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q bank 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
average benefits test
average benefit %: Ab% of NHC/AB% of HC >= 70%
26
what entities are allowed to establish a 401(k) plan
corporations partnerships LLCs proprietorships tax-exempt entities
27
nonrecognition of gain treatment:
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
28
net unrealized appreciation formula
fair market value at date of distribution - value of securities used at the date of the employer contribution = net unrealized appreciation
29
qualified plan early distribution that qualify for no penalty:
MESS AT DQ: medical expenses, equal periodic payments, separation from service, age, tax levies, death and disability, and QDRO
30
IRAs to avoid 10% penalty:
HIDE ME: higher education, medical expenses, equal periodic payments, age
31
minimum distribution rule
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
32
earned income
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
33
unearned income
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
34
prohibited transactions of qualified plan
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
35
requirements for incentive stock options
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
36
All assets are capital assets except:
ACID: accounts/notes receivable, copyrights and creative works, inventory, and depreciable property used in trade or business
37
kiddie tax
net unearned income of a dependent child
38
preference items for AMT
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
39
Failure to file tax
5% accrues monthly up to 25%
40
failure to pay tax
point 5% (.5%) accrues monthly up to 25% and reduces failure to file by the pay penalty
41
s corporation requirements
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
42
outlines the risks, management team, business operations, fees, and expenses
prospectus- must be issued prior to selling shares
43
preliminary prospectus issued before SEC approval and is used to determine investor interest
red herring
44
annual report of financial statements filed with the SEC and audited
10K
45
quarterly report that is filed with the SEC and not audited
10Q
46
contains a message from the chairman of the board on the progress in the past year and outlook for the coming year.
annual report
47
most appropriate for high volume traded stocks
market order
48
price at which the trade is executed is more important than timing. most appropriate fir extremely volatile stocks not frequently traded
limit order
49
once price is reached, the stock is sold at that price or possibly less
stop order to sell
50
investor will not sell stock below set price
stop-loss limit order
51
margin call formula
margin call= loan / (1- maintenance margin)
52
ranks stock: 1 being highest (signal to buy) 5 represents lowest (signal to sell)
value line
53
ranks mutual funds, stocks, and bonds. 1=lowest 5=highest
morningstar
54
to receive a dividend the investor must purchase the stock prior to:
the ex-dividend date or 2 business days before the date of record
55
issued in varying maturities up to 52 weeks
treasury bills
56
short-term loans between corporations with maturity of 270 days or less and does not have to register with the SEC
commercial paper
57
facilitates imports/exports. maturities of 9 months or less. can hold until maturity or be traded
bankers acceptance
58
deposits in foreign banks that are denominated in US dollars
eurodollars
59
IPS establishes
RR TTLLU: risk, return, taxes, time-line, liquidity, legal, and unique circumstances
60
deals with judgind something. dislike or like a company based on non-financial issues
affect heuristic
61
attaching or anchoring one's thoughts to a reference point even though there may be no logical relevance or is not pertinent
anchoring
62
when a decision maker relies upon knowledge that is readily available in his or her memory
availability heuristic
63
make decisions, their rationality is limited by the available information, the cognitive limitations of their mind, and the time available to make the decision
bounded rationality
64
"you do not get a second chance at a first impression" people tend to filter information and focus on information supporting their opinions
confirmation bias
65
tendency to misinterpret information that is contrary to an existing opinion or only pay attention to information that supports an existing opinion
cognitive dissonance
66
faulty framing- normal investors do not mark their stocks to market prices
disposition effect
67
investors tend to overestimate/underestimate risk of investments which they are unfamiliar with
familiarity bias
68
looking back after the fact is known and assuming they can predict the future as readily as they can explain the past
hindsight bias
69
overestimate their ability to control events
illusion of control bias
70
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
overconfidence bias
71
a common emotion towards the receipt of news or information
overreaction
72
provides that people value gains and losses differently and will base their decisions on perceived gains rather than perceived losses
prospect theory
73
giving too much weight to recent observations or stimuli
recency
74
judgment is made when an apparently similar situation occurs even though the situations may have very different outcomes
similarity heuristic
75
systematic risk
cannot be diversified PRIME: purchasing power reinvestment rate risk interest rate risk market risk exchange rate risk
76
unsystematic risk
diversification fights this risk ABCDEFG: accounting business risk country risk default risk executive risk financial risk government/regulation risk
77
market risk premium formula
(rm - rf) = market risk premium
78
holding period return formula
holding period return = (selling price- purchase price +/- cashflows) / purchase price or equity invested
79
arbitrage pricing theory (APT)
multifactor model, sensitivity to those factors and STD and beta are not inputs
80
if the required ROR decreases
stock price will increase
81
if the dividend is expected to increase
stock price will increase
82
if the required ror increases
the stock price will decrease
83
if the dividend is expected to decrease
stock price will decrease
84
dividend payout ratio formula
DPR = common stock dividend / earning per share
85
return on equity formula
ROE = earnings per share / stockholders equity per share
86
dividend yield formula
dy = dividend / stock price
87
what type of bond is not a marketable security
EE bonds
88
what bonds are not backed by full-faith or the credit of the US government?
agency bonds
89
bond backed by full-faith, credit, and taxing authority of the issuing municipality
general obligation bonds
90
bond backed by the revenues of a specific project not backed by full faith, credit, or taxing authority
revenue bonds
91
bonds that are used to finance construction of stadiums
private activity bonds
92
the 2 companies that isure municipal bonds:
american municipal bonds assurance corp (AMBAC) municipal bond insurance association corp (MBIA)
93
what kind of bond is not subject to default risk
us government bond
94
when shopping for a bond- the discount highest to lowest is:
Call Mom's Cell Now YTC YTM CY NY
95
passively managed and self-liquidating
UIT
96
which option will provide the investor with the maximum gains if the stock price appreciates,
buying a call
97
which option will provide the investor with the maximum gains if the stock price appreciates,
buying a call
98
which option will provide the investor with the maximum gains if the stock price falls,
buying a put
99
when asked about "protecting profits" or "locking in gains"
correct answer is always buying a put
100
what ALWAYS bars
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
What PRESUMES to be unacceptable
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
an investment advisor is defined in investment advisor act of 1940 as
someone in Business, providing Advice about securities for Compensation ABC: advice, business, compensation
103
exception to register with the SEC
TABLE teachers, accountants, brokers, lawyers, and engineers
104
exemptions to register with SEC
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
accredited investor must meet
1 or 2, 3 test: $1M or $200,000 of income if single/ $300,000 of spousal income
106
external environment characteristics that may effect an individual:
1. economic factors 2. social factors 3. political factors 4. legal 5. technological 6. taxation

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