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q bank Flashcards

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CFP® flashcards
1
Q

What kind of trust is appropriate for a surviving spouse who is not a us citizen

A

QDOT- qualified domestic trust

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2
Q

Housing debt should not exceed

A

28% gross monthly income

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3
Q

monthly housing costs should not exceed

A

28% gross monthly income

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4
Q

people should save what percentage of income for retirement?

A

10 to 12%

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5
Q

emergency fund should be

A

3-6 months worth of monthly expenses

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6
Q

Total debt obligation should not exceed

A

36% of gross income of the client

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7
Q

the more frequent compounding occurs

A

the higher the effective rate will be in relation to the nominal interest rate

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8
Q

Fair credit reporting act

A

provision that all credit reports are required to contain accurate, relevant, and current information

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9
Q

if an employee accepts worker compensation benefits, the employer is protected from

A

a lawsuit by the employee

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10
Q

more than any de minimis benefit tied to the sale of a financial asset

A

sales related compensation

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11
Q

financial planning is described as…

A

financial planning is 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 and financial circumstances

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12
Q

material conflict of interest

A

a conflict that could impact advice given by the CFP professional or cause potential harm

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13
Q

what compensation does a CFP need to disclose

A

how clients pay for products, services, and additional incurred costs including surrender charges and sales loads, how the CFP and the firm is compensated for providing products and services, and disclosure of economic benefit for referral or engagement of additional persons

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14
Q

compensation prohibited by CFP board

A

fee contingent

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15
Q

12b-1 fees

A

sales related compensation

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16
Q

qualified retirement plan that pays a benefit, usually determined by a formula, to a participant during their whole life during retirment

A

Pension Plan

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17
Q

plan participants usually become responsible for the management of the plan’s assets and sometimes even responsible for personal contributions to the plan

A

Profit sharing plan

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18
Q

defined benefit

A

the employer assumes risk, forfeitures are allocated by reduced plan cost, the investments are commingled, credit can be given for prior service for the purpose of benefits

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19
Q

defined contribution

A

the annual contribution limit is 25% total employee coverage compensation, employee assumes investment risk, the investment acct are separated, and no credit can be given for prior service for the purpose of benefits

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20
Q

employer advantages of qualified plan

A

employer contributions are currently tax deductible
employer contributions to the plan are not subject to payroll tax

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21
Q

employee advantage of qualified plan

A

availability of pretax contributions for employees
tax deferral of earnings on contributions
ERISA protection
lump-sum distribution options

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22
Q

retirement plans must satisfy at least one coverage test to be considered a qualified retirement plan

A

general safe harbor test
ratio percentage test
average benefits test

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23
Q

general safe harbor test

A

% of NHC covered >/= 70%

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24
Q

Ratio percentage test

A

% of NHC covered/ % of HC covered >= 70%

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25
Q

average benefits test

A

average benefit %: Ab% of NHC/AB% of HC >= 70%

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26
Q

what entities are allowed to establish a 401(k) plan

A

corporations
partnerships
LLCs
proprietorships
tax-exempt entities

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27
Q

nonrecognition of gain treatment:

A
  1. ESOP must own at least 30% of the corporation’s stock immediately after the sale
  2. the seller or sellers must reinvest the proceeds from the sale into qualified replacement securities within 12 mo after the sale and hold such securities three years
  3. the corp that establishes the ESOP must have no class of stock outstanding that is tradable on securities market
  4. seller and 25% shareholders in the corp are precluded from receiving allocations of stock acquired by the ESOP through the rollover
  5. ESOP may not sell the stock acquired through the rollover for 3 years
  6. stock sold to ESOP must be common or convertible preferred stock and must have been owned by the seller for at least 3 years prior to sale
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28
Q

net unrealized appreciation formula

A

fair market value at date of distribution - value of securities used at the date of the employer contribution = net unrealized appreciation

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29
Q

qualified plan early distribution that qualify for no penalty:

A

MESS AT DQ: medical expenses, equal periodic payments, separation from service, age, tax levies, death and disability, and QDRO

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30
Q

IRAs to avoid 10% penalty:

A

HIDE ME: higher education, medical expenses, equal periodic payments, age

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31
Q

minimum distribution rule

A

RMD begin by april 1 following the year age of 72 if 70.5 after 2019

50% excise tax will be levied for failure to take RMD

exception: still employed at 72

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32
Q

earned income

A

w-2 income
schedule c net income
k-1 income from an LLC
k-1 income from a partnership where the partner is a material participant
alimony divorce prior to 2019

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33
Q

unearned income

A

rental, interest, dividend
capital gains
pension and annuity income
deferred comp
income from partnership without material relation
alimony divorce after 2019
unemployment benefits
investment returns as limited partner in a partnership
income flowing from a s-corp via schedule k-1
social security benefits
worker’s compensation

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34
Q

prohibited transactions of qualified plan

A

selling, exchanges or leasing of any property to an IRA
lending money to an IRA
receiving unreasonable compensation for managing an IRA
pledging an IRA as security for a loan
borrowing money from an IRA
buying property with IRA funds

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35
Q

requirements for incentive stock options

A
  1. the aggregate fair market value of ISO grants at the time the option is first excisable must be less than or equal to $100,000 based on the grant price per year per executive
  2. to qualify as an ISO, the executive must not dispose of the stock before the later of two years from the grant of the ISO or within one year of the exercise of the ISO
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36
Q

All assets are capital assets except:

A

ACID: accounts/notes receivable, copyrights and creative works, inventory, and depreciable property used in trade or business

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37
Q

kiddie tax

A

net unearned income of a dependent child

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38
Q

preference items for AMT

A

can be positive- reduce the benefits initially received when computing regular tax:
1. percentage depletion- % taken for regular tax in excess of the adjusted basis of the property
2. intangible drilling costs-
3. interest on private activity bonds

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39
Q

Failure to file tax

A

5% accrues monthly up to 25%

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40
Q

failure to pay tax

A

point 5% (.5%) accrues monthly up to 25% and reduces failure to file by the pay penalty

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41
Q

s corporation requirements

A

1.cannot have more than 100 eligible shareholders
2. restricted to individuals who are US citizens/residents, estates, trust, and charitable organizations
3. corp must be an eligible corporation created under the laws of US or state
insurance companies, domestic international sales corporations, and certain financial institutions are not eligible
4. allowed only 1 class of outstanding stock

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42
Q

outlines the risks, management team, business operations, fees, and expenses

A

prospectus- must be issued prior to selling shares

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43
Q

preliminary prospectus issued before SEC approval and is used to determine investor interest

A

red herring

44
Q

annual report of financial statements filed with the SEC and audited

A

10K

45
Q

quarterly report that is filed with the SEC and not audited

A

10Q

46
Q

contains a message from the chairman of the board on the progress in the past year and outlook for the coming year.

A

annual report

47
Q

most appropriate for high volume traded stocks

A

market order

48
Q

price at which the trade is executed is more important than timing. most appropriate fir extremely volatile stocks not frequently traded

A

limit order

49
Q

once price is reached, the stock is sold at that price or possibly less

A

stop order to sell

50
Q

investor will not sell stock below set price

A

stop-loss limit order

51
Q

margin call formula

A

margin call= loan / (1- maintenance margin)

52
Q

ranks stock: 1 being highest (signal to buy) 5 represents lowest (signal to sell)

A

value line

53
Q

ranks mutual funds, stocks, and bonds. 1=lowest 5=highest

A

morningstar

54
Q

to receive a dividend the investor must purchase the stock prior to:

A

the ex-dividend date or 2 business days before the date of record

55
Q

issued in varying maturities up to 52 weeks

A

treasury bills

56
Q

short-term loans between corporations with maturity of 270 days or less and does not have to register with the SEC

A

commercial paper

57
Q

facilitates imports/exports. maturities of 9 months or less. can hold until maturity or be traded

A

bankers acceptance

58
Q

deposits in foreign banks that are denominated in US dollars

A

eurodollars

59
Q

IPS establishes

A

RR TTLLU: risk, return, taxes, time-line, liquidity, legal, and unique circumstances

60
Q

deals with judgind something. dislike or like a company based on non-financial issues

A

affect heuristic

61
Q

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

A

anchoring

62
Q

when a decision maker relies upon knowledge that is readily available in his or her memory

A

availability heuristic

63
Q

make decisions, their rationality is limited by the available information, the cognitive limitations of their mind, and the time available to make the decision

A

bounded rationality

64
Q

“you do not get a second chance at a first impression” people tend to filter information and focus on information supporting their opinions

A

confirmation bias

65
Q

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

A

cognitive dissonance

66
Q

faulty framing- normal investors do not mark their stocks to market prices

A

disposition effect

67
Q

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

A

familiarity bias

68
Q

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

A

hindsight bias

69
Q

overestimate their ability to control events

A

illusion of control bias

70
Q

listens mostly to himself or herself, overconfident investors mostly rely on their skills and capabilities to do their own homework or make their own decisions. overstate their risk tolerance

A

overconfidence bias

71
Q

a common emotion towards the receipt of news or information

A

overreaction

72
Q

provides that people value gains and losses differently and will base their decisions on perceived gains rather than perceived losses

A

prospect theory

73
Q

giving too much weight to recent observations or stimuli

A

recency

74
Q

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

A

similarity heuristic

75
Q

systematic risk

A

cannot be diversified
PRIME:
purchasing power
reinvestment rate risk
interest rate risk
market risk
exchange rate risk

76
Q

unsystematic risk

A

diversification fights this risk
ABCDEFG:
accounting
business risk
country risk
default risk
executive risk
financial risk
government/regulation risk

77
Q

market risk premium formula

A

(rm - rf) = market risk premium

78
Q

holding period return formula

A

holding period return = (selling price- purchase price +/- cashflows) / purchase price or equity invested

79
Q

arbitrage pricing theory (APT)

A

multifactor model, sensitivity to those factors and STD and beta are not inputs

80
Q

if the required ROR decreases

A

stock price will increase

81
Q

if the dividend is expected to increase

A

stock price will increase

82
Q

if the required ror increases

A

the stock price will decrease

83
Q

if the dividend is expected to decrease

A

stock price will decrease

84
Q

dividend payout ratio formula

A

DPR = common stock dividend / earning per share

85
Q

return on equity formula

A

ROE = earnings per share / stockholders equity per share

86
Q

dividend yield formula

A

dy = dividend / stock price

87
Q

what type of bond is not a marketable security

A

EE bonds

88
Q

what bonds are not backed by full-faith or the credit of the US government?

A

agency bonds

89
Q

bond backed by full-faith, credit, and taxing authority of the issuing municipality

A

general obligation bonds

90
Q

bond backed by the revenues of a specific project not backed by full faith, credit, or taxing authority

A

revenue bonds

91
Q

bonds that are used to finance construction of stadiums

A

private activity bonds

92
Q

the 2 companies that isure municipal bonds:

A

american municipal bonds assurance corp (AMBAC)
municipal bond insurance association corp (MBIA)

93
Q

what kind of bond is not subject to default risk

A

us government bond

94
Q

when shopping for a bond- the discount highest to lowest is:

A

Call Mom’s Cell Now
YTC
YTM
CY
NY

95
Q

passively managed and self-liquidating

A

UIT

96
Q

which option will provide the investor with the maximum gains if the stock price appreciates,

A

buying a call

97
Q

which option will provide the investor with the maximum gains if the stock price appreciates,

A

buying a call

98
Q

which option will provide the investor with the maximum gains if the stock price falls,

A

buying a put

99
Q

when asked about “protecting profits” or “locking in gains”

A

correct answer is always buying a put

100
Q

what ALWAYS bars

A
  1. felony for theft, embezzlement or financially based crimes
  2. felony for tax fraud or other tax related crimes
  3. revocation of a financial professional license unless administrative in nature
  4. felony murder or rape
  5. felony for violent crime within 5 yrs
101
Q

What PRESUMES to be unacceptable

A
  1. 2 or more personal or business bankruptcies
  2. revocation of nonfinancial professional license unless admin in nature
  3. suspension of financial professional license unless admin in nature
  4. felony nonviolent crimes with 5 years
  5. felony for violent crime other than rape o murder more than 5 years ago
102
Q

an investment advisor is defined in investment advisor act of 1940 as

A

someone in Business, providing Advice about securities for Compensation
ABC: advice, business, compensation

103
Q

exception to register with the SEC

A

TABLE teachers, accountants, brokers, lawyers, and engineers

104
Q

exemptions to register with SEC

A

VIPS are SaFE from exemptions
Venture capital
Insurance
Private funds less than $150 M
home State
Foreign advisors
securities not on a national Exchange

105
Q

accredited investor must meet

A

1 or 2, 3 test: $1M or $200,000 of income if single/ $300,000 of spousal income

106
Q

external environment characteristics that may effect an individual:

A
  1. economic factors
  2. social factors
  3. political factors
  4. legal
  5. technological
  6. taxation

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