Practice Quiz 19

Question 1

true or fasle?

The arbitrage pricing theory (APT) suggests that the relationship between a stock’s risk and return is not linear.

Answer 1

true

Question 2

true or false?

The capital asset pricing model (CAPM) shows a linear relationship between risk and return.

Answer 2

true

Question 3

true or false?
The arbitrage pricing theory (APT) suggests that a stock’s price depends upon two variables: the market return and the volatility of returns of the stock.

Answer 3

false

Question 4

true or false?

The capital asset pricing model (CAPM) suggests that the only factor that explains returns is a stock’s beta

Answer 4

true

Question 5

Jack is a sole proprietor of a shampoo factory. During the year, he sold a mixing machine for $13,000 he had purchased 5 years earlier. The mixer had an adjusted basis of $10,000. He also sold a bottling machine he had owned for 11 years. His adjusted basis for the bottling machine was $50,000, and he sold it for $42,000. What is his net loss on the property and how will it be treated for tax purposes?
A)
$8,000 loss; treated as an ordinary loss.
B)
$5,000 loss; treated as an ordinary loss.
C)
$5,000 loss; treated as a long-term capital loss.
D)
$8,000 loss; treated as a long-term capital loss.

Answer 5

B

The properties in question fall under the Code Section 1231. Section 1231 specifies that the net loss on the sale of all such property is treated as an ordinary loss. Jack’s net loss is $5,000, because he had a gain of $3,000 on the first sale, but lost $8,000 on the second sale. He is entitled to treat the $5,000 net loss as an ordinary loss for income tax purposes.

Question 6

Which of the following are NOT included in the definition of an investment adviser?

1. Banks or bank holding companies.
2. Persons whose advice is limited to securities issued and guaranteed by the U.S. government.
3. Publishers of bona fide newspapers or financial publications of general and regular circulation.
4. Lawyers whose performance of advisory services is solely incidental to the practice of their profession.

Answer 6

they are all not included as investment advisers

Question 7

Which of the following retirement plans generally has(have) loan provisions?

1. Defined benefit pension plans.
2. Section 401(k) plans.
3. Money purchase pension plans.
4. SEP plans.

Answer 7

2 only

Question 8

Which of the following are eligible for rollover treatment?

1. A total distribution from a Section 401(k) plan.
2. The value of an IRA.
3. The nontaxable portion of qualified plan distribution.
4. A required minimum distribution payment.

Answer 8

1, 2, and 3

Question 9

The law of agency implies that a financial planner:
A)
represents the firm and the firm is responsible for any promises the financial planner makes to the client.
B)
does not work exclusively for any one firm, but represents several firms.
C)
can make recommendations to the client only after all members of the agency approve those recommendations.
D)
must be part of an agency in order to practice.

Answer 9

A

Question 10

Which of the following is NOT a characteristic of a zero-coupon bond?
A)
An increase in market interest rates will not negatively affect a zero-coupon bond’s value.
B)
A zero-coupon bond sells at a deep discount to par value.
C)
The investor must recognize annual interest accumulation as taxable income, even though no money is actually received.
D)
A zero-coupon bond will always have a duration equal to its term to maturity.

Answer 10

A

Question 11

Arnie, a CFP® practitioner, has been hired by Marguerite to create a personal financial plan for her postretirement years. Marguerite plans to retire in 6 months at the age of 65. She has worked many places, but nowhere long enough to be covered by any company-sponsored retirement plan. While discussing Marguerite’s retirement goals, Arnie learns that Marguerite’s only plan to support herself in retirement is from crafting and selling lawn ornaments made from old Mardi Gras beads and used CDs. Arnie also learns that Marguerite intends to set a high enough price for the ornaments to cover her living expenses from one month to the next. However, Marguerite has not done any market research indicating the success of her product. Which CFP Board Practice Standard states that Arnie must try to assist Marguerite to recognize the implications of this unrealistic plan?
A)
500-1-Agreeing on Implementation Responsibilities.
B)
300-1-Analyzing and Evaluating the Client’s Information.
C)
200-1-Determining a Client’s Personal and Financial Goals, Needs and Priorities.
D)
100-1-Defining the Scope of the Engagement.

Answer 11

C

Question 12

All of the following statements regarding powers of appointment are correct EXCEPT:
A)
A general power of appointment gives the holder the unlimited right to appoint property to: himself, his creditors, his estate, or the creditors of his estate.
B)
A power of appointment is a right given to designate the disposition of property subject to the power.
C)
A special power of appointment, does not give the holder the right to appoint property to himself, his creditors, his estate, or the creditors of his estate.
D)
A special power of appointment held at death must be included in the holder’s gross estate.

Answer 12

D

A special power of appointment held by the holder at death is not included in the holder’s gross estate.

Question 13

Which of the following items may be discharged in a Chapter 7 bankruptcy?

1. Child support.
2. Tort claim for negligence (nonintentional).
3. Federal taxes (past two years).
4. Consumer debt.

Answer 13

2 and 4

Child support and federal taxes due within the past three years are not dischargeable. Nonintentional tort claims and consumer debt may be discharged.

Question 14

Which of the following statements regarding integration rules are CORRECT?

1. Permitted disparity is a method of integrating Social Security benefits and qualified plan benefits so that a permissively discriminatory benefit can be paid to the highly compensated workers in a qualified pension plan.
2. The integration rules are designed to allow a qualified plan to account for the presence of Social Security retirements in the plan benefit formula.
3. It is possible to offset the participant’s entire plan benefit when offset integration is used.
4. The offset form of integration can be used in both a defined benefit pension plan and a defined contribution plan.

Answer 14

1 and 2

Question 15

true or false?

The offset form of integration can be used in both a defined benefit pension plan and a defined contribution plan

Answer 15

false, only defined benefit pension plans

Question 16

true or false?

It is possible to offset the participant’s entire plan benefit when offset integration is used

Answer 16

false

Question 17

Which of the following is NOT an advantage of making a lifetime gift?
A)
Diminishes the size of the gross estate.
B)
Excludes gift tax paid on the gift from the donor’s gross estate regardless of how soon the donor dies after making the gift.
C)
Provides personal satisfaction.
D)
Shifts income from the gifted asset to the donee.

Answer 17

B

Question 18

Gift tax is excluded from the donor’s gross estate only if the donor’s date of death is not within ____ year of the gift

Answer 18

3

Question 19

Which of the following statements regarding taxation of life insurance proceeds from a policy on the decedent’s life is(are) CORRECT?

1. Proceeds payable to the decedent’s estate are not included in the decedent’s gross estate for estate tax purposes.
2. Proceeds payable to a spouse must be included in the decedent’s gross estate if the decedent had the power to change beneficiaries.

Answer 19

2 only

Question 20

With regard to property losses, the insurance company usually has which choices in settling claims under homeowners policies?

1. Replacement.
2. Abandonment and salvage.
3. Pairs and sets.

Answer 20

all are options

Question 21

An investment of $100 grows to $364.55 in ten years. What was the geometric mean rate of return over this period?
A)
26.45.
 B)
13.81%.
 C)
7.25%.
 D)
2.65%.

Answer 21

B

Question 22

Which of the following is (are) characteristics of life insurance policy loans?

1. Policy benefits will be reduced by the amount of the loan if the loan has not been repaid by the time the insured dies.
2. Charges against the cash value for premium payments under an automatic premium loan provision are considered to be loans.

Answer 22

both are correct