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1
Q

Sales related compensation

A

comp received when client purchases or sells an asset
- commissions
- 12 b-1 fees
- trailing commissions
- bid/ask spreads
- transaction fees
- revenue sharing
- solicitor fees

Not
- wrap accounts

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2
Q

what isnt included on cash flow statement

A

balances of accounts

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3
Q

whats included in emergency fund

A

fixed and variable expenses
not taxes

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4
Q

when should muni bonds be used for education expenses

A

high tax bracket, income free

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5
Q

whats categorized as alimony

A

any payments made to maintain property owned by the payor is not alimony
- LI on payor spouse counts
- tuition payments on behalf of payee qualify

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6
Q

if Fed wants to tighten credit, what would they decrease

A

decrease purchasing bonds
- increase margins
- increase reserve requirement
- increase discount rate
- sell bonds

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7
Q

When yield curve is inverted what will investors buy

A

short term rates exceed long term rates

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8
Q

a yield curve compares interest rates on debt instruments sharing what

A

same quality and same tax status

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9
Q

what are components of the yield curve

A
  • YTM
  • same tax status
  • term to maturity
  • same bond quality
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10
Q

mortage better suited for uncertainty

A

balloon

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11
Q

compliance with rules of insurance company

A

law of agency

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12
Q

agents vs brokers: who has authority in insurance

A

brokers authority doesnt extend to insurance company. insurer will void contract is misrepresented by broker

agent can have authority

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13
Q

when can you retain ownership in 529 plans after declaring bankrupsy

A

if plan was established more than 2 years ago

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14
Q

four principles supporting indemnity

A
  1. insurable interest
  2. ACV
  3. other insurance
  4. subrogation
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15
Q

if person who rents suffers loss what will insurance cover

A

contents coverage minus contents in rented room. get endorsement

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16
Q

Perils: exclusions

A

OPEN WIF

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17
Q

benefits under workers comp

A

disability (tax free)
rehabilitation (tax free)
survivor DB (tax free)
medical expense (no limit)

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18
Q

who gets COBRA in divorce

A

wife will get COBRA, kids still covered because you cant divorce kids

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19
Q

Insurance riders requiring extra premium

A

disability waiver
guaranteed insurability
accidental DB

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20
Q

reduced paid up vs extended term

A

reduced paid up would reduce the DB and allow no more premiums
extended term would keep DB same and expire after term, higher mortality table allowed

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21
Q

how much CV do you get at surrender

A

CV - loan

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22
Q

MEC DB taxation

A

tax free

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23
Q

Options - 1 option = 100 shares

A

If IV is $3, then it represents price of 300
if i have 5 put options thats 500 shares

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24
Q

calculating SD (little info)

A
  • SD is the mean of the risks
  • add risks and divide. answer is 1.0 correlation coefficient
  • if given correlation coefficient is less than 1.0, pick number under mean.
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25
if asked to choose fund with above average return how do you measure
calculate risk adjusted return fund appreciation / beta
26
types of bonds and reinvestment rate risk
-GNMA have greater reinvestment rate risk - zero coupons and STRIPS have least
27
correlation of 0
best to own
28
beta coefficient of the market
constant at 0
29
Types of systematic risk
PRIME
30
Split dollar plan
31
CFP approved nouns
professional, practitioner, certificant, marks, exam
32
What agency regulates brokerage companies
FINRA
33
In todays dollars
use the real rate of return if it doesnt say in todays dollars then just use after tax return
34
techniques for college savings
pre college - 529 - coverdell during college - pell grant - PLUS loan - EE bonds cannot be in UTMA
35
education credits - which to choose
AOC limits - 2500 LLC gets phased out completely above 160k ESA and UTMA not credits
36
taxation on single premium annuity due to injury
100% excludable by taxpayer (injured party)
37
taxation of prize winnings
in year received
38
economic indicators
- S&P index - supplier delivery delay - initial unemployment claims not included - yield curve
39
when does the business cycle peak
- when business activity ages : meaning public stops buying because they have everything they needed
40
what does the Fed do during easy money policy
- buy securities
41
if CFP becomes RIA who should they notify first
SEC
42
ADV part 1 includes what
- applicant business address - applicants business background does not include - compensation (part 2) - background of client
43
Debts not cancellable under chapter 7
- government loans - child support - alimony payments
44
Liability for lost credit cards
- limited to $50 per card
45
What protects those denied credit
fair credit reporting act
46
deductibility for loans against home
0 if not used to improve home
47
who doesn't need to register as an investment advisor
- BD and their representatives are exempt unless charging a specific fee for advice
48
What does a negatively sloped yield curve tell us
argues investing in short term bonds to earn highest rates, good to choose if think rates will remain unchanged or increase - short term will not benefit as much in declining rates
49
Determining emergency fund amount
- fixed and variable expenses - not taxes
50
Order to prioritize financial needs
- life insurance - emergency fund - mortgage refinancing - education savings - investments for retirement
51
What type of company is more likely to self insure
- few as 100 people
52
types of risk and meaning
- diversification - avoidance - retention - transfer - reduction
53
in insurance contract, term that refers to legally binding arrangement that explains basic promise of insurance company
- insuring agreement
54
among most important for selecting an insurer
- policy types offered - am best rating less important - history of company - carrier representation by brokers, rather than agents
55
What is a characteristic of an HO4 policy
- excluded coverage on structures
56
exclusions found in homeowners policies
- earthquake - flood
57
excluded perils under auto policy
- wear and tear included - earthquake - flood - falling object
58
can umbrella insurance always be needed
on the test, yes - beneficial even when client has adequate coverage
59
how many days does the COBRA election last
60 days after the actual notice of the event to the qualified beneficiary by the plan administrator
60
terms needed to qualify for LTC medicare stay
- expected to improve - prior hospital stay for injury
61
Own or any occupation
- any is worst
62
whole life option with increasing dividend each year
one year term
63
level amount for fixed time
extended term
64
statements regarding universal life
correct - lifetime protection as long as premium gets paid - flexible premium - separates protection and savings components incorrect - guaranteed cash value feature
65
when will proceeds from LI be subject to income tax
- when client sells policy to viatical company
66
guidelines of MEC
- considered LI - entered on or after june 21, 1988 (?) - fails to meet 7 pay test
67
MEC taxable distributions
- cash - reduced premiums - pay off policy loan
68
what type of annuity makes payments shortly after purchase
immediate
69
disadvantage to single life immediate fixed annuity
receives a fixed payment
70
are annuity contract premiums deductible
yes , deductible when premiums paid as bonus to employee
71
group disability has which advantages
- more liberal waiting period - premiums lower - underwriting more liberal
72
are premiums paid for group term a deductible business expense by company
yes
73
FSA extended time to use
2.5 months for health no extension for childcare
74
can premiums be paid for with FSA
no for medical and LTC
75
money deducted from FSA is subject to what
- no withholding taxes - no FICA tax
76
Medicare Part A subject to deductibles and copayments
yes
77
Other than collision
falling objects
78
people covered under PAP
- living in same house
79
EE bonds education exclusion
taxpayer is parent not grandparent (unless dependent) - phaseout limit
80
ETF is more similar to
open end but could be closed end
81
investments always purchased at NAV
no load balanced MF
82
once created no new securities are purchased and rarely sold
UIT
83
best fund for diversification
global fund
84
Option with highest potential profit
buying a call
85
cannot have negative intrinsic value
true - cannot
86
systematic risk
PRIME
87
Beta expresses what
volatility and systematic risk
88
when are two different investments positively correlated
correlation coefficient is +1.0
89
US treasuries are subject to what risk
purchasing power risk Not - credit risk - default risk - marketability risk
90
characteristics of interest bearing bonds
- pay interest at end of period - issued at par value - pay semiannual interest
91
What is not factored in calculating intrinsic value using DDM
gross earning of company used - beta - dividends paid - risk free return
92
CML characteristics
- can evaluate a diversified portfolio - includes a portfolio of 100% treasry bills -
93
Random walk suggests what
next price change of stock in unrelated to the last price
94
different types of probability distributions
- normal - lognormal - triangular - uniform
95
financial ratio considered most useful
several ratios in same industry over time
96
what is immunization most likely to reduce
interest rate risk
97
active investment strategies
- mutual fund switching - market timing not considered - dollar cost averaging - buying an index fund
98
dollar cost averaging
1.divide investment amount by share price 2. total numbers from step 1 3. divide total investment by number in step 2
99
Binominal option pricing is
valuation model
100
two aspects of CAPM is used to express risk/return relationship for individual security
SML
101
markowitz model doesnt use
beta
102
when is company most likely to issue new bonds
- previously issued selling at premium - previously issued selling at discount - when interest rates fallen
103
yield curve moves up
duration decreased
104
entity most likely to purchase STRIPS
pension plan
105
if buying bonds with concern of rising interest rates due to inflation what feature should you look for
put feature
106
not accurate about no load funds
no management expenses
107
Investment that can provide hedge against inflation and leverage
equity REIT
108
best source for obtaining information about intent of recent change in tax law
congressional committee reports
109
tax traps
- sham - step - substance over form - assignment of income
110
excluded from income
child support
111
deduction vs credit value
credit / marginal tax
112
subject to self employment tax
distributive share of general partnership operating income
113
no phaseout for itemized deductions
true
114
business entity that cannot adjust future years income due to prior year NOL
- S corp Can - reg. corp - trust - estate
115
installment sale taxable gain
gain / sale price = % % * first year income

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