simple trust make charitable deductions?

A

No, only a complex trust can.

58
Q

Section 179 expense for a corporation is limited to what?

A

The corporation’s taxable income.

59
Q

Would an exchange of rental property for a personal residence qualify for a like-kind exchange?

A

No it would not.

60
Q

A company can only deduct _____% of entertainment costs.

A

50

61
Q

Explain the interplay between publicly traded partnerships and nonpublicly traded partnerships in terms of taking gains and losses.

A

Gains and losses from publicly traded partnerships cannot be netted against one another. A loss from a publicly traded partnership can be used only against future income from that same partnership.

Gains and losses from NONpublicly traded partnerships CAN be netted but there is a limit to the amount of loss you can take - only up to income produced from a non publicly traded partnership.

62
Q

Would an exchange of rental property for a personal residence qualify for a like-kind exchange?

A

No it would not.

63
Q

A company can only deduct _____% of entertainment costs.

A

50

64
Q

What is the qualification for social security for the spouse of a deceased worker?

A

The widower must be age 60 or over.

65
Q

What is the qualification for social security for the spouse of a retired or disabled worker?

A

Spouse must be…

  • Age 62 or older
  • Or Child in care under 16
  • Or Child in care over 16 and disabled.
66
Q

What is the qualification for social security for a divorced spouse?

A
  • Age 62 or older
  • Married for 10 years,
  • Ex-spouse did not remarry.
67
Q

Are there income restrictions for a Roth 401(k)?

A

No.

68
Q

A TSA cannot be funded with _________

A

Common Stock

69
Q

What is the early withdrawal penalty for a SIMPLE IRA?

A

25% if withdrawn in the first two years. SIMPLE 401(k) is only a 10% penalty.

70
Q

For which plans must a spouse be the beneficiary?

A

Pension plans - Defined Benefit, Cash Balance, Money Purchase, and Target Benefit.

71
Q

Tenancy by the Entirety may be severed in which way?

A

Joint spouses’ creditors

72
Q

Which charitable transfers allow for both a life annuity and term certain (up to 20 years)?

A

CRAT and CRUT.

73
Q

What are some examples of estate “freezing” techniques?

A

GRAT, Recapitalization, QPRT

74
Q

Qualified home equity debt cannot exceed what?

A

The difference between current FMV and current indebtedness (mortgage balance)

75
Q

Principle number 4 of the CFP Code of Ethics is…

A

Fairness

76
Q

True or false: A CFP certificant may not commingle client funds with the funds of the financial planning firm.

A

True

77
Q

True or false: Client funds can be commingled in a common client investment account.

A

True

78
Q

How many Lifetime Learning Credits may be used per tax return?

A

One

79
Q

How many American Opportunity Tax Credits may be used per tax return?

A

You can use one per every eligible student, but you cannot combine the AOTC and the Lifetime Learning for any one student.

80
Q

Where are disciplinary rules and procedures covered?

A

“Articles”

81
Q

If a client gives a gift of future interest, does a gift tax form need to be filled out?

A

Yes - because it does not qualify at all for the annual exclusion.

82
Q

What happens if an insurance agent writes a policy that the insurance company instructs the agent not to?

A

The company may have to pay because the agent has IMPLIED authority.

83
Q

When is limited-pay whole life most appropriate?

A

If the owner only wants to pay premiums for a limited number of years.

84
Q

Why would a joint life policy not make sense for a key person policy?

A

A key person only needs to cover ONE person. There is no need for the joint life feature.

85
Q

If a corporation buys a business overhead expense policy and pays the premium, what is true?

A

Benefits payable by the policy are limited by the actual business expenses incurred?

86
Q

What happens to the cash value of a life insurance policy at death?

A

It ceases - beneficiaries do not receive

87
Q

Can group health insurance be converted to an individual health policy?

A

Yes

88
Q

Can group life insurance be converted to term insurance?

A

No, it can only be converted to individual permanent.

89
Q

Is split dollar insurance an employee-benefit type policy or a key person policy?

A

Employee benefit application of life insurance.

90
Q

True or false: All of the rules are applicable to the activities of all CFP certificants.

A

False.

91
Q

Could a CFP release info of a client to an insurance company if they request it with regard to the clients application for insurance?

A

yes they could.

92
Q

Would the identity of the bank or other institutions the firm deposits client funds and securities need to be included in the firm brochure?

A

no it would not.

93
Q

True or False: Concepts such as the “January effect” and “day of the week effect” are not related to any forms of the Efficient Market Hypothesis.

A

True - they are market anomalies, not related to the EMH.

94
Q

What is the function and objective of the Federal Reserve?

A

its function is monetary policy, its objective is financial soundness.

95
Q

What happens if someone dies as the owner and is the insured of a life insurance policy?

A

The full death benefit is included in their gross estate, not the cash value.

96
Q

What happens if the owner of a life insurance policy dies where someone else is the insured?

A

Only the cash value is included in their gross estate.

97
Q

Taxability of Muni Bonds

A

Federal income tax free, state and local tax free if purchased in the state that you reside in.

98
Q

How does the Wash Sale rule work?

A

If you buy a substantially similar fund/stock after selling prior to 30 days, the disallowed loss will be added to the basis of the newly acquired shares.

99
Q

Are securities from a different issuer considered “substantially identical”?

A

No they are not considered substantially identical.

100
Q

What is the phaseout for the low-income housing credit?

A

There is no phaseout.

101
Q

Is income from an S Corp subject to self employment tax?

A

No it is not.

102
Q

In a profit sharing plan, can the employer contribute more than 25% to an employee’s account?

A

Yes - the limit is the lesser of 100% or 54,000 dollars. As long as the total company contributions do NOT exceed 25% of total employee compensation, the employer can contribute more than 25%.

103
Q

Are SIMPLE plan deferrals subject to FICA and FUTA?

A

Yes.

104
Q

Qualified plan vs. IRA - How do RMDs differ?

A

In a qualified plan you do not have to start taking RMDs until you retire. IRA RMDs are required to start at 70.5 regardless.

105
Q

What is a junior stock plan?

A

The right to purchase newly issued shares with later conversion into the company’s common stock.

106
Q

Section 6166 and 303 - How much Closely Held business interest as part of the gross estate does there need to be for this to be usable?

A

35%.

107
Q

Special Use Valuation - When can it be used?

A

Allows land to be valued at current use rather than its best used. In order to qualify the real estate needs to be 25% of the gross estate. Farm needs to be 50% of the gross estate.

108
Q

Are Target Benefit plans backed by the PBGC?

A

No.

109
Q

What are two trusts that could have ascertainable standard provisions (HEMS?)

A
  • QTIP Trust

- Disclaimer Trust (for surviving spouse also).

110
Q

Does the Scope of Engagement need to be in writing?

A

Yes.

CFP (Self Created) (10 decks)

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