Quiz Misses Flashcards
Hone in on the questions missed in the quizzes and final exams.
what must be provided to the client in writing
-how the firm will be compensated by the client
-the terms of engagement with the client
-firms privacy statement
-services and any bankruptcies or disciplinary history relating to the firm or its principals
what element of the CFP Code of Ethics is designed to dovetail with the steps in the financial planning process
the practice standards
what happens if a CFP has a case of conduct that falls under the “presumptive bar” list
these cases are reviewed by the Disciplinary and Ethics Commission (DEC) before a final decision is made to deny or revoke the CFP Marks
what value are assets shown on the statement of financial position
current fair market value
what gave the SEC authorization to regulate mutual funds
the investment company act of 1940
who regulates brokerage companies
FINRA
is a QTIP a gift of present or future interest?
present interest even though the owner retains control
when does the business cycle peak?
when business activity ages
this means the public stops buying because they have enough of everything they need
what happens to basis of joint tenant property if there is a divorce
basis stays the same. no one does, so there is no step up in basis
in a period of declining interest rates, what type of bonds should you advise your client buy?
long term, high grade bonds
this locks in a higher coupon and generates profits in the bond portfolio
ADV Part 1
business address and background
what obligations do the agents have to the principal
loyalty
installing floodlights in the parking lot is an example of what risk strategy
risk reduction
legally binding arrangement that explains the basic promise of the insurance company
the insuring agreement
what is the declarations section of an insurance contract
the factual statements identifying the specific person, property, or activity being insured
give a common example of absolute liability
workers comp
employer paid insurance premiums that are tax deductible
business owners insurance
workers comp
federal unemployment tax
directors and officer’s liability insurance
what is the “breakpoint in insurance”
when the insurer begins to pay 100% of all medical expenses
penalty for late sign-up for Medicare Part D
1% for each month late
One year term accomplishes what?
pays a death benefit equal to the guaranteed case value (which is increasing)
extended term insurance
non forfeiture option that maintains the original death benefit for a limited number of years
quirk of cash surrender option with life insurance
COULD apply a 6 month delay in an attempt to prevent a run on banks
APL
enables the insurance company to borrow from a life insurance policy’s cash value to pay premiums in default
what type of gain is the surrender value of life insurance
ordinary income
name two bond rating companies
Standard & Poors
Moodys
are EE bonds marketable?
No
education interest exclusion for EE bonds
to qualify to exclude the interest, the taxpayer generally must be the parent (unless they’re a dependent of someone else)
what types of investments can always be purchased at NAV
No-load balanced mutual funds
TO what does this sentance apply
“shares are purchased and redeemed directly with the issuer”
mutual funds (open end or no load balanced mutual funds)
relationship between physical and financial assets
normally negatively correlated returns
intrinsic value of a call
MP - EP
beta expresses what
volatility
systematic risk
Relationship between negative correlation and beta
negative correlation will reduce the overall portfolio beta
relationship between covariance and correlation coefficient
direct relationship
taxation of treasury securities
not subject to state or city taxes, they are federally taxed
relationship between duration and maturity
positively correlated
the longer the maturity the more _____ the price
volatile
return on equity (equation)
EPS/book value
dividend payout ratio
dividend paid/EPS
the indifference curve of a risk adverse investor is
steep
CML
specifies the relationship between the risk and return on a variably weighted market portfolio consisting of all risk assets
random walk theory
the next price change of a stock is unrelated to the last price
how many probability distributions are there and name 4
> 12
normal
triangular
uniform
lognormal
dow theory
method that is presumed to identify the top of a bull market and the bottom of a bear market
purpose of duration
compare interest rate risk between bonds with different maturities and coupons
can be used to immunize a bond from loss of principal due to interest rate changes
arbitrage pricing theory
the expected value of each factor is zero
increase in strike price of a call option and Black/Scholes option pricing model
an increase in the strike price
binomial option pricing is a ______ model
valuation
purpose of congressional committee reports
explain the intent of tax laws
margin interest max
margin interest is only deductible up to investment income (interest, ordinary dividends, gains)
mulitplier for self employment tax
.1413
who must use the accrual method of accounting
> $25mm in revenue and carries inventory
FIFO method of inventory reflects
current cost
what type of business entity cannot adjust future years’ income due to prior years NOL
S corporations because they already pass through annual losses
reporting earned income for a regular corporation
W2 (employees)
1099 (dividends to shareholders)
what’s an easy way to reduce AMT
increase your 1040 income to pay more regular taxes
community property at the death of the first spouse
appreciated community property receives a full step up in basis at the death of the first spouse
a lapse of a general power (think taxes)
typically subjects the holder to a gift tax liability
recourse for a spouse whos QTIP trust isn’t producing income
the surviving spouse is granted a power to demand that all of the trust assets be income producing
spouse has a right to require the trustee to reposition the assets to produce reasonable income
which performance evaluation formula measures total risk?
Sharpe ratio
