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Wrong Answers Only > Wrong Answers > Flashcards

Wrong Answers Flashcards

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
Q

if asked to choose fund with above average return how do you measure

A

calculate risk adjusted return
fund appreciation / beta

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26
Q

types of bonds and reinvestment rate risk

A

-GNMA have greater reinvestment rate risk
- zero coupons and STRIPS have least

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27
Q

correlation of 0

A

best to own

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28
Q

beta coefficient of the market

A

constant at 0

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29
Q

Types of systematic risk

A

PRIME

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30
Q

Split dollar plan

A
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31
Q

CFP approved nouns

A

professional, practitioner, certificant, marks, exam

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32
Q

What agency regulates brokerage companies

A

FINRA

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33
Q

In todays dollars

A

use the real rate of return
if it doesnt say in todays dollars then just use after tax return

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34
Q

techniques for college savings

A

pre college
- 529
- coverdell

during college
- pell grant
- PLUS loan

  • EE bonds cannot be in UTMA
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35
Q

education credits - which to choose

A

AOC limits - 2500
LLC gets phased out completely above 160k
ESA and UTMA not credits

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36
Q

taxation on single premium annuity due to injury

A

100% excludable by taxpayer (injured party)

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37
Q

taxation of prize winnings

A

in year received

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38
Q

economic indicators

A
  • S&P index
  • supplier delivery delay
  • initial unemployment claims

not included
- yield curve

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39
Q

when does the business cycle peak

A
  • when business activity ages : meaning public stops buying because they have everything they needed
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40
Q

what does the Fed do during easy money policy

A
  • buy securities
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41
Q

if CFP becomes RIA who should they notify first

A

SEC

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42
Q

ADV part 1 includes what

A
  • applicant business address
  • applicants business background

does not include
- compensation (part 2)
- background of client

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43
Q

Debts not cancellable under chapter 7

A
  • government loans
  • child support
  • alimony payments
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44
Q

Liability for lost credit cards

A
  • limited to $50 per card
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45
Q

What protects those denied credit

A

fair credit reporting act

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46
Q

deductibility for loans against home

A

0 if not used to improve home

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47
Q

who doesn’t need to register as an investment advisor

A
  • BD and their representatives are exempt unless charging a specific fee for advice
48
Q

What does a negatively sloped yield curve tell us

A

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
Q

Determining emergency fund amount

A
  • fixed and variable expenses
  • not taxes
50
Q

Order to prioritize financial needs

A
  • life insurance
  • emergency fund
  • mortgage refinancing
  • education savings
  • investments for retirement
51
Q

What type of company is more likely to self insure

A
  • few as 100 people
52
Q

types of risk and meaning

A
  • diversification
  • avoidance
  • retention
  • transfer
  • reduction
53
Q

in insurance contract, term that refers to legally binding arrangement that explains basic promise of insurance company

A
  • insuring agreement
54
Q

among most important for selecting an insurer

A
  • policy types offered
  • am best rating

less important
- history of company
- carrier representation by brokers, rather than agents

55
Q

What is a characteristic of an HO4 policy

A
  • excluded coverage on structures
56
Q

exclusions found in homeowners policies

A
  • earthquake
  • flood
57
Q

excluded perils under auto policy

A
  • wear and tear

included
- earthquake
- flood
- falling object

58
Q

can umbrella insurance always be needed

A

on the test, yes
- beneficial even when client has adequate coverage

59
Q

how many days does the COBRA election last

A

60 days after the actual notice of the event to the qualified beneficiary by the plan administrator

60
Q

terms needed to qualify for LTC medicare stay

A
  • expected to improve
  • prior hospital stay for injury
61
Q

Own or any occupation

A
  • any is worst
62
Q

whole life option with increasing dividend each year

A

one year term

63
Q

level amount for fixed time

A

extended term

64
Q

statements regarding universal life

A

correct
- lifetime protection as long as premium gets paid
- flexible premium
- separates protection and savings components

incorrect
- guaranteed cash value feature

65
Q

when will proceeds from LI be subject to income tax

A
  • when client sells policy to viatical company
66
Q

guidelines of MEC

A
  • considered LI
  • entered on or after june 21, 1988 (?)
  • fails to meet 7 pay test
67
Q

MEC taxable distributions

A
  • cash
  • reduced premiums
  • pay off policy loan
68
Q

what type of annuity makes payments shortly after purchase

A

immediate

69
Q

disadvantage to single life immediate fixed annuity

A

receives a fixed payment

70
Q

are annuity contract premiums deductible

A

yes , deductible when premiums paid as bonus to employee

71
Q

group disability has which advantages

A
  • more liberal waiting period
  • premiums lower
  • underwriting more liberal
72
Q

are premiums paid for group term a deductible business expense by company

A

yes

73
Q

FSA extended time to use

A

2.5 months for health
no extension for childcare

74
Q

can premiums be paid for with FSA

A

no for medical and LTC

75
Q

money deducted from FSA is subject to what

A
  • no withholding taxes
  • no FICA tax
76
Q

Medicare Part A subject to deductibles and copayments

A

yes

77
Q

Other than collision

A

falling objects

78
Q

people covered under PAP

A
  • living in same house
79
Q

EE bonds education exclusion

A

taxpayer is parent not grandparent (unless dependent)
- phaseout limit

80
Q

ETF is more similar to

A

open end but could be closed end

81
Q

investments always purchased at NAV

A

no load balanced MF

82
Q

once created no new securities are purchased and rarely sold

A

UIT

83
Q

best fund for diversification

A

global fund

84
Q

Option with highest potential profit

A

buying a call

85
Q

cannot have negative intrinsic value

A

true - cannot

86
Q

systematic risk

A

PRIME

87
Q

Beta expresses what

A

volatility and systematic risk

88
Q

when are two different investments positively correlated

A

correlation coefficient is +1.0

89
Q

US treasuries are subject to what risk

A

purchasing power risk

Not
- credit risk
- default risk
- marketability risk

90
Q

characteristics of interest bearing bonds

A
  • pay interest at end of period
  • issued at par value
  • pay semiannual interest
91
Q

What is not factored in calculating intrinsic value using DDM

A

gross earning of company

used
- beta
- dividends paid
- risk free return

92
Q

CML characteristics

A
  • can evaluate a diversified portfolio
  • ## includes a portfolio of 100% treasry bills
93
Q

Random walk suggests what

A

next price change of stock in unrelated to the last price

94
Q

different types of probability distributions

A
  • normal
  • lognormal
  • triangular
  • uniform
95
Q

financial ratio considered most useful

A

several ratios in same industry over time

96
Q

what is immunization most likely to reduce

A

interest rate risk

97
Q

active investment strategies

A
  • mutual fund switching
  • market timing

not considered
- dollar cost averaging
- buying an index fund

98
Q

dollar cost averaging

A

1.divide investment amount by share price
2. total numbers from step 1
3. divide total investment by number in step 2

99
Q

Binominal option pricing is

A

valuation model

100
Q

two aspects of CAPM is used to express risk/return relationship for individual security

A

SML

101
Q

markowitz model doesnt use

A

beta

102
Q

when is company most likely to issue new bonds

A
  • previously issued selling at premium
  • previously issued selling at discount
  • when interest rates fallen
103
Q

yield curve moves up

A

duration decreased

104
Q

entity most likely to purchase STRIPS

A

pension plan

105
Q

if buying bonds with concern of rising interest rates due to inflation what feature should you look for

A

put feature

106
Q

not accurate about no load funds

A

no management expenses

107
Q

Investment that can provide hedge against inflation and leverage

A

equity REIT

108
Q

best source for obtaining information about intent of recent change in tax law

A

congressional committee reports

109
Q

tax traps

A
  • sham
  • step
  • substance over form
  • assignment of income
110
Q

excluded from income

A

child support

111
Q

deduction vs credit value

A

credit / marginal tax

112
Q

subject to self employment tax

A

distributive share of general partnership operating income

113
Q

no phaseout for itemized deductions

A

true

114
Q

business entity that cannot adjust future years income due to prior year NOL

A
  • S corp

Can
- reg. corp
- trust
- estate

115
Q

installment sale taxable gain

A

gain / sale price = %
% * first year income

Wrong Answers Only (1 decks)

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