BUSI 352 Final Assessment solutions complete answers

BUSI 352 Final Assessment solutions complete answers 

 

If the Federal Reserve wants to increase interest rates, which of the following actions might they take?

 

Tina and Robert have a son, Elon, who is severely disabled and will need assistance with custodial care for the remainder of his life. They own a successful business and would like to set aside $1,000,000 to provide for his quality of life needs without causing the loss of any government benefits to which Elon is entitled. Which of the following is the most appropriate recommendation for meeting their needs?

 

Reed just found out that his dad, Red, has terminal cancer. Terminal illness can be devastating for a family. The financial planner working with Red will likely have to deal with which of the following? ONE: Estate documents. TWO: Beneficiary designation forms. THREE: Emotional issues.

 

Which of the following loans will likely be available to pay for college expenses for the children of parents with a good credit history and low debt-to-income ratio? ONE: Parent PLUS loan. TWO: HELOC. THREE: Life insurance cash value loan. FOUR: 401(k) loan.

 

Which of the following statements about retirement planning trends is correct? STATEMENT ONE: The percentage of those age 65 and older who are still employed has been steadily declining over the past 30 years. STATEMENT TWO: The change in the number of defined benefit plans has resulted in a shift in risk from employers to employees. STATEMENT THREE: The increased life expectancy combined with reduced annuitized benefits has increased the risk of superannuation for retirees.

 

Which of the following statements regarding education funding is (are) true? STATEMENT ONE: UTMA account funds may not be used to pay for furnishings for the student’s off-campus apartment. STATEMENT TWO: Tax-free distributions may not be made from both a 529 plan and an ESA in the same year. STATEMENT THREE: If there is a dual need for a death benefit and a savings element, life insurance may be part of the education funding plan.

 

Which of the following factors may affect a person’s individual retirement planning? ONE: Work life expectancy. TWO: Retirement life expectancy. THREE: Inflation. FOUR: Savings rate.

 

Steven, age 43, earns $80,000 annually; and his wage replacement ratio has been determined to be 80%. He expects inflation will average 3% for his entire life expectancy. He expects to work until 68 and live until 90. He anticipates an 8% return on his investments. Additionally, Social Security Administration has notified him that his annual retirement benefit, in today’s dollars will be $26,000. Using the purchasing power preservation model, calculate how much capital Steven needs, in order to retire at 68.

 

Which of the following statements, if any, is (are) correct? STATEMENT ONE: Aside from risk tolerance, the time horizon is one of the most important factors to consider when deciding in which securities to invest, and how much and when to invest. STATEMENT TWO: QTPs generally require a decrease in the risk level of investments, the closer the student / beneficiary gets to the beginning of college.

 

The supply of coffee has been drastically reduced due to a drought resulting in substantially higher prices. Which of the following statements is/are correct? STATEMENT ONE: The demand curve for coffee will shift to the right. STATEMENT TWO: The demand curve for creamer will shift to the left. STATEMENT THREE: The demand for orange juice will increase.

 

Howard Chen began college last year and is in the process of applying again for financial aid for his third year of college.  Howard received some distributions from various sources to pay for his expenses in his first year.  Which one of the following distributions that occurred last year will not have an adverse effect on the financial aid that Howard may receive in the coming year?

 

Which, if any, of the following statements is (are) correct? STATEMENT ONE: The revocation of the right to use the CFP® mark may last up to five years. STATEMENT TWO: It is standard to publish revocations through a press release.

 

Which of the following are true regarding investment advisers under the Investment Advisers Act of 1940? ONE: Investment advisers are held to a suitability standard of care. TWO: Registration is generally required for advisers who are in the business of providing advice about securities and are compensated for such advice. THREE: Investment advisers must provide a disclosure brochure to clients before or at the time of entering into an advisory agreement. FOUR: Investment adviser representatives must pass the Series 7 exam.

 

Jill would like to plan for her son’s college education. She would like for her son, who was born today, to attend college for 5 years, beginning at age 18. Tuition is currently $12,000 per year and tuition inflation is 6%. Jill can earn an after-tax rate of return of 8%. How much must Jill save at the end of each year, if she wants to make the last payment at the beginning of her son’s first year of college?

 

Zee Maddah wants to establish an account that can be used to pay for her daughter Cici’s room and board at college without incurring a 10% penalty tax. Which of the following options are available for this purpose? ONE: Coverdell ESA. TWO: Section 529 Savings Plan. THREE: UTMA.

 

Which of the following is/are true regarding revocation? ONE: Revocation is permanent. TWO: A CFP® certificant may petition CFP Board for reinstatement after revocation if the designee proves that he or she has been rehabilitated by clear and convincing evidence. THREE: Revocation is not always permanent.

 

Which of the following statements concerning a CFP® professional’s disclosure of confidential client data is generally correct? STATEMENT ONE: Disclosure may be made to any state agency without subpoena. STATEMENT TWO: Disclosure may be made to any party on consent of the client. STATEMENT THREE: Disclosure may be made to comply with an IRS audit request.

 

John, a CFP® professional, works for a firm requiring that any investment products offered to a client be proprietary products of the firm. Jack, his client, is 55 years old and has a moderate risk tolerance. John’s firm has an S&P500 index fund with a reasonable fee structure. John has discussed the fund’s performance and costs with Jack, and they have agreed that 60% of his equity portfolio will be allocated to this index fund. Which of the following is true according to the Code and Standards?

 

Ken and Christine Rodinski, who report an AGI of $200,000, have an 18-year-old daughter who will begin college this year. The Rodinskis want to know which of the following combinations of techniques will be most tax-efficient for them to take care of college tuition and fees?

 

Which of the following is not a special planning needs situation?

 

There is only one type of special needs trust that planners can use to preserve assets and make use of government benefits for child with special needs.

 

Today, Rick is submitting his Initial Application for CFP® certification with the CFP Board of Standards. Four years earlier, Rick signed a Letter of Acceptance, Waiver and Consent with FINRA, as part of FINRA arbitration hearing. As part of the arbitration settlement, Rick consented to a 30-day suspension, a fine of $100,000 and 20 hours of continuing education. Which action is most appropriate for Rick to take when completing his Initial Application for CFP® certification?

 

Charlie is a CFP® professional and is engaged in the financial planning process with his client William. Charlie is in the data gathering process and has collected bank statements, insurance policies, estate documents, and all other relevant information except for tax returns. William refuses to supply the tax returns or any documents that support his income claims. Charlie’s best course of action is to?

 

Janet, age 40, earns $95,000 annually; her wage replacement ratio has been determined to be 70%. She expects inflation will average 3% over her entire life expectancy. She expects to work until 67, and live until 95. She anticipates a 7.5% return on her investments. Allison does not expect to receive any Social Security retirement benefits. Calculate Allison’s capital needed at retirement age 67.

 

Steven, age 43, earns $80,000 annually; and his wage replacement ratio has been determined to be 80%. He expects inflation will average 3% for his entire life expectancy. He expects to work until 68 and live until 90. He anticipates an 8% return on his investments. Additionally, Social Security Administration has notified him that his annual retirement benefit, in today’s dollars will be $26,000. Using the capital preservation model, calculate how much capital Steven needs, in order to retire at 68.

 

The student loan interest deduction is not an above-the-line deduction.

 

Which one of the following statements is NOT correct?

 

Some studies have suggested that up to 70% of lottery winners lose their winnings within as short of a period as seven years. Which of the following statements are correct regarding advice for a lottery winner? ONE:  Principal protection is the most important issue. TWO: It is extremely important to invest lottery winnings quickly to take advantage of opportunities to grow the principal.

 

The husband of one of your clients had his wallet stolen. He had five credit cards in his wallet when this occurred. He reported the cards as missing the next morning, but the following transactions had already occurred: (Discover Card - $350) (MasterCard - $100) (VISA - $425) (Sears - $25) (Marshall Fields  - $685) What is the client’s liability for the fraudulent transactions on these cards?

 

All of the following economic activities represent governmental fiscal policy EXCEPT:

 

Stephanie wants to save for her daughter’s education. Tuition costs $10,000 per year in today’s dollars. Her daughter was born today and will go to school starting at age 18. She will go to school for 4 years. Stephanie can earn 12% on her investments and tuition inflation is 6%. How much must Stephanie save at the end of each year if she wants to make her last savings payment at the beginning of her daughter’s first year of college?

 

Tricia, a new client for Stephan, a CFP® professional, has asked for Stephan’s help with her financial planning. Specifically, she wants a complete analysis of her retirement situation including retirement projections and wants Stephan to evaluate how much and what type of investments she should purchase. Which of the following is correct according to the Code and Standards?

 

The recent bird flu caused the chicken mortality rate to increase significantly. As a result, what can you expect?

 

All of the following are characteristics of PLUS loans, EXCEPT:

 

Which of the following is not correct regarding the Federal Reserve?

 

One of the challenges in retirement planning is that people are living longer and have been retiring early over the last 20 years with only a recent reversal in retirement age.

 

Families with children with special needs have more complicated lives than traditional families. Which of the following is correct?

 

Which of the following is not a principle in the CFP Board’s Code of Ethics?

 

Which of the following would cause the demand curve to shift downward and to the left?

 

Sally is the custodian of her daughter June's Section 529 plan.  If Sally withdraws funds from the 529 plan to pay for plane tickets for Sally and June to tour colleges, which of the following is true?

 

All of the following statements concerning Section 529 Savings Plans are correct EXCEPT:

 

You are at a birthday party having a conversation with an individual you have NOT spoken with previously. The individual is excited, just having heard that a new mutual fund is positioned to deliver large gains in the coming year. The individual asks you about emerging market funds, and you provide some general information about them. According to the Code and Standards, which of the following is correct?

 

Lori, a self-employed pediatrician, currently earns $200,000 annually. Lori has been able to save 15% of her annual Schedule C net income. Assume that Lori paid $19,000 in Social Security taxes, and that she plans to pay off her mortgage at retirement, thereby relieving her of her only debt. Lori presently pays $4,333.33 per month toward the mortgage principal and interest. Based on the information provided herein, what do you expect Lori’s wage replacement ratio to be at retirement?

 

Tom, a CFP® professional, has developed a financial plan for his client. Based on the CFP Board Practice Standards which of the following should Tom do next?

 

A CFP® certificant agrees to be bound by Continuing Education (CE) Requirements established by Certified Financial Planner Board of Standards. The CE Requirements for a regular continuing certificant (not a new certificant or a certificant who has been inactive) are as follows:

 

All of the following statements are true EXCEPT:

 

John is a CFP® professional and is engaged in the financial planning process with his client Frank. John is in the data gathering process and has collected bank statements, insurance policies, estate documents, and all other relevant information except for tax returns. Frank refuses to supply the tax returns or any documents that support his income claims. John’s best course of action is to?

 

Differentiating between separate, joint, community and inherited property is not that important when going through a divorce because the court will decide on the property settlement, based on the facts and circumstances.

 

Stanley, a CFP® professional, recently got a job selling life insurance for a large national insurer. During his first year on the job, he received a large number of complaints and has been mentioned adversely in a regulatory investigation alleging failure to comply with the laws regulating the sale of insurance in his state.  Which of the following is true regarding Stanley's reporting requirements under the Code and Standards?

 

Approximately how any families are raising one or more children with a disability?

 

Which of the following is not one of the four stages of a business cycle?

 

For many years, Samuel has been employed as a financial advisor at a leading brokerage firm where he conducts suitability reviews and makes investment recommendations for his clients. He recently obtained his CFP® certification and has just signed an agreement with Thomas, a new client, for a comprehensive financial plan. According to the Code and Standards, which of the following represent an additional requirement for Samuel in his engagement with Thomas compared with his other clients, to whom he provides financial advice but not financial planning?

 

A savings rate of 5% of income should be sufficient for most people planning on retirement, especially considering the average savings rate is significantly less.

 

The account balance method of education funding uses real dollars and the annuity due funding plan to calculate the present value of the cost of education.

 

Which, if any, of the following statements is (are) correct? STATEMENT ONE: Deflation is a decrease in the overall price levels of goods and services. STATEMENT TWO: Disinflation is a slowdown in the rate of inflation.

 

Which of the following education funding techniques will be most appropriate to recommend to parents with incomes over $200,000?

 

When the economy experiences a decline in real GDP for two or more successive quarters, what stage of the economic cycle does this indicate?

 

Which of the following statements is generally true?

 

Which of the following is correct regarding planning for non-traditional families?

 

When analyzing and advising clients about funding their retirement, qualitative factors are of much less significance than quantitative or financial factors.

 

Which of the following is/are true regarding suspension? ONE:The Commission may order a suspension of a CFP® professional for up to ten years. TWO: It is standard procedure to publish suspensions with identification of the certificant in press releases or other forms of publicity.

 

All of the following are true regarding EE Savings Bonds used for education expenses except?

 

Ashley began saving $5,000 per year from age 25 to age 35 (ten years) and then invested the funds for another 30 years. Teeto began saving at age 35 and saved $5,000 each year until he retired at age 65 (30 years). Which of the following statements is correct assuming they invested their funds at 8 percent?

 

A parent of a 10-year-old child with special needs should consider all of the following financial planning techniques, EXCEPT:

 

Tom and Betty have AGI of $150,000 and have not planned for their children’s education. Their children are ages 18 and 17 and the parents anticipate paying $20,000 per year, per child for education expenses. Which of the following is the most appropriate recommendation to pay for the children’s education?

 

Elin wants to retire in 20 years when she turns 60. Elin wants to have enough money to replace 120% of her current income less what she expects to receive from Social Security. She expects to receive $20,000 per year from Social Security in today’s dollars. Elin is conservative and wants to assume a 6% annual investment rate of return and assumes that inflation will be 3% per year. Based on her family history, Elin expects that she will live to be 95 years old. If Elin currently earns $100,000 per year and expects her raises to equal the inflation rate, approximately how much does she need at retirement to fulfill her retirement goals?

 

Ruby, a CFP® professional works for a life insurance company and sells only life insurance products. She met with her new client Sally, a single parent, for the first time today. She had already collected data from Sally concerning her income, needs and age of her children. During the meeting, Ruby discussed the distinctions between term, universal and variable life insurance with Sally. She subsequently evaluated Sally's needs concerning life insurance and plans to discuss the advantages and disadvantages of two approaches: (1) purchasing a universal policy designed to provide sufficient coverage for Sally’s insurance needs while building cash value for the long term, and (2) purchasing a term policy to cover insurance needs until her children become independent and recommending another CFP® professional who Ruby is confident could assist Sally with building her investment portfolio for the long term. Which of the following would be correct under the CFP Board’s Code and Standards?

 

The Dodd - Frank Wall Street Reform and Consumer Protection Act permanently increased the FDIC limit to what amount?

 

John has just retired with an investment portfolio equal to $1 million. He plans on using the 4% capital balance approach to retirement distributions. He also plans on distributing the amount in one lump sum at the beginning of the year. His first year, he distributes $40,000 to live on, in addition to his other income. However, the market takes a significant decline and his portfolio loses 20%. His second year, after he takes his distribution, his portfolio takes another decline of 20%. How much can he take in the third year if he is sticking with the 4% method? Round to the nearest thousand.

 

The statement, “Harry is a very pleasant young man who is interested in politics and is generally skilled with woodworking equipment” might be found in what document?

 

Which of the following is true regarding demand? ONE: The average income or standard of living is a key determinant of demand. TWO: Downward sloping demand indicates that if the price is decreased, the quantity demanded will fall.

 

While equities have historically outperformed other asset classes, they have not done so after considering inflation and taxes.

 

Cindy and Sandy are a same sex couple who got married in Vermont. Their marriage entitles them to the same benefits under federal law as a heterosexual couple.

 

Winning the lottery is hard but managing and preserving the assets after winning is relatively easy and history shows that most lottery winners make a successful transition to being wealthy that lasts for a long time.

 

Which of the following statements is correct?

 

Tim is 30 years old and spends $75 per week on groceries. If inflation averages 3% per year, how much will Tim spend on the same groceries when he is 65?

 

George and Jane are married with two children, Judy and Elroy. They have the following accounts with the following balances at their local bank: - George (individual account): $450,000. - Jane (individual account): $175,000. - George & Jane (joint account): $300,000. - Jane & Elroy (joint account): $100,000. How much of all of their accounts will be insured by the FDIC?

 

Changing beneficiaries on beneficiary designation forms is rarely an important issue when going through a divorce as this is handled via the divorce agreement.

 

Which of the following is the most common range for wage replacement ratios?

 

A family of four with total income of $45,000 and two students in college will likely qualify for which of the following? ONE: Pell grant. TWO: Subsidized Stafford loan. THREE: PLUS loan.

 

Which of the following statements is correct regarding Social Security?

 

Inflation is a genuine issue for retirement planning because a person age 65 will on average live between 18 and 20 years and the cost of goods can double over that period of time.

 

Stephanie wanted to save for her daughter’s education. Tuition costs $10,000 per year in today’s dollars. Her daughter was born today and will go to school starting at age 18. She will go to school for 4 years. Stephanie can earn 12% on her investments and tuition inflation is 6%. How much must Stephanie save at the beginning of each year if she wants to make her last savings payment at the beginning of her daughter’s first year of college?

 

Thomas, a CFP® professional, has been Shelley’s financial advisor for over 20 years and is very familiar with her family situation, goals, objectives and needs. Thomas has just completed a meeting with Shelley and Gertrude, Shelley’s mother, who is 79. During the meeting, Thomas entered into an oral agreement with Shelley to manage Gertrude’s financial affairs. Gertrude offered no objections to this arrangement. Thomas did not complete a client profile for Gertrude since he was already fully aware of the family's and Gertrude’s situation. Gertrude collects a small amount from social security but must supplement that with the interest from her investment portfolio of $100,000. She indicated she would like to provide for her remaining life and establish education funds to send her six grandchildren to college. The grandchildren range in age from 2 - 15. According to the provisions of the Code and Standards, Thomas should take all the following actions before initiating any action on behalf of Gertrude, EXCEPT:

 

All of the following statements concerning educational funding are correct EXCEPT:

 

Beth saves $2,500 a year from age 25 until age 34 (inclusive) and invests the money in an account earning ten percent annually. Beth stops investing at age 34 but does not withdraw the accumulation until age 65. In contrast, Bill saves $2,500 a year from age 35 until age 65 inclusively and invests in a similar account to Beth, earning ten percent annually. Because Bill saved significantly more than Beth, he will have accumulated significantly more than her at age 65.

 

Which of the following best describes when an individual is voluntarily unemployed because they are seeking other job opportunities and they have not found the desired employment yet?

 

Inflation refers to:

 

Dennis and Rhonda are married with two boys, Blake and Chase. They have the following accounts with the following balances at their local bank: - Dennis (individual account): $300,000.- Rhonda (individual account): $100,000. - Dennis & Rhonda (joint account): $400,000. - Rhonda & Blake (joint account): $100,000. How much of all of their accounts will be insured by the FDIC?

 

Which of the following debts are dischargeable in bankruptcy?

 

Which of the following describes when inflation is continuing, but at a declining rate?

 

Jack is getting ready to retire. He has a salary of $100,000 and is saving 15% annually in his 401(k) plan and he just made his last principal and interest monthly payment on his mortgage of $2,350. His home is now debt free. What would you recommend regarding a wage replacement ratio, assuming he wants to maintain his lifestyle?

 

Martin began saving $5,000 per year from age 25 to age 35 (ten years) and then invested the funds for another 30 years. Bob began saving at age 35 and saved $5,000 each year until he retired at age 65 (30 years). At what rate of return will Martin and Bob have the exact same balance at age 65?

 

Jonathan, a CFP® practitioner, filed for bankruptcy as a result of financial difficulties related to a divorce.  Which of the following is required under CFP Board's Code and Standards?

 

During the years from 1968 to 2018, the percentage of young adults that are married has been increasing while the percentage of young adults living with a partner has been decreasing.

 

Which of the following convictions, if any, will always bar a candidate from becoming a CFP® professional? ONE: Conviction for tax fraud. TWO: Conviction for passing a bad check.

 

Which, if any, of the following statements is (are) correct? ONE: The average income or standard of living is a key determinant of demand. TWO: Downward sloping demand indicates that if the price is decreased, demand will increase.

 

Social Security is a sizable program that impacts many families in the United States. Which of the following statements are correct regarding Social security? STATEMENT ONE: Social Security was never intended to provide a substantial wage replacement ratio for most Americans. STATEMENT TWO: Social Security skews benefits towards lower wage earners and away from higher wage earners. STATEMENT THREE: Social Security provides 90% or more of the income for more than 20% of retired married couples.

 

Bob is a CFP® professional and has entered into a signed engagement letter to provide the first five steps of the financial planning process. Once Bob has made the recommendations, the engagement letter clearly identifies that the scope of the relationship ends, and the client is solely responsible for implementation and monitoring. Six months after Bob provided a client with his recommendations, the client approached Bob about purchasing life insurance through Bob, which was one of the recommendations in his plan. Which of the following is the most appropriate action for Bob to take?

 

Today, there are many non-traditional households. Which of the following statements are correct? ONE:  The non-traditional family may take many different forms. TWO: DOMA defines what a marriage is for federal law, which may impact benefits and restrictions under the Internal Revenue Code. THREE: There are very few differences that have to be dealt with in a non-traditional household.

 

A CFP® professional may disclose a client’s personal identifiable information in which of the following circumstances? ONE: In response to a court issued subpoena. TWO: In response to a request from the IRS. THREE: When that particular client consents.

 

Ralph, a CFP® professional, has been working with his new client Jack over the last few months. He has completed all required disclosures and provided all written documents required for a financial planning engagement. Jack is 32, married, and has 3 children. Ralph discussed Jack’s insurance coverage following a thorough review of Jack’s policies and recommended Jack purchase a disability policy, additional term life insurance through his employer and a personal liability umbrella policy. Ralph also performed a retirement needs analysis and developed an investment plan he believes will help Jack achieve his goals. While presenting the retirement and investment plan, Jack mentioned that he was rejectedfor the life insurance for medical reasons that he does not wish to discuss with Ralph. To comply with the Practice Standards of the Code of Ethics, Ralph’s best course of action would be to:

 

Which of the following statements will have the MOST negative impact on need-based financial aid?

 

According to the U.S. Census Bureau, approximately 2.8 million families are raising a child or children with a disability.

 

Which of the following is NOT an acceptable form of compensation for a CFP® professional?

 

Which of the following statements, if any, is (are) correct? STATEMENT ONE: Prepaid Tuition plans provide for the prepayment of college tuition at current tuition prices (or current tuition prices plus a small premium) for future enrollment. STATEMENT TWO: A disadvantage of a QTP (qualified tuition plan) is that the owner / contributor must relinquish control of the account and share control of the funds with the student / beneficiary.

 

You are a CFP® professional who has been approached by the general partner of Silky Industries (SI) to provide financial planning services to the top executives at SI. Your sister has a fifteen percent limited partnership interest in SI. Can you accept this engagement?

 

Saben is 40 and wants to retire in 20 years. His family has a history of living well into their 90s. Therefore, he would like to plan on living until age 100, just in case. He currently needs $100,000 and expects that he will need about 80% of that if he were retired. He can earn 9 percent in his portfolio and expects inflation to be 3 percent annually. Some years ago, he purchased an annuity that is expected to pay him $30,000 per year beginning at age 60. It includes an inflation rate cost of living adjustment. In addition, he received $500,000 from his uncle BJ when he died. Saben has spent $200,000 on his home but is investing $300,000 for his retirement. His Social Security benefit in today’s dollars is $20,000. Which of the following statements is true?

 

Which of the following are examples of fiscal policy?

 

When providing financial advice to a client, CFP® professionals must disclose all of the following information EXCEPT:

 

Steven, age 43, earns $80,000 annually; and his wage replacement ratio has been determined to be 80%. He expects inflation will average 3% for his entire life expectancy. He expects to work until 68 and live until 90. He anticipates an 8% return on his investments. Additionally, Social Security Administration has notified him that his annual retirement benefit, in today’s dollars will be $26,000. Using the capital needs / annuity method, calculate how much capital Steven will need to be able to retire at age 68.

 

Trusts can be very beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a person with special needs. Which of the following trusts would generally be used by a parent or grandparent to provide for needs, such as medical treatments, education or travel for a child with special needs?

 

Which of the following statements are true regarding front-loading of annual gift tax exclusions? STATEMENT ONE: The only type of account that can be front-loaded with 5 years of annual exclusion gifts is a Section 529 Savings Plan. STATEMENT TWO: The full amount of gifts placed in a front-loaded account will be immediately excluded from the donor's gross estate for estate tax purposes.

 

Which of the following is/are requirements of the fiduciary duty under the Code and Standards? ONE: The duty of loyalty, in which the CFP® professional must place the interests of the client ahead of the interests of the CFP® professional or the CFP® professional's firm." TWO: The duty of care, in which the CFP® professional must act with the care, skill, prudence, and diligence that a prudent professional would exercise considering the client's goals, risk tolerance, objectives, and circumstances. THREE: The duty of objectivity, in which the CFP® professional must provide financial advice under a fee-only method of compensation and avoid any sales-related compensation.

 

Two of the more important factors affecting retirement planning are the savings amount and the growth of GDP.

 

It typically takes six months to find a new job, regardless of the industry or specific job of a person.

 

Mike and Kim were married for 20 years when Kim met and fell madly in love with Frank.  Kim is currently in the process of divorcing Mike so that she can quickly marry her new love. Which of the following is not proper advice for Kim?

 

What is the total American Opportunity & Lifetime tax credit the Jones family can take, given the following information? - Sally is a sophomore and incurs $5,000 in education expenses. - Tommy is in grad school and incurs $7,000 in education expenses. - Mom, who has a 4-year degree, goes back to school and incurs $4,000 in education expenses.

 

When dealing with a client who is terminally ill, it is important to consider viatical settlement options and accelerated benefit provisions in life insurance policies.

 

Beth just read that 40 years ago, milk was about $1.15 per gallon and today it is about $6 per gallon. She thought that seemed very high, especially if she can only earn 7% from her investments. She also thought that she would need about $3 million for retirement in today’s dollars. If inflation is the same in the future as it has been over the last 40 years for a gallon of milk, how much will she need to have accumulated when she retires in 30 years?

 

Which of the following debts are discharged in bankruptcy?

 

Which of the following student loan repayment plans provides for a recalculation each year of the amount of payment based on income and family size?

 

Trusts can be very beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a person with special needs. Which of the following is true?

 

Which of the following is not a goal of the Federal Deposit Insurance Corporation (FDIC)?

 

Holly would like to plan for her daughter’s college education. She would like for her daughter, who was born today, to attend college for 4 years, beginning at age 18. Tuition is currently $10,000 per year and tuition inflation is 7%. Holly can earn an after-tax rate of return of 10%. How much must Holly save at the end of each year, if she wants to make the last payment at the beginning of her daughter's first year of college?

 

All of the following statements concerning education funding are correct EXCEPT:

 

What is one of the primary differences between a Coverdell Education Savings Account and 529 Savings Plan?

 

John, age 58, has been using a CFP® practitioner for the last 15 years. The CFP® practitioner recently retired and, as a result, John has decided to engage Tom, who is also a CFP® practitioner, but unaffiliated with John’s original practitioner. After analyzing and evaluating John’s current financial position, Tom made his recommendations. Those recommendations differed from that of John’s original practitioner. According to the Practice Standards, how should the differing recommendations be handled?

 

Because income from fixed income assets is taxed at a higher income tax rate than capital gains and dividends from equities, there is no reason that one would have fixed income assets in a taxable account over a tax deferred account.

 

The period of time a person is expected to be in the work force is referred to as:

 

Which of the following comes under an exemption from registration status of the Investment Advisers Act of 1940?

 

One of the most important considerations for a child with special needs is to preserve governmental benefits.

 

Which, if any, of the following is not a principle from the Board of Standards Code of Ethics? ONE: Integrity. TWO: Diligence. THREE: Competence. FOUR: Candidness.

 

 

 

Fred and Wilma are married with two boys, Slate and Stone. They have the following accounts with the following balances at their local bank:

• Fred (single account) $450,000

• Wilma (single account) $175,000

• Fred & Wilma (joint account) $300,000

• Wilma & Slate (joint account) $100,000

How much of all of their accounts will be insured by the FDIC?

 

Which of the following debts are dischargeable in Chapter 7 bankruptcy?

 

Which of the following is/are examples of monetary policy?

 

Which of the following is not one of The Federal Reserve’s primary goals?

 

 

 

          What should Tim, the CFP® professional do in this scenario: Client Bill seems to be suffering from dementia and wants to remove his children from his will and give all his wealth to Marsha, a neighbor who periodically visits Bill and delivers him groceries.                    

          

          The WLE and the RLE expectancy are not inversely related.                         

          

          Sarah, a self-employed mechanical engineer, currently earns $100,000 per year. Sarah has always been a self-proclaimed saver, and saves 25% per year of her Schedule C net income. Assume Sarah paid $13,000 in Social Security taxes. Tiffany plans to pay off her home mortgage at retirement and live debt free. She currently spends $25,000 per year on her mortgage. What do you expect Sarah’s wage replacement ratio to be at retirement based on the above information?                       

          

          A change in quantity demanded causes movement along the demand curve. Which of the following is the likely cause of a change in quantity demanded?                            

          

          Which of the following is/are forms of discipline?

1- Private Censure.

2- Revocation.

3- Suspension.

4- Public Letter of Admonition.                    

          

          Robert, a CFP® professional, performed a needs analysis concerning Jack’ life insurance situation last year and sold him a universal life policy under a limited scope engagement. This year, Jack wants Robert to evaluate his investment allocation and recommend some mutual funds. All of the following are required to be provided to Jack according to the Code of Ethics EXCEPT?                           

          

          There is only one type of special needs trust that planners can use to preserve assets and make use of government benefits for a special needs child.                     

          

          Which of the following is/are true regarding revocation?

1- Revocation is permanent.

2- A CFP® designee may petition CFP Board for reinstatement after revocation if the designee proves that he or she has been rehabilitated by clear and convincing evidence.

3- Revocation is not always permanent.                   

 

          

          Which of the following statements regarding retirement trends is correct?                          

          

          Trusts are general tools that are beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a special needs person. Which of the following is generally correct regarding special needs trusts?                      

          

          Divorce is a very emotional time for those who are going through it and assistance from a financial advisor is generally helpful. Which of the following are common mistakes that are made by those going through divorce?                             

          

          Which of the following is a good benchmark for savings for retirement as a percent of gross income for someone who is between age 25 and 30?                          

          

          A letter of intent may include all the following except:                     

          

          Work life expectancy (WLE) is the period of time a person in in the work force.  This is typically:                            

          

          Which of the following statements concerning supply and / or demand is / are correct?

1- If demand increases and supply simultaneously decreases, equilibrium price will rise.

2- There is an inverse relationship between price and quantity demanded.

3- If demand decreases and supply simultaneously increases, equilibrium price will fall.

4- If demand decreases and supply remains constant, equilibrium price will rise.                            

          

          Two out of seven families (29%) reported at least one family member with a disability.                    

          

          Which of the following worker protection laws protects employee retirement savings accounts from creditors and plan sponsors?                        

          

          Providing a good home and maintaining a family is challenging enough without a special needs dependent. However, it becomes much more complicated with a child who is disabled or who has special needs. Which of the following is not correct?                            

          

          If the Federal Reserve wants to decrease interest rates, which of the following actions might it take?                      

          

          Which of the following are NOT client responsibilities during the financial planning process?

1- To pay their fees.

2- To provide the professional with all requested information.

3- To interpret all the information that is gathered.

4- To implement the financial plan.                         

          

          Which of the following economic indicators measures inflation?                            

          

          Rick would like to retire in 11 years at the age of 66. He would like to have sufficient retirement assets to allow him to withdraw 90% of his current income, less Social Security, at the beginning of each year. He expects to receive $24,000 per year from Social Security in today’s dollars. Rick is conservative and assumes that he will only earn 9% on his investments, that inflation will be 4% per year and that he will live to be 106 years old. If Rick currently earns $150,000, how much does he need at retirement?                            

          

          The threshold for taxability of unrelated business taxable income is $10,000.                       

          

          According to the textbook, what percentage of lottery winners spent 100% of their winnings within 5 years?                             

          

          What is the most common range for the Wage Replacement Ratio (WRR)?                         

          Which of the following is not a way property can transfer at death?                       

          

          Which of the following statements about retirement planning trends is correct?

1- The ratio of the work life expectancy to the retirement life expectancy has been increasing

2- The change in the number of defined benefit plans has resulted in a shift in risk from employers to employees.

3- The increased life expectancy, combined with reduced annuitized benefits has increased the risk of superannuation for retirees.                        

          

          Families with special needs children have more complicated lives than traditional families. Which of the following is correct?                        

          

          In a bankruptcy proceeding, all of the following claims will be discharged except:                          

          

          John, a CFP® professional, works for a firm requiring that any investment products offered to a client be proprietary products of the firm. Jack, his client, is 55 years old and has a moderate risk tolerance. John’s firm has an S&P500 index fund with a reasonable fee structure. John has discussed the fund’s performance and costs with Jack and they have agreed that 60% of his equity portfolio will be allocated to this index fund. Which of the following is true according to the Code of Ethics?                      

          

          Which, if any, of the following statements is (are) correct?

1- The revocation of the right to use the CFP® mark may last up to five years.

2- It is standard to publish revocations through a press release.                            

          

          Which principle below is not in the Code of Ethics?                        

          

          The average retiree receives income from several sources, including Social Security, pension and annuities, and from personal savings. What is the approximate percent of income from Social security?                      

          

          Beth and Scott have been married for 15 years but are now getting divorced. They were married young and have one child, who is age 9. This is a very emotional time for both of them. If you were their advisor, which of the following would you recommend?                          

          

          Which of the following does not apply to Practice Standard 500-2, which provides that the financial planning practitioner shall select appropriate products and services that are consistent with the client’s ______?                     

          

          If properly structured, a third party special needs trust’s assets are not counted or considered for the purposes of available benefits for the beneficiary when he or she is being considereed for possible federal, state, and local funds.                     

          

          Which of the following does NOT play a part in a financial planner’s recommendations?                            

          

          According to the MetLife Center for Special Planning Needs, approximately 4% of families are raising a child or children with a disability.                        

          

          The supply of coffee has been drastically reduced due to drought resulting in substantially higher prices. Which of the following statements is/are correct?

1- The demand curve for coffee will shift to the right.

2- The demand curve for creamer will shift to the left.

3- The demand for orange juice will increase.                      

          

          Under the Candidate Fitness Standards, the following conduct is unacceptable and will always bar an individual from becoming certified.

1- Felony conviction for any degree of murder or rape

2- Felony conviction for any other violent crime within the last five years

3- Two or more personal or business bankruptcies                         

          

          Jonathan got divorced in 2007 and subsequently had severe financial problems. In 2009, he filed for bankruptcy. After getting back on his feet, he graduated from college and got a job selling life insurance for a large national insurer in 2011. During his first year on the job, he received a large number of customer complaints, his insurance license was suspended for one month and he was discharged by his employer. During his unemployment, he completed all of the requirements for the CFP® designation. In August of 2012, he made his application to the CFP Board. Which of the following is correct under the Board’s revised policy regarding bankruptcy?                       

          

          Barbara and John are near retirement. They have a joint life expectancy of 25 years in retirement. Barbara anticipates their annual income in retirement will need to increase each year at the rate of inflation, which they assume is 4%. Based on the assumption that their first year retirement need, beginning on the first day of retirement, for annual income will be $85,000, of which they have $37,500 available from other sources, and an annual after-tax rate of return of 6.5%, calculate the total amount that needs to be in place when John and Barbara begin their retirement.                         

 

 

 

          

          Janet, a 35-year-old client who earns $45,000 a year, pays 7.65% of her gross pay in Social Security payroll taxes, and saves 8% of her annual gross income. Assume that Janet wants to maintain her exact pre-retirement lifestyle. Calculate Janet’s wage replacement ratio using the top-down approach (round to the nearest %) and using pre-tax dollars.                    

 

 

          

          Bill is 63, very wealthy and has one child from his current marriage with Hillary. He also has a child from a previous relationship that Hillary is unaware of. Bill’s investment portfolio and pension assets are held in a variety of accounts for which no overall plan has been developed. Bill, being kind and generous, has asked Monica, a CFP® professional, to assist him in maximizing his children’s inheritance while ensuring that Hillary is financially comfortable for the remainder of her life. All of the following items are relevant to determining if this engagement constitutes financial planning or material elements of the financial planning process EXCEPT:                           

 

Which of the following is not an example of a special needs situation?

 

          

          A supermarket puts bacon on sale, which increases the demand for eggs. What are the two products?                    

          

          Bob has just retired with an investment portfolio equal to $1 million. He plans on using the 4% capital balance approach to retirement distributions. He also plans on distributing the amount in one lump sum at the beginning of the year. His first year, he distributes $40,000 to live on, in addition to his other income. However, the market takes a significant decline and his portfolio loses 40%. His second year, after he takes his distribution, his portfolio increases by 20%. How much can he take out in the third year if he is sticking with the 4% method? Round to the nearest thousand.                          

          

          Which of the following are special circumstances outside a nornmal financial planning engagement?                      

          

          Which of the following must be included, in writing, and any engagement letter that involves financial planning?                           

          

          According to the CFP Code of Ethics, what principle is being displayed in the following scenario: Tina is a prospctive client who recently approached Frank, a CFP® professional, with significant estate planning needs.  Frank does not feel like he can adequately fulfill all of Jill’s needs so he refers Jill to a colleague who specializes in estate planning.                           

          

          Which of the following statements is false?                         

          

          A CFP® designee may disclose a client’s personal identifiable information without the specific consent of the client if:

1- It is in response to proper legal process.

2- It is to defend against charges of wrongdoing by the CFP® designee.

3- It is in connection with a civil dispute between the CFP® designee and the client.

4- It is in response to a request from the Internal Revenue Service.                         

          

          Which of the following is/are not a principle of the Board of Standards Code of Ethics and Professional Responsibility?

1- Integrity.

2- Disclosure.

3- Objectivity.

4- Competence.                             

          

          Mary is a CFP® professional and is in the analyzing and evaluating step of the financial planning process. Mary is developing a capital needs analysis for her client and has established assumptions for tax rates, investment returns and inflation rates. Her client disagrees with Mary’s assumptions regarding inflation and other economic variables used in the retirement needs analysis calculation. What should Mary do next?                            

          

          Reed just found out that his dad, Red, has terminal cancer. Terminal illness can be devastating for a family. The financial planner working with Red will likely have to deal with which of the following?

1- Estate documents.

2- Beneficiary designation forms.

3- Emotional issues.                        

          

          During the years from 2000 to 2009, the average percentage of young adults who were married was between 65% and 80% and has been slightly increasing over time.                          

          

          The CFP Board is a certification and standard-setting organization that:                            

          

          Josh is a CFP® professional and recently met with his prospective client, Mary. Mary is the owner of a chain of retail toy stores throughout the Midwest. Mary was referred to Josh through a mutual friend. Mary is considering rolling out a new 401(k) plan to her employees and has asked Josh to review her current plan and make a recommendation on improving the plan. Which of the following is acquired to be provided to Mary according to the Code of Ethics?                    

          

          Paul recently applied for CFP® Certification. Which of the following would always bar him from certification?                             

          

          Which type of bankruptcy filing allows an individual to keep their assets and pay off a portion of their debt over time?                          

          

          Which of the following is not a consumer protection law?                          

          

          Considering employment and production, which two of the following industries are typically more affected by recession?

1- Capital goods.

2- Consumer durable goods.

3- Consumer non-durable goods.

4- Services.                         

          

          Today, Walter is submitting his Initial Application for CFP® certification with the CFP Board of Standards. Four years earlier, Walter signed a Letter of Acceptance, Waiver and Consent with FINRA, as part of FINRA arbitration hearing. As part of the arbitration settlement, Walter consented to a 30-day suspension, a fine of $100,000 and 20 hours of continuing education. Which action is most appropriate for Walter to take when completing his Initial Application for CFP® Certification?                         

          

          David, age 52, has come to you for help in planning his retirement. He works for a bank, where he earns $60,000. David would like to retire at age 62. He has consistently earned 8% on his investments and inflation has averaged 3%. Assuming he is expected to live until age 95 and he has a wage replacement ratio of 80%, how much more will David need at retirement to have the same amount at his death with an equal purchasing power as he will have at his retirement?                    

                                      

 

          

          One of every four families (25%) with a female head of household and no husband present reported members with a disability.                             

          

          You receive a phone call from an individual you have NOT spoken with previously. The caller is excited, just having heard that a new mutual fund is positioned to deliver large gains in the coming year. The caller wishes to purchase shares of the fund through you. According to the Code of Ethics, which of the following would be acceptable actions for a CFP® professional?                           

          

          How many months of income is the recommended amount (in general) to be accumulated in an emergency fund?                      

          

          Under the Disciplinary Rules, which of the following is not a form of discipline?                             

          Gross Domestic Product (GDP) represents the net output of a country by its citizens and foreigners in the country over a specific period of time.                     

          

          When investors are young, their investment portfolio should typically be dominated by common stocks because, due to long time horizons, young investors can generally afford the additional risk of common stocks. As investors near retirement, their asset allocation should rapidly shift to all fixed income securities to provide for income and to mitigate against the risk of the equity markets.                    

          

          Which of the following statements concerning supply and/or demand is/are true?                         

          

          Retirement life expectancy (RLE) is the timeperiod beginning at retirement and extending until death.                    

          

          During a period of recession/contraction, which of the following would be true?

1- Unemployment would be increasing.

2- The supply of goods and services would be decreasing.

3- Interest rates would be decreasing.

4- Inflation would be decreasing.                           

          

          For many years, Samuel has been employed as a financial advisor at a leading brokerage firm where he conducts suitability reviews and makes investment recommendations for his clients. He recently obtained his CFP® designation and has just signed an agreement with Thomas, a new client, for a comprehensive financial plan. According to the Code of Ethics, all of the following represent additional requirements for Samuel in his engagement with Thomas compared with his other clients EXCEPT:                     

          

          Which of the following factors may affect a person’s individual retirement planning?

1- Work life expectancy.

2- Retirement life expectancy.

3- Inflation.

4- Savings rate.                   

 

Allison, age 40, earns $95,000 annually; her wage replacement ratio has been determined to be 70%. She expects inflation will average 3% over her entire life expectancy. She expects to work until 67, and live until 95. She anticipates a 7.5% return on her investments. Allison does not expect to receive any Social Security retirement benefits. Calculate Allison’s annual retirement needs in today’s dollars.               

Allison, age 40, earns $95,000 annually; her wage replacement ratio has been determined to be 70%. She expects inflation will average 3% over her entire life expectancy. She expects to work until 67, and live until 95. She anticipates a 7.5% return on her investments. Allison does not expect to receive any Social Security retirement benefits.

 

Calculate Allison’s capital needed at retirement age 67.          

Allison, age 40, earns $95,000 annually; her wage replacement ratio has been determined to be 70%. She expects inflation will average 3% over her entire life expectancy. She expects to work until 67, and live until 95. She anticipates a 7.5% return on her investments. Allison does not expect to receive any Social Security retirement benefits.

 

What is the amount of Allison’s first retirement distribution at age 67?           

All of the following are true with regards to retirement planning EXCEPT:                 

David is 30 years old and spends $75 per week on groceries. If inflation averages 3% per year, how much will David spend on the same groceries when he is 65?             

Jordan is 55 and wants to retire in 12 years. His family has a history of living well into their 90s. Therefore, he estimates that he will live to age 97. He currently has a salary of $100,000 and expects that he will need about 82% of that amount annually if he were retired. He can earn 9 percent in his portfolio and expects inflation to be 3 percent. Jordan currently has $325,000 invested for his retirement. His Social Security retirement benefit in today’s dollars is $30,000 per year at normal age retirement of age 67. How much does he need to save each year at year end to meet his retirement goals?             

Stacy, a self-employed accountant, currently earns $100,000 annually. Stacy has been able to save 18% of her annual Schedule C net income. Assume that Stacy paid $11,000 in Social Security taxes, and that she plans to pay off her mortgage at retirement, thereby relieving her of her only debt. Stacy presently pays $1,500 per month toward the mortgage. Based on the information provided herein, what do you expect Stacy’s wage replacement ratio to be at retirement?               

Which of the following expenditures will most likely decrease during retirement?                 

Which of the following statements regarding retirement analysis is correct?              

 

 

All of the following are commonly thought of as methods of saving for retirement EXCEPT

 

the traditional deductible IRA

 

the Roth IRA

 

a section 529 plan

 

a section 401(k) plan             

For individuals less than 50 years old, the combined total amount that may be contributed to all 401k and 403b plans in 2017 is

 

$1000

 

$3350

 

$5500

 

$18000           

For individuals less than 50 years old, the total amount that may be contributed to all IRAs in 2017 is

 

$1,000

 

$3350

 

$5500

 

$18000           

For individuals less than 55 years old, the combined total amount (employer plus employee contributions) that may be contributed to all HSA accounts in 2017 is

 

$1000

 

$3350

 

$3400

 

$5500            

Which retirement needs analysis method requires an individual to accumulate the most amount of capital?

 

Annuity method

 

Capital preservation method

 

Purchasing power preservation method

 

They are different techniques that make use of different factors, but arrive at the same amount of capital needed at retirement.                

          Your 25 year old client is just starting to save for retirement. What is an adequate estimated savings rate?

 

5%

 

10%

 

15%

 

20%              

 

 

Meg and Hank have a son, Roy, who is severely disabled and will need assistance with custodial care for the remainder of his life. They own a successful business and would like to set aside $1,000,000 to provide for his quality of life needs without causing the loss of any government benefits to which Roy is entitled. Which of the following is the most appropriate recommendation for meeting their needs?             

Annie and Sam were married for 20 years when Annie met and fell madly in love with Armando. Annie is currently in the process of divorcing Sam so that she can quickly marry her new love. Which of the following is NOT proper advice for Annie?                 

Which of the following is/are financial planning recommendations for individuals diagnosed with a terminal illness?                   

Which of the following is not among the recommended actions for divorcing clients?           

Which of the following is not a special planning needs situation?                 

Which of the following is the best recommendation for a 40-year-old single mom who has two young children and who is terminally ill?              

Which of the following statements regarding Achieving a Better Life Experience (ABLE) accounts is correct?              

Which of the following statements regarding planning for a job loss or job change is NOT correct?              

 

 

Which of the following activities is most likely be considered financial planning by the CFP Board?               

Which of the following principles from the Code of Ethics ensures that information is accessible only to those authorized to have access.                

 

 

A.J. leaves his garage door open during the day because he knows he has property insurance and he is lazy. One day someone steals his new truck from his garage. Leaving the garage door open is an example of:                  

All of the following are treated as assets of the parent for financial aid, except?

Selected Answer:

 

a. 529 Savings Plan.

b. Prepaid Tuition.

c. Coverdell ESA.

d. UGMA.                 

All of the following statements concerning educational fund 529 Savings Plans are correct EXCEPT:

 

a. Contributions are recognized on a five year pro rata basis.

b. Earnings grow on a tax deferred basis, unless used for qualified education expenses, and then distributions are tax free.

c. The primary benefit of a 529 Savings plan is the state income tax deduction for contributions.

d. Earnings are included in gross income and a 10% penalty is assessed if distributions are not used for qualified education expenses.              

All of the following statements concerning educational funding is correct EXCEPT:

 

a. A student must submit a FAFSA (Free Application for Federal Student Aid) form to become eligible for federal financial aid.

b. The EFC (Expected Family Contribution) is a formula that indicates how much of a student’s family’s resources ought to be available to assist in paying for the student’s college education.

c. Factors used in calculating the EFC include taxable and nontaxable income, assets, retirement funds, and benefits, such as unemployment and Social Security.

d. A common method of reducing a family’s EFC is creating a trust for the parents and increasing the family’s estate.                   

As a general rule, everyone needs life insurance sufficient to replace future income, regardless of whether they have dependents.              

Conditions that increase either the frequency or severity of loss are called:               

A contract for variable life insurance may be characterized as a/an:

1. Unilateral contract.

2. Aleatory contract.

3. Conditional contract.

4. Contract of adhesion.                   

A financial planner will generally attempt to transfer or shift all risks for a client.                  

In order to have an insurable risk, all of the following must be present except?

 

 

a. The loss must be measurable.

b. The loss must be accidental from the insured’s point of view.

c. The loss cannot be catastrophic to the insured.

d. The loss must be from a covered exposure.           

Loss severity is the expected number of losses that will occur within a given period of time while loss frequency refers to the potential size or financial damage of a loss.                

Nancy owns a home and an automobile. She has property insurance, but does not have disability insurance through her employer. She does not know that much about disability, except that a friend of hers told her that she needed to acquire it. Which of the following are important elements of a disability policy?

 

a. The definition of disability.

b. Coverage for sickness and accidents.

c. The elimination period.

d. All of the above.               

Pure risk is the chance of a loss or no loss occurring, but with pure risk there is no chance of experiencing a gain.                   

Regarding the characteristics of insurance, which of the following is/ are fundamental?

1. Probability (possibility and predictability of a loss).

2. Law of large numbers.

3. Transfer of risk from individual to group.

4. Only pure risk is insurable.             

Steven, age 43, earns $80,000 annually; and his wage replacement ratio has been determined to be 80%. He expects inflation will average 3% for his entire life expectancy. He expects to work until 68, and live until 90. He anticipates an 8% return on his investments. Additionally, Social Security Administration has notified him that his annual retirement benefit, in today’s dollars will be $26,000. Using the purchasing power preservation model, calculate how much capital Steven needs, in order to retire at 68.               

          Which of the following statements, if any, is (are) correct?

1. Aside from risk tolerance, the time horizon is one of the most important factors to consider when deciding in which securities to invest, and how much and when to invest.

2. QTPs generally require a decrease in the risk level of investments, the closer the student/beneficiary gets to the beginning of college.             

 

 

All of the following are qualified education expenses for the Lifetime Learning Credit and American Opportunity Credit, except:

A. Tuition and Fees.

B. Books and Supplies.

C. Equipment.

D. Room and Board.              

All of the following statements are true, except:

A. The American Opportunity Tax Credit is only available for the first four years of postsecondary

education.

B. The Lifetime Learning Credit is only available for the first two years of post- secondary education.

C. The American Opportunity Tax Credit is awarded on a per student basis.

D. The Lifetime Learning Credit is awarded on a per family basis.                  

Amita has 4 children ages 1, 3, 5, and 7. The current cost of college is $25,000 per year. The children will begin college at age 18 and be in college for 4 years. Education inflation is expected to be 6% and the parents' portfolio rate of return is 8%. How much does Amita have to save annually at year end through the education of the youngest child to pay all college costs?

A. $17,418.31.

B. $29,381.57.

C. $29,921.11.

D. $30,526.52.             

Kim and Nick are planning to save for their daughter Chloe's college education. Chloe was born today and will attend college for 4 years, starting at age 18. Tuition currently costs $15,000 per year and tuition inflation is expected to be 6%. They believe they can earn 9% on their investments. How much must Kim and Nick save at the beginning of each year (first payment will be made today), if they want to make their last savings payment at the beginning of Chloe's last year of college?

A. $3,384.54

B. $3,869.03.

C. $3,892.07.

D. $3,978.53.              

Lanie is a single mom who has 3 children, ages 1, 5 and 9. While she is struggling a bit, she would like to pay for half of their education at a public college. Her children will go to college at age 18 and be in college for 4 years. The annual cost of education is currently $20,000 and has been increasing at 6% and is expected to continue. Her portfolio that was established for education has $25,000 in it and earns an average rate of return of 8%. If she would like to fund half of four years of college for each of the children, how much must she save each year at the end of the year, for the next nine years (round to the nearest $100)?

A. $9,400.

B. $10,700.

C. $12,300.

D. $15,800.                

Peter wants to save some money for his daughter Gwen's education. Tuition costs $12,500 per year in today's dollars. His daughter was born today and will go to school starting at age 18. She will go to school for 4 years. Peter can earn 11% on his investments and tuition inflation is 7%. How much must Peter save at the end of each year, if he wants to make his last savings payment at the beginning of his daughter's last year of college?

A. $2,694.56.

B. $2,789.04.

C. $3,029.53.

D. $3,176.43.              

Reba's son, Chad, is a freshman at Tulane University with tuition of $30,000 per year. Reba's AGI is $45,000. She takes a withdrawal of $20,000 from her 529 Savings Plan and pays the remaining $10,000 in tuition out of her checking account. Which of the following would you recommend?

A. Take a Lifetime Learning Credit of $2,000.

B. Take an American Opportunity Tax Credit (AOTC) of $2,500.

C. Cannot take AOTC or Lifetime Learning Credit because she took a 529 distribution.

D. Take AOTC and Lifetime Learning Credit totaling $4,500 ($2,000 + $2,500).             

Roshan is a freshman at Florida State University where his tuition is $4,000. Shante, his older sister, is a graduate student at Expensive University, where tuition is $25,000. What is the maximum tax credit Roshan and Shante's parents can take?

A. $2,000.

B. $3,650.

C. $3,800.

D. $4,500.                 

What is the present value of the cost of college education for 4 children ages 1, 3, 5, and 7. The current cost of college is $25,000. The children will begin college at age 18 and be in college for 4 years. Education inflation is expected to be 6% and the parents portfolio rate of return is 8%.

A. $294,000.

B. $295,000.

C. $299,714.

D. $305,000.               

Which of the following types of aid is not need based?          

          Which one of the following statements is wrong?

A. A student must submit a FAFSA (Free Application for Federal Student Aid) form to be eligible to receive federal financial aid.

B. The four repayment plans for a Stafford loan are: standard repayment, extended repayment, graduated repayment, and income based repayment.

C. Factors used in calculation the EFC include taxable and nontaxable income, assets, retirement funds, and benefits, such as unemployment and Social Security.

D. PLUS (Parent Loan for Undergraduate Students) loans are for parents to borrow to help pay for a dependent's undergraduate education expenses, and are based on financial need.            

 

 

All of the following are essential legal documents used in estate planning except:

A durable power of attorney for health care

A will

An advance medical directive

A side instruction letter          

Although he has amassed a vast fortune, Rudolf has decided not to prepare an estate plan because he believes that his surviving family members will divide up his assets appropriately. Which of the following is not a risk associated with failing to plan an estate?            

An automobile in a state with an automobile titling law will pass from a decedent to his heir / legatee according to:                   

Bill, who is single, sells his personal residence to move from Atlanta to Chicago due to being transferred by his employer. He has owned and used the house for 18 months. The sale price is $460,000, selling expenses are $25,000 and his adjustable taxable basis is $180,000. What, if any, is Bill’s taxable gain?          

Billy is a frugal old coot who refuses to spend any money creating an estate plan even though he has substantial assets. He has heard that he can just write his own will and sign it and it will be effective. What is he referring to?                   

Bubba owns Bubba’s Big Burritos (BBB) and works there every day as well. BBB is an S corporation and Bubba receives a W-2 and a K-1 every year. What type of income does Bubba have from BBB?                   

Darian owns Special Notecards, an S corporation. Which of the following is correct regarding Darian’s S corporation?                   

Each of the following is a characteristic of a sole proprietorship EXCEPT:                  

Georgia just died from a terrible bus accident. She was only 34 years old and had two children under six. Under which of the following circumstances would she be considered to have died intestate?          

Mara and Josh have two sons, Heni, age 17, and Cody, age 14. Cody was born with a genetic condition that will require continual medical and custodial care throughout his lifetime. Mara’s parents would like to make a gift of $30,000 to each of the boys, to assist with Heni’s college expenses and with Cody’s care and other expenses. Which of the following statements are true regarding the gifts?

1. If the gift to Heni is made to a Sec. 529 Qualified Tuition plan, and Heni gets a scholarship and does not need all of the money in the plan, it can be rolled to an ABLE account for Cody (up to the dollar limit for ABLE account contributions).

2. If the gift to Cody is made to an ABLE account (over a 2-year period), the money can be distributed to pay for Cody’s disability-related expenses and will be taxable income to Cody.

3. If the gift to Cody is made to an ABLE account (over a 2-year period), Cody’s government benefits for SSI and Medicaid will not be impacted           

Mike recently prepared a last will and testament in which he left all his assets to his girlfriend, Shannon. Mike and Shannon broke up last night and now Mike wants to leave all his worldly possessions to his best friend, Gerry.

What can Mike do to prevent Shannon from receiving any of his assets?                 

A minority non-employee shareholder in an S corporation:

1. Receives a distribution when the corporation declares a dividend.

2. Votes for the Board of Directors at the annual shareholders’ meeting.

3. Receives a K-1 annually in order to prepare a personal income tax return.

4. Reports on a personal income tax return a pro-rata share of corporate profits or losses                

Olessa, single and age 60, sold her home for $540,000 after living there for 20 years. Her selling expenses were $10,000 and her adjusted basis in that home was $220,000. What is the maximum gain that Olessa must report in connection with the sale of her principal residence?              

On June 2, Ashley purchased 100 shares of stock for $10,000. When it was worth $20,000, on December 25 of the same year, she gifted all the stock to her nephew, Richard. Richard sold the stock on the following October 15th, for its fair market value of $25,000. What is Richard’s tax consequence?              

Sonny is a lawyer, who practices as a sole practitioner and files a Schedule C. He has been successful in commercial litigation and had gross income of $350,000. His expenses include employee salaries of $125,000, rent of $50,000, utilities and other expenses of $75,000, and self-employment taxes of $20,000 (assumed). What is the most that Sonny could contribute to a SEP for the current year?            

A spendthrift clause in a trust does which of the following?              

Trusts can be very beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a person with special needs. Which of the following types of trusts would generally be used to protect a judgment from a lawsuit, on behalf of a child with special needs?           

The U.S. Constitution has been called the greatest document on the planet. It states “The Congress shall have the power to lay and collect taxes on income, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.” When was this amendment added to the Constitution?                   

Which, if any, of the following statements is (are) correct?

1. Excess distributed income over reasonable compensation is treated as self-employment income in an LLC taxed as a partnership, for an LLC manager.

2. Excess distributed income over reasonable compensation is treated as dividend income in an S corporation.           

Which, if any, of the following statements is (are) correct?

1. In order to form a partnership, there must be two individuals.

2. In order to form an LLC, there must be two individuals.                 

Which, if any, of the following statements is (are) correct (assuming no withholdings or estimated payments)?

1. Refundable tax credits can generate a tax refund.

2. Nonrefundable tax credits can generate a tax refund.                   

Which of the following entities does not have limited liability?

S corporation

LLC taxed as a disregarded entity

General partnership

C corporation            

Which of the following entities has limited liability, flow through of income, and flexibility regarding allocation of income and loss?                 

Which of the following entities might file a Form 1065?

1. Partnership

2. LLC

3. S corporation                   

Which of the following is not one of the three types of income in the U.S.?

Passive income

Active or Ordinary income

Deferred income

Portfolio income                   

Which of the following statements, if any, represents a benefit of the probate process?

1. The cost of probate is generally not very high, depending on the jurisdiction.

2. The probate process results in clear title passing to the legatees               

Which of the following statements is / are correct?

A power of attorney is a power to act by an agent for the benefit of a principal.

A power of appointment is the power to appoint someone to act for the principal.               

Your client, Samantha, died testate last week. At her death she had the following property interests:

a. 1/2 of the home that she owns with her husband as community property.

b. 1/3 of the vacation home that she owns with her two sisters as tenants in common.

c. An empty lot that she alone owns.

d. 1/3 of her late parents’ home, which she owns with her two sisters as joint tenants with right of survivorship.

Which property interest will not pass through her probate estate?                

Your client, who is wealthy and in the top marginal income tax bracket, is interested in purchasing a franchise with some of his friends. After carefully reviewing the proposal, you have determined that apart from a large up-front investment, the business will not need to retain income and income generated in future years will be paid out to the investors. Further, your client wants to be assured that after investing so large an amount, the business would not be disrupted if one of his partners lost interest, encountered personal financial reversals or died.

What legal form of business meets the requirements of your client given these circumstances?          

 

 

Mrs. Escovido has come to you for advice on financing her son's college education at a state university. Even though her income exceeds $200,000, she has not saved enough for his college expenses. You advise her that her best opportunity to acquire education funds would be through:

 

a. Pell grants

b. Subsidized Stafford Student Loans

c. Supplemental education opportunity grants

d. Parent loans for undergraduate students (PLUS)                

The student loan interest deduction is not an above the line deduction.                  

 

 

All of the following are advantages to investing in open end investment companies except:

 

They offer an easy and economical method of diversifying a portfolio.

They trade at a premium or discount to their net asset value.

They offer a low cost method of investing.

The returns are typically higher than the average investor's returns.              

All of the following are examples of qualitative information that should be collected by the financial planner EXCEPT:                   

All of the following are true regarding EE Savings Bonds used for education expenses except?

 

Parents must own the bonds.

The bonds must be used in the year in which qualified education expenses are incurred.

Interest income may be tax exempt.

The child must be under age 24.                  

All of the following statements regarding NPV are true EXCEPT:                   

Andy borrowed $800 from his father to purchase a mountain bike. Andy paid back $1,175.20 to his father at the end of 5 years. What was the average annual compound rate of interest on Andy's loan from his father? Express the answer as a whole number. (ie 3 instead of .03 or 3%)           

Anthony has been investing $1,000 at the end of each year for the past 15 years. How much has accumulated assuming he has earned 10.5% compounded annually on his investment?                

Anthony has been investing $1,000 at the end of each year for the past 15 years. How much has accumulated assuming he has earned 11.5% compounded annually on his investment?

 

 

$31,772.48

$33,060.04

$34,405.36

$35,811.02                

________ are issued by firms to raise capital to fund ongoing operations, retire debt, fund capital projects or acquisitions.

 

Corporate Bonds

Revenue Bonds

Zero Coupon Bonds

Municipal Bonds                  

As a financial advisor, what will you tell your client, Bill, he should be willing to pay for an investment property, given the following cash flows and the fact that he expects 10% on any investment he makes?

Today

?

Year 1

$ (10,000)

Year 2

$ 35,000

Year 3

$ 35,000

Year 4

$ 220,000                 

As a financial advisor, what will you tell your client, Ryan, he should be willing to pay for an investment property, given the following cash flows and the fact that he expects 11% on any investment he makes?

 

 

 

 

Today

?

Year 1

$ (10,000)

Year 2

$ 35,000

Year 3

$ 35,000

Year 4

$ 220,000                 

As a financial advisor, what will you tell your client, Ryan, he should be willing to pay for an investment property that he plans to buy today and hold for 5 years and then sell, given the following cash flows and the fact that he expects 9% on any investment he makes?Inflows Outflows Net

Initial Outlay $0

Year 1 $45,000(Inflow) $55,000(Outflow) -$10,000

(Net)

Year 2 $55,000(Inflow) $20,000(Outflow) $35,000(Net)

Year 3 $55,000(Inflow) $20,000(Outflow) $35,000(Net)

Year 4 $255,000(Inflow) $35,000(Outflow) $220,000(Net)

 

 

$189,910.29.

$196,393.69

$203,164.46

$210,238.30               

Ashley began saving $5,000 per year from age 25 to age 35 (ten years) and then invested the funds for another 30 years. Teeto began saving at age 35 and saved $5,000 each year until he retired at age 65 (30 years). Which of the following statements is correct assuming they invested their funds at 4 percent?

 

 

Ashley and Teeto will have the same amount of money accumulated at age 65.

 

Ashley will have 44% more accumulated than Teeto at age 65.

 

Teeto will have 69% more than Ashley at age 65.

 

Teeto will have 44% more than Ashley at age 65.                  

The balance sheet equation is:

 

a. Total Assets ÷ Total Liabilities = Net Worth.

b. Total Assets x Total Liabilities = Net Worth.

Correct

c. Total Assets - Total Liabilities = Net Worth.

d. Total Assets + Total Liabilities = Net Worth.           

Behavioral investors have been characterized as those who tend to choose portfolios by evaluation and

decisions based on expected wealth, desire for security, aspiration levels, and probabilities of aspiration

levels.            

Betty wants to know the probability that her investment in HighFlier, Inc. will generate a return less than zero. The investment has a mean return of 6% and a standard deviation of 3%. Based on a normal distribution curve you correctly inform her that:

 

There is a 2.5% probability of a negative return.

There is a 5% probability of a negative return.

There is a 10% probability of a negative return.

There is a 34% probability of a negative return.          

Billy owns one share of Disney stock. He purchased the share 3 years ago for $15. Disney stock is currently trading for $25 per share. The stock has paid the following dividends over the past three years: year 1, $1.00; year 2, $2.00; year 3, $3.00.

 

 

What is the compounded rate of return (IRR) that Billy has earned on his investment?           

Billy owns one share of Disney stock. He purchased the share 3 years ago for $15. Disney stock is currently trading for $30 per share. The stock has paid the following dividends over the past three years: year 1, $1.00; year 2, $2.00; year 3, $3.00.What is the compounded rate of return (IRR) that Billy has earned on his investment?

 

 

21.5%

29.06%

35.79%

41.89%           

The blackout period refers to the period of time immediately following the death of the breadwinner.           

Bob and his wife Sally recently opened an investment account with the intention of saving enough to purchase the house of their dreams. Their goal is to have $45,000 down in 5 years. Their account will guarantee them a return of 8% compounded annually. How much do they need to put into the account right now to reach their objective?                

Bob and his wife Sally recently opened an investment account with the intention of saving enough to purchase the house of their dreams. Their goal is to have 55,000 down in 5 years. Their account will guarantee them a return of 9% compounded annually. How much do they need to put into the account right now to reach their objective?

 

 

$30,014.94.

$23,840.41.

$26,033.47.

$35,746.23.                

Bob wants to accumulate wealth, but he has told you that he is risk-averse. Which of the following is the first action he should take to achieve his goal of accumulating wealth?

 

He should invest in products which bring the highest expected return.

The first step is to develop an investment policy statement to more accurately determine his goals before advising where to invest.

Put his assets in 100% cash equivalents because he told you he is risk-averse.

First determine his risk tolerance to assess his ability and willingness to accept risk.              

Bob wants to accumulate wealth, but he has told you that he is risk-averse. Which of the following is the first action he should take to achieve his goal of accumulating wealth?

 

He should invest in products which bring the highest expected return.

 

The first step is to develop an investment policy statement to more accurately determine his goals before advising where to invest.

 

Put Tom's assets in 100% cash equivalents because he told you he is risk-averse.

 

First determine Tom's risk tolerance to assess his ability and willingness to accept risk.          

Bob worked for the City of Philadelphia last year. The money he earned as salary is considered what kind of income?                   

Brandon buys a piece of equipment for $15,000. He pays $5,000 for upgrades in year 1 and the equipment generates $2,000 in cash flow for year 1. In year 2 the equipment generates $8,000, year 3 it generates $4,000, but Brandon sells it for $6,000 but also pays a $500 commission. Assume a required rate of return of 6%. What is the NPV?

 

 

-3,377.66

-3,061.40

-2,733.83

-2,394.45                  

Brandon wants to accumulate $57,000 in 8 years to purchase a boat. He expects an annual rate of return of 10% compounded annually. How much does Brandon need to invest today to meet his goal?                 

Brea is looking for an insurance policy for her car. Her friend, Justin, who is an attorney, just told her that the policy is a contract and has some unique characteristics. Which of the following terms applies to the insurance contract? 1. Unilateral.2. Aleatory.3. Adhesive.

 

1 and 2.

2 only.

2 and 3.

1, 2 and 3.                

Brea is looking for an insurance policy for her car. Her friend, Justin, who is an attorney, just told her that the policy is a contract and has some unique characteristics. Which of the following terms applies to the insurance contract?

1. Unilateral.

2. Aleatory.

3. Adhesive.

 

1 and 2

2 only

2 and 3

All of the above                   

Caitlin Jones wants to accumulate wealth, but she has told you, her new financial planner, that she is risk averse. What should you do with her money?

 

Invest in products that bring the highest return regardless of risk.

 

Invest in products that produce high income because fixed income products are generally low risk.

 

Put her assets in 100% cash equivalents because she is risk averse.

 

Determine her true risk tolerance.                 

Calculate the IRR of a machine that is purchased for $5,000, sold at the end of year 5 for $2,500, and produces the following cash flows:

o Year 1: $700.

o Year 2: $800.

o Year 3: $900.

o Year 4:$1,000.          

Calculate the IRR of a machine that is purchased for $5,500, sold at the end of year 4 for $2,500, and produces the following cash flows:

o Year 1: $700.

o Year 2: $800.

o Year 3: $900.

o Year 4:$1,000.

 

 

5.3%.

3.72%

2.21%

-0.52%           

Calculate the NPV of a machine that is purchased for $5,000, sold at the end of year 4 for $2,500, and produces the following cash flows:o Year 1: $700o Year 2: $800o Year 3: $900o Year 4: $1,000Assuming that the appropriate discount rate is 5%, what is the NPV?

 

 

-$99.64.

-$26.02

$49.20

$11.39            

Calculate the NPV of a machine that is purchased for $5,000, sold at the end of year 4 for $2,500, and produces the following cash flows:

o Year 1: $700

o Year 2: $800

o Year 3: $900

o Year 4: $1,000

Assuming that the appropriate discount rate is 6%, what is the NPV?             

Cindy invests $18,000 in a limited partnership today. At the end of each years 1 through 5, she will receive the after-tax cash flows shown below. The partnership will be liquidated at the end of the fifth year. Cindy is in the 35% federal income bracket. Years Cash Flows0 - $18,0001 $02 $4,0003 $6,0004 $8,0005 $10,000 The after-tax IRR on this investment is:            

Cindy invests $20,000 in a limited partnership today. At the end of each years 1 through 5, she will receive the after-tax cash flows shown below. The partnership will be liquidated at the end of the fifth year. Cindy is in the 35% federal income bracket.

 

Years Cash Flows

0 - $20,000

1 $0

2 $4,000

3 $6,000

4 $8,000

5 $10,000                 

A client, Jan, age 35, came into your office today. She provides the you with the following information for the upcoming year:

- Income = $100,000

- Principal and interest payments on home mortgage = $22,000

- Homeowners Insurance = $1,500

- Property Taxes = $7,000

- Living expenses = $30,000- Credit card debt payments = $10,000

- Savings = $5000- Student Loan Payments = $4,000

- Car Payment = $4,000 When considering the targeted benchmarks, which of the following statements should you make during the next meeting?

 

Both the basic and broad housing ratio are within the normal range.

Both the basic and broad housing ratio are outside the normal range.

The basic housing ratio is within the normal range, but the broad housing ratio is not.

The broad housing ratio is within the normal range, buth the basic housing ratio is not.                  

A client owns one share of Walmart. She purchased the share 3 years ago for $18. Walmart stock is currently trading for $23 per share. The stock has paid the following dividends over the past three years: year 1, $1.00; year 2, $2.00; year 3, $3.00. What is the compounded rate of return (IRR) that she has earned on her investment?             

Colin is trying to decide whether he should make his IRA contribution at the beginning of the year or at the end of the year. He wants to save $5,000 per year for 25 years in his IRA that can earn 7% per year. What would be the difference in his account value if he made the payments at the beginning of each year rather than at the end?                 

David won the lottery. He can take a single lump sum payout of $10 million dollars or receive $750,000 per year for the next 25 years. What rate of return would David need to break even if he took the lump sum amount instead of the annuity?              

David won the lottery. He can take a single lump sum payout of $11 million dollars or receive $750,000 per year for the next 25 years. What rate of return would David need to break even if he took the lump sum amount instead of the annuity?

 

 

5.56%.

4.6%.

3.77%.

3.04%.            

Doris purchased a zero‐coupon bond 5 years ago for $675.68. If the bond matures today and the face value is $1,000, what is the average annual compound rate of return (calculated semiannually) that Kathy realized on her investment? Express the answer as a whole number.(ie 3 rather than .03 or 3%)               

During your meeting with Jeff, you provide him with three education savings plans to choose from.              

During your meeting with your client, Hayden Doyle, you recommended he purchase a personal liability umbrella policy (PLUP). Which part of the financial planning process were you engaged in?

 

 

Implementing the Financial Planning Recommendations.

Presenting the Financial Planning Recommendations.

Identifying and Selecting Goals.

Monitoring Progress and Updating.               

DWI has just paid an annual dividend of $2 per share, which is expected to grow at 5% indefinitely. If your client's required rate of return to meet her retirement goals is 12%, what is the intrinsic value of the stock using the constant growth dividend discount model?

 

$23.43.

$26.00.

$28.57.

$30.00.           

Emily is considering purchasing a new home for $400,000. She intends to put 20% down and finance $320,000, but is unsure which financing option to select. Emily is considering the following options:o Option 1: Fixed rate mortgage over 30 years at 7% interest, zero points, oro Option 2: Fixed rate mortgage over 30 years at 4% interest, plus two discount points.How long would her financial planner recommend that she live in the house to break even using Option 2 presuming she is not financing the points?

 

 

16.4

10.7

7.8

6.1                

Estate planning is the processof accumulation, management, conservation, and transfer of wealth considering legal, tax, and personal objectives              

The estimated value of a real estate asset in a financial statement should be based upon the:           

An example of morale hazard is not locking the doors of your home when you are out of town for two weeks because you have insurance, while an example of moral hazard is burning down your house to collect insurance.

 

True

False             

A fixed income security whose price has fallen as a result of an increase in interest rates in the market place is said to be subject to:

 

Interest Rate Risk.

Reinvestment Rate Risk.

Purchasing Power Risk.

Exchange Rate Risk.              

A fixed income security whose price has fallen as a result of an increase in interest rates in the market place is said to be subject to:

 

Interest Rate Risk.

Reinvestment Rate Risk.

Purchasing Power Risk.

Exchange Rate Risk.              

The following set of newly issued debt instruments was purchased for a portfolio:o Treasury bond.o Zero-coupon bond.o Corporate bond.o Municipal bond.The respective maturities of these investments are approximately equivalent. Which one of the investments in the portfolio would be subject to the greatest relative amount of price volatility if interest rates were to change quickly?

 

Treasury bond.

Zero-coupon bond.

Corporate bond.

Municipal bond.                   

For valuation purposes, balance sheet liabilities should be recorded at their:             

Given a standard deviation of 7% and a mean of 11%, what is the range for 95% of possible results?

 

-5% to 31%

4% to 22%

-14% to 40%

-3% to 25%               

Homer has been investing $3,000 at the beginning of each year for the past 16 years. How much has accumulated assuming he has earned 8% compounded annually on his investment?          

James, age 30, is planning to retire at age 65. Based on the results of James' risk tolerance questionnaire, he is an aggressive investor, with a primary objective of growth in his retirement assets. Generally, which of the following asset allocation strategies is most appropriate for James' retirement investments?

 

50% Equities and 50% Bonds.

70% Bonds and 30% Equities.

80% Equities and 20% Bonds.

100% Equities and 0% Bonds.            

James is a PhD student at Texas A&M University where his tuition is $14,000. Karen, his younger sister, is a graduate student at Texas Christian University, where tuition is $59,370. What is the maximum tax credit their parents can take?

 

2,000

4,500

5,000

5,500             

Janice is a nurse in the critical care department. She has property insurance, but does not have disability insurance through the hospital. She does not know that much about disability, except that a friend of hers told her that she needed to acquire it. Which of the following statements is correct?

 

Any occupation is the better choice for coverage than own occupation.

The elimination period is the period after the policy stops paying benefits.

A guaranteed renewable feature of a policy obligates the insurer to continue coverage as longas premiums are paid on the policy.

All of the above.                  

Jan wants to plan for her daughter's education. Her daughter, Rachel was born today and will go to college at age 18 for five years. Tuition is currently $15,500 per year, in today's dollars. Jan anticipates tuition inflation of 6% and believes she can earn an 10% return on her investment. How much must Jan save at the end of each year, if she wants to make her last payment at the beginning of her daughter's first year of college?

 

$4,009.13

$7,334.72

$3,882.03

$4,511.00                  

Jason purchased $60,000 worth of silver coins 8 years ago. The coins have appreciated 8% compounded annually over the last 8 years. How much are the coins worth today?              

Jason purchased a mutual fund at NAV of $40.00 and it was redeemed 8 months later at $42.00. During the time he owned the fund, he received a capital gains distribution of $2.00/share. What is his holding period return?

 

10%.

10.5%.

11%.

11.5%.            

Jason purchased a mutual fund at NAV of $40.00 and it was redeemed 8 months later at $44.00. During the time he owned the fund, he received a capital gains distribution of $4.00/share. What is his holding period return?

 

18%.

17.5%.

20%.

22.5%.            

Jason purchased a new home for $200,000. He put $20,000 down from his checking account and financed the $180,000 balance. What is the impact of this transaction on his total assets?

 

His assets decrease by $20,000

His assets increase by $200,000

HIs assets decrease by $200,000

His assets increase by $180,000          

Jason received a check for $50,000 today. This was from an investment made 10 years ago. The investment earned 8% compounded quarterly. How much was his original investment?              

Jason received a check for $55,000 today. This was from an investment made 10 years ago. The investment earned 8% compounded quarterly. How much was his original investment?

 

 

$18,621.53.

$13,795.06.

$10,102.90.

$24,908.97.                

Jeff recently purchased a house for $350,000. He made a down payment of $50,000 and financed the balance over 30 years at 7%. If Jeff 's first payment is due on March 1st of the current year, how much interest expense will Jeff pay in the current year?                   

Jeff recently purchased a house for $350,000. He made a down payment of $50,000 and financed the balance over 30 years at 8%. If Jeff 's first payment is due on March 1st of the current year, how much interest expense will Jeff pay in the current year?                   

Jill has the following annual returns for an investment she made:Year 1: 10%, Year 2: (-4%), Year 3: 9%, Year 4: 16% What is the geometric mean for this investment?

 

7.50%

7.75%

7.91%

10.64%           

Jill would like to plan for her son's college education. She would like for her son, who was born today, to attend college for 5 years, beginning at age 18. Tuition is currently $14,000 per year and tuition inflation is 6%. Jill can earn an after-tax rate of return of 8%. How much must Jill save at the end of each year, if she wants to make the last payment at the beginning of her son's first year of college?

 

 

$3,672.29

$4,039.52

$4,773.98

$5,141.20                  

Jim buys a piece of equipment for $10,000. He pays $5,000 for upgrades in year 1 and the equipment generates $2,000 in cash flow for year 1. In year 2 the equipment generates $8,000, year 3 it generates $4,000, but Jim sells it for $6,000 but also pays a $500 commission. What is his IRR?            

Joann wants to save for her daughter's education. Tuition costs $10,000 per year in today's dollars. Her daughter was born today and will go to school starting at age 18. She will go to school for 4 years. She can earn 11% on her investments and tuition inflation is 6%. How much must she save at the end of each year if she wants to make her last savings payment at the beginning of her daughter's first year of college?

 

$1,889

$2,117

$2,370

$1,700            

Joey, injured in an automobile accident, won a judgment that provides him $1,500 at the end of each 6‐month period over the next 6 years. If the escrow account that holds Joey's settlement award earns an annual average rate of 12% compounded semiannually, how much was the defendant initially required to pay Joey to compensate him for his injuries?                   

John and Mary, both 44 years old, are married and have one child, age 10. They plan to pay for hiscollege at an in-state university from age 18 to 23 and they would like to retire at age 62. They have provided the following financial data.

Joint employment income $200,000

John's 401(k) plan contributions $16,500

Mary's IRA contributions $3,000

John's 401(k) plan employer match $5,000

Annual gifts from John's parents $10,000

Total Investment Assets $380,000

Total Cash and Cash Equivalents $100,000

 

From the goals and data given, which of the following statements is/are correct? (Do not make assumptions that are not stated)

1. John and Mary's investment assets to gross pay ratio is adequate for their age.

2. John and Mary's savings rate is appropriate for their goals.

 

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.                   

Judy recently purchased her first home for $220,000. She made a down payment of $20,000, and financed the balance over 15 years, at 6% interest. If Judy's first payment is due on October 31 of this year, approximately how much interest will she pay inthis year?

 

 

$2,073.47.

$2,989.67.

$3,288.63.

$1,979.77                  

Judy recently purchased her first home for $220,000. She made a down payment of $20,000, and financed the balance over 15 years, at 6% interest. If Judy's first payment is due on September 30 of this year, approximately how much of this year's payments will be applied to the outstanding principal?                 

The Keller's discovered that they could reduce their mortgage interest rate from 10% to 4%. The value of homes in their neighborhood has been increasing at the rate of 5% annually. If the Keller's were to refinance their house with $3,000 in closing costs added to their current mortgage balance ($277,000) over a period of time which coincides with their chosen retirement age in 20 years, what would be their new monthly payment including principal and interest?                  

The Keller's discovered that they could reduce their mortgage interest rate from 10% to 4%. The value of homes in their neighborhood has been increasing at the rate of 5% annually. If the Keller's were to refinance their house with $3,000 in closing costs added to their current mortgage balance ($297,000) over a period of time which coincides with their chosen retirement age in 20 years, what would be their new monthly payment including principal and interest?

 

 

$1,696.74

$1,817.94

$1,939.14

$2,060.33                  

The Keller's discovered that they could reduce their mortgage interest rate from 10% to 6%. The value of homes in their neighborhood has been increasing at the rate of 5% annually. If the Keller's were to refinance their house with $3,000 in closing costs added to their current mortgage balance ($277,000) over a period of time which coincides with their chosen retirement age in 20 years, what would be their new monthly payment including principal and interest?                  

Kevin owns one share of Acme, Inc. stock. He purchased the stock three years ago for $29. The stock is currently trading for $29.50 per share. The stock has paid the following dividends over the past three years.o Year 1: $1.50o Year 2: $2.00o Year 3: $2.50What is the compounded rate of return (IRR) that Kevin has earned on this investment?

 

 

13.11%

10.08%

7.35%

4.86%            

Lenny works at a hotel in accounting. He is planning on purchasing a home and has met with an insurance agent. However, he is really not clear about all the policies that they discussed. Which of the following statements is correct?

 

It is better to purchase a named peril homeowners policy.

PLUPs are generally inexpensive relative to the coverage they provide.

The rates on auto insurance are relatively uniform among the states.

It is important to get a homeowners policy that provides for contents protection equal to actual cash value.             

A limited power of appointment subject to an ascertainable standard results in inclusion of the assets subject to the power in the agent's gross estate.                

Lori, a self-employed pediatrician, currently earns $200,000 annually. Lori has been able to save 10% of her annual Schedule C net income. Assume that Lori paid $19,000 in social security taxes, and that she plans to pay off her mortgage at retirement, thereby relieving her of her only debt. Lori presently pays $4,333.33 per month toward the mortgage. Based on the information provided herein, what do you expect Lori's wage replacement ratio to be at retirement?

 

41.0%.

49.5%.

54.5%.

67.0%.            

Lorie wants to give her daughter $25,000 in 7 years to start her own business. How much should Lorie invest today, at an annual interest rate of 8%, compounded annually, to have $25,000 in 7 years?

 

 

$14,587.26

$13,506.72

$12,506.22

$11,579.84                

Lori wants to give her daughter $25,000 in 8 years to start her own business. How much should Lori invest today, at an annual interest rate of 8%, compounded annually, to have $25,000 in 8 years?                 

Lucy has decided to save for a vacation in 18 months. She will save the money into a short-term investment account returning 4% annually. How much will she have to put away at the beginning of each month if the vacation cost is $15,000?

 

 

$888.01

$807.28

$941.83

$861.10          

Luke has been dollar cost averaging in a mutual fund by investing $1,500 at the beginning of every quarter for the past 7 years. He earns an average annual compound return of 10% on this investment, compounded quarterly. How much is the fund worth today?           

Maggie plans to invest in a mutual fund using dollar‐cost averaging, which means she will buy a fixed dollar amount on a regular schedule, regardless of the share value. She will buy more shares when the value per share is down and fewer when value is up. She plans to invest a fixed amount at the end of every quarter and earn an average annual compound return of 16% compounded quarterly on this investment. How much will she need to invest at the end of each quarter to have $32,000 at the end of four years?                

Margaret, a 35-year-old client who earns $70,000 a year, pays 7.65% of her gross pay in Social Security payroll taxes, spends14% on a 30-year mortgage, and saves 8% of her annual gross income. Assume that Margaret wants to maintain her exact pre-retirement lifestyle. Calculate Margaret's wage replacement ratio using the top-down approach(round to the nearest %) and using pre-tax dollars.

 

70%

93%

84%

80%              

Marge has been dollar‐cost averaging in a mutual fund by investing 1,500 at the end of every quarter for the past 4 years. She has been earning an average annual compound return of 16% compounded quarterly on this investment. How much is the fund worth today?              

Mark is trying to decide whether he should make his IRA contribution at the beginning of the year or at the end of the year. He wants to save $5,000 per year for 25 years in his IRA that can earn 7% per year. What would be the difference in his account value if he made the payments at the beginning of each year rather than at the end?

$22,137.16

$14,348.42

$33,061.28

$48,382.91                

Max has been dollar cost averaging in a mutual fund by investing $1,500 at the beginning of every quarter for the past 5 years. He has been earning an average annual compound return of 10% compounded quarterly on this investment. How much is the fund worth today?

 

 

$37,174.98

$38,208.04.

$39,274.91

$40,376.784               

Michael has an investment with the following annual returns for four years. Year 1: 10%o Year 2: -3%o Year 3: 5%o Year 4: 11%What is the Arithmetic Mean (AM) and what is the Geometric Mean (GM)?

 

AM = 5.75%, GM = 7.91%.

AM = 5.75%, GM = 5.60%.

AM = 7.67%, GM = 7.91%.

AM = 7.67%, GM = 5.60%.                

Michael has been dollar cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 7 years. He earns an average annual compound return of 11% on this investment, compounded quarterly. How much is the fund worth today?              

Mike Smith has the following financial data.

Investment Assets at Year End $475,000

Investment Assets at Beginning of the Year $392,000

Savings Made During the Year by Mike $27,000

Employer Match to Mike's 401(k) Plan $5,000

Total Assets on Ending Statement of Financial Position $700,000

Gross Income on Income Statement $100,000

Total Assets on Beginning Statement of Financial Position $600,000

Total Liabilities at Beginning of the Year $200,000

Total Liabilities at Year End $180,000

What was Mike's Return on Net Worth for the year?

 

12.17.

22.00.

24.50.

30.00.            

Mike Smith has the following financial data.

Investment Assets at Year End $475,000

Investment Assets at Beginning of the Year $392,000

Savings Made During the Year by Mike $27,000

Employer Match to Mike's 401(k) Plan $5,000

Total Assets on Ending Statement of Financial Position $700,000

Gross Income on Income Statement $100,000

Total Assets on Beginning Statement of Financial Position $600,000

Total Liabilities at Beginning of the Year $200,000

Total Liabilities at Year End $180,000

What was Mike's ROA for the year?

 

11.33.

13.00.

14.84.

16.67.            

Mitt was injured by a bus called "Move Forward." He won a lawsuit and will receive $10,000 per month, at the beginning of each month, for the next 10 years. How much must "Move Forward" deposit into an account earning 5%, compounded monthly, to satisfy this judgment?             

Parker is a dog whisperer who has consulted with some of the most famous Hollywood stars and their canine friends. He issued an invoice on December 1st and received a check in the mail on December 30th. WHich of the following doctrines requires that he includes the income as taxable in the current year and not defer it to the following year?                   

Parker is a dog whisperer who has consulted with some of the most famous Hollywood stars and their canine friends. He was so successful that he sold his business to Dogs R Us, a publicly traded company. To keep Parker committed to the business, DOgs R Us issued him restricted stock. Which of the following doctrines requires that the restricted stock be taxable?                 

Proper and practical communication skills and techniques in financial counseling can aid the financial

planning advisor to understand:                   

Ralf, the insured, owns a home with a fireplace and a generator. He has stacks of wood and several 55-gallon drums of camping oil in his garage. He likes to go camping and leaves his home for several days at a time, often with a fire burning in his fireplace. In addition, he leaves his home unlocked. Which of the following hazards apply?

 

Physical hazard and moral hazard.

Morale hazard only.

Morale hazard and physical hazard.

Physical hazard only.              

Regarding the phase, "above the line," the line refers to taxable income                   

retirement plans with names beneficiary designations such as IRAs, SEPs, and SIMPLEs pass outside of the probate process.                   

Rob has just received a check for $30,000. This is a return from an investment that he made 18 years ago. He was told that the return was the equivalent of 12% per year. How much was his original investment?

 

 

$3,901.19.

$4,055.52.

$4,268.01 .

$4,006.25.                 

Rod is 40 years old and plans on retiring at age 62 and living until age 90. Assume that he currently earns $110,000 and his wage replacement ratio is 72 percent. Social Security will provide $20,000 (in today's dollars) in retirement benefits per year. Inflation is expected to be 3 percent and Rod can earn 6 percent return on his investments. Find the amount Rod will need to have saved by day one of retirement.

 

$1,993,230

$2,455,219

$2,004,516

$2,214,056                

Samantha has the following transactions:

o She purchases $5,000 worth of a mutual fund with cash from her savings account.

o She spends $6,000 on a vacation with cash from her money market account

o She spends $10,000 on new furniture, and uses her credit card to make the purchase. What is the combined impact of these transactions on her net worth?                   

Samantha recently purchased her first home for $220,000. She made a down payment of $20,000, and financed the balance over 15 years, at 6% interest. If Samantha's first payment is due on September 30 of this year, approximately how much interest will she pay in this year?              

Sarah is looking to buy a condo in 7 years for $325,000 in today's dollars. She can earn an 8% return on her investments and she expects inflation to be 2.5%. Taking into account inflation, what payment must she make at the end of the year to purchase the condo in full four years from today?

 

 

$70,956.80

$52,259.12

$39,474.38

$58,006.79                

Seth was born today. Harold and Maude Clark anticipate that Seth will begin college at age 18. College education expenses are $18,000 per year in today's dollars and are expected to increase at an annual rate of six percent. The Clarks can earn an after-tax annual return of 10 percent. How much should the Clarks deposit at the end of each year to pay for Seth's education. The last deposit will be made when Seth reaches his 18th birthday and he will attend college for four years.

 

$4,723

$5,926

$4,267

$2,436            

Seven years ago, Stan purchased 10 shares of an aggressive growth mutual fund at $90 per share, for a total of $900. Today he sold all 10 shares for $4,500. What was his average annual rate of return on this investment, before tax?                   

Seven years ago, Stan purchased 10 shares of an aggressive growth mutual fund at $90 per share, for a total of $900. Today he sold all 10 shares for $4,500. What was his average annual rate of return on this investment, before tax?

 

 

25.85%.

22.28%.

19.58%.

17.46%.          

Steven has an investment with the following annual returns for four years:

o Year 1: 9.5%

o Year 2: -3%

o Year 3: 5%

o Year 4: 11%

What is the Arithmetic Mean (AM) and what is the Geometric Mean (GM)?

 

AM = 5.75%, GM = 5.48%.

AM = 5.75%, GM = 6.21%.

AM = 5.63%, GM = 5.48%.

AM = 5.63%, GM = 6.21%.                

Susan's annual salary is $80,000. She contributes 10% of her salary to her 401(k) plan; and her employer contributes 5% of her salary to a profit sharing plan. She also contributes $2,500 per year to an IRA. What is Susan's approximate savings rate?             

Ted has been dollar cost averaging in a mutual fund by investing $1,500 at the beginning of every month for the past 5 years. He has been earning an average annual compound return of 9% compounded monthly on this investment. How much is the fund worth today?

 

 

$37,367.28.

$38,208.04.

$115,764.22

$113,984.73               

Ted has been dollar cost averaging in a mutual fund by investing $1,500 at the beginning of every quarter for the past 5 years. He has been earning an average annual compound return of 9% compounded quarterly on this investment. How much is the fund worth today?                  

Tiffany Evans, a medical doctor and prospective client, has come to your office for the first time. Which is the most appropriate way to greet her?

 

 

"Welcome to my office."

"Hi, Tiffany. Welcome to my office."

"Welcome to my office, Dr. Evans."

"Welcome to my office, Ms. Evans."               

Tim expects to receive $75,000 in 3 years. His opportunity cost is 16% compounded quarterly. What is this sum worth to Tim today?            

To avoid income shifting, the principle of the fruit and the tree requires that income is taxed to either the person who earns it or the person who owns the asset that produced the income               

Tony saved enough money to place $125,500 in an investment generating 10% compounded monthly. He wants to collect a monthly income of $1,350, at the beginning of each month, for as long as the money lasts. How many months will Tony have this income coming to him?

 

 

161

166

170

176               

Tracy purchased a car for $19,500. She is financing the purchase at an 11% annual interest rate, compounded monthly for 3 years. What is the payment that Tracy is required to make at the end of each month?              

Tracy purchased a car for $19,500. She is financing the purchase at an 13% annual interest rate, compounded monthly for 3 years. What is the payment that Tracy is required to make at the end of each month?

 

 

$629.21

$638.40

$647.68

$657.03          

What is Tracy and Brett's current ratio?

Tracy and Brett are married.

Their current assets: $10,243

Their current liabilities: $6,921

Their monthly nondiscretionary expenses: $4,693

Their annual combined income: $70,000

Their annual debt payments (excluding monthly housing costs): $22,084

 

0.7958.

1.3355.

1.480.

5.0387.           

What was Mike's ROA for the year? Mike Smith has the following financial data.

 

Investment Assets at Year End: $475,000

Investment Assets at Beginning of the Year: $392,000

Savings Made During the Year by Mike: $23,000

Employer Match to Mike's 401(k) Plan: $5,000

Total Assets on Ending Statement of Financial Position: $700,000

Gross Income on Income Statement: $100,000

Total Assets on Beginning Statement of Financial Position: $600,000

Total Liabilities at Beginning of the Year: $200,000

Total Liabilities at Year End: $180,000

 

11.33.

12.00.

14.84.

16.67.            

What was Mike's ROA for the year? Mike Smith has the following financial data.

 

Investment Assets at Year End: $475,000

Investment Assets at Beginning of the Year: $392,000

Savings Made During the Year by Mike: $27,000

Employer Match to Mike's 401(k) Plan: $5,000

Total Assets on Ending Statement of Financial Position: $700,000

Gross Income on Income Statement: $100,000

Total Assets on Beginning Statement of Financial Position: $600,000

Total Liabilities at Beginning of the Year: $200,000

Total Liabilities at Year End: $180,000

 

11.33.

13.00.

14.84.

16.67.            

Which of the following are Qualitative Factors associated with retirement? i. emotional and psychological factors ii. reduced ability to work iii. the decision to relocate iv. involuntary vs. voluntary retirement

 

i & ii

i, ii, iii, & iv

i, iii, & iv

ii & iv            

Which of the following best completes this sentence: There has been a movement in recent times for the

financial industry to be more in touch with _____________ due to their effect and persuasiveness in financial matters.

1. Capital Asset pricing.

 

2. Beta.

 

3. Psychology and sociology.             

Which of the following does not describe "anchoring?"

 

 

Attaching one's thoughts to a reference point even though there may be no logical relevance or is not pertinent to the issue in question.

Conservatism or belief perseverance.

Anchoring is fairly common in situations where decisions are being made that are repetitive and customary.

Anchoring is fairly common in situations where decisions are being made that are novel or new to the decision maker.                   

Which of the following do NOT apply to the use of questionnaires?              

Which of the following is an element that must exist before a risk is considered insurable?

 

Insured losses can only be intentional if the insured was not a part of the party inflicting the harm

The loss must not pose a catastrophic risk for the insured

A large number of similar exposure units must exist to help develop statistics for forecasting losses

All of the above                   

Which of the following is an example of morale hazard?

 

Driving recklessly with no care about damage

Burning a car on purpose

Filing a false disability claim

All of the above                   

Which of the following is/are most common sources of an individual's retirement income?

 

Social Security

Private Savings

Series EE Bonds

Both A and B            

Which of the following is consistent with the Disposition Effect?

 

 

Investors create mental accounts when they purchase stocks and continue to mark their value to the purchase price even after market prices have changed.

Investors acknowledge loss in value, referred to as the paper loss.

The normal investor considers the stock a loser if it dips in value.

The sale of the stock is irrelevant.                 

Which of the following is inconsistent with respect to the gambler's fallacy               

Which of the following is incorrect with respect to heuristics in the realm of financial advice?            

Which of the following is most likely to take place in the Analyzing the Client's Current Course of Action and Potential Alternative Courses of Action Step?               

Which of the following is not a methodology used to determine the amount of necessary life insurance?

 

The Human Life Value Method.

The Financial Needs Method.

The Ways and Means Method

The Capitalization of Earnings Method.          

Which of the following is not a response to a perceived risk?

 

Risk avoidance.

Risk reduction.

Risk retention.

Risk transmission.                 

Which of the following is not a way to calculate the amount of life insurance needed?

 

Term life insurance method

The capitalization of earnings method

The financial needs method

The human life value method            

Which of the following is not considered to be in line with the Developmental paradigm or school of thought?                

Which of the following is not one of the three key tax principles underlying personal income taxation?

The doctrine of constructive receipt

The doctrine of the fruit and the tree

All of the above are key tax principles underlying personal income taxation              

Which of the following is not one of the three separate and distinct tax systems that are relevant to financial planning?

The income tax system

The estate and gift tax system

The generation skipping transfer tax system              

Which of the following is probably the start of a closed question                 

Which of the following is true of 529 Savings Plans?

i. Distributions are federal and state income tax-free, as long as they are used for qualified education expenses

ii. There are phase outs for those in higher tax brackets

iii. Generally, states offer state income tax credits for those residents that contribute to their states 529 plan

iv. To avoid paying taxes on contributions, couples should contribute up to the annual gift tax exclusion amount

 

i, ii, iii, & iv

iv only

i, ii, & iii

i & iv             

Which of the following options best completes this sentence: "In the event that a client is trying to communicate a message that is not clear, then the advisor will want to ..."                

Which of the following statements are consistent with the Developmental Paradigm?

 

1. The majority of humanistic theories view clients as experts on themselves.

 

2. Much of the Developmental approach has its origin in and was influenced by Freudian

psychoanalytic theory.

 

3. Counseling in the Developmental Paradigm has an overall aspiration to recount or correct

earlier, disrupted development to foster change in the client or the client's behavior.             

Which of the following statements is / are correct?

1. For an income tax itemizer, medical expenses are fully deductible if prescribed by a doctor.

2. For an income tax itemizer, the cost of a professional to prepare the federal income tax return is fully deductible.                   

Which of the following statements is/are correct?1. The principal but not the interest to be paid this year on a 30-year mortgage is properly classified on the Statement of Financial Position as a current liability.2. A CD with a maturity of 9-months is classified as an investment asset on the Statement of Financial Position.

 

1 only.

2 only.

Both 1 and 2.

Neither 1 nor 2.                   

Which of the following statements is/are correct?

1. The Statement of Cash Flows includes monthly recurring cash flows from income and expenses.

2. The Statement of Net Worth explains changes to net worth between two Statements of Financial Position that are not reported elsewhere on other financial statements.           

Which of the following statements is true?

 

To be more conservative in planning for an individual's retirement, decrease the individuals life expectancy.

A sensitivity analysis helps the advisor determine the single most effective factor in a retirement plan.

A Monte Carlo Analysis uses a random number generator to provide the advisor with an array of possible outcomes utilizing the same fact patter.

The capital preservation model assumes that at retirement the client will have exactly the same account balance as he did at his ideal working age.                   

Which of the following statements regarding life insurance needs is / are correct?1. The human life value approach looks forward for information.2. The capitalization of income approach looks at right now only for information.3. The needs approach looks at future needs of dependents but does not consider the estate that the decedent would have built had he lived.

 

1 only.

1 and 2.

1 and 3.

1, 2, and 3.               

William owns 1 share of Park stock. He purchased the stock three years ago for $17.50. The stock is currently trading for $40 per share. The stock has paid the following dividends over the past three years.

o Year 1: $1.00.

o Year 2: $2.00.

o Year 3: $3.00.

What is the compounded rate of return (IRR) that William has earned on this investment?                

William owns 1 share of Park stock. He purchased the stock three years ago for $19.50. The stock is currently trading for $40 per share. The stock has paid the following dividends over the past three years.o Year 1: $1.00.o Year 2: $2.00.o Year 3: $3.00.What is the compounded rate of return (IRR) that William has earned on this investment?

 

 

39.73%

37.05%

34.55%

32.23%           

You need a loan for $50,000 to start up your new business. The loan will be amortized with quarterly payments over 4 years at 16% interest. What is the quarterly payment that you will need to make.              

Your client, Brooke, decides to start saving for her son's college tuition. Her son was born today and will go to college at age 18 for four years. Brooke wants to save until her son's first year of college. Given the following information, what is the present value of the total amount that Brooke needs to have saved at the beginning of her son's first year of college?Current tuition: $15,000

Tuition inflation: 6.5%

Brooke's investment return: 10%

 

$29,202

$39,010

$34,090

$31,959          

Your client invested $10,000 in an interest bearing promissory note earning an 12% annual rate of interest, compounded monthly. How much will the note be worth at the end of 7 years, assuming that all interest is reinvested at the 12% rate?

 

 

$20,079.20

$21,522.04

$23,067.23

$24,721.94                

Your clients' goal is to accumulate a retirement fund of $300,000 in current (today's) dollars 16 years from now. Inflation is expected to be 4% per year during this 16-year period. If the clients set aside $20,000 at the end of each year and earn 6% on the investment, will they reach their goal? Based on the assumptions, what is the difference between the future accumulation measured in current dollars and your client's goal?            

Your client, Tom, age 45, is currently making $145,000. You have determined that his wage replacement ratio is 80%. You expect inflation to average around 3% for Tom's entire life expectancy. Tom expects a 9% return on his investments and plans to retire at age 64, possibly living to age 90. He expects he will receive about $12,000 per year from Social Security in retirement. Calculate Tom's first year retirement needs at age 64.

 

$194,870

$182,365

$177,433

$185,434                  

Your client, Tom, asks you to prepare his financial statements. He is especially curious about his net worth. He asks you to explain to him his current net worth, and show you how it was calculated. Which financial statement or ratio will help you illustrate Tom's net worth?

 

Income Statement

Balance Sheet

Statement of Net Worth

Net Worth to Total Assets Ratio                   

 

 

Allen is a graphic designer and contributes 10% of his salary to his 401(k). His employer makes a 3% matching contribution. Last year, Allen earned $60,000, but he received a raise and will earn $65,000 this year. Also, Allen contributes $2,000 to an IRA at the end of each year. What is his total savings rate this year?

 

a. 13.00%.

 

b. 14.08%.

 

c. 16.08%.

 

d. 17.42%.                 

All of the following are examples of qualitative information that should be collected by the financial planner

 

EXCEPT:

 

a. General attitude towards spending.

 

b. Risk tolerance.

 

c. Client age and number of children.

 

d. Education goals.               

All of the following are principles of Modern Portfolio Theory EXCEPT:

 

a. Markets are inefficient.

 

b. Returns are determined by risk.

 

c. Investors are rational.

 

d. The mean-variance portfolio theory governs.          

All of the following are true regarding financial advisors EXCEPT:

 

a. Advisors should strive to be active listeners throughout their sessions with clients.

 

b. Advisors should only use open questions during their client meetings.

 

c. It is important for the advisor to understand the client’s values and attitudes.

 

d. Nonverbal cues, or body language, can communicate feelings and attitudes between the client and the advisor.                   

Assume the following annual financial information for Kelli (age 30):

 

 

Income (after taxes) $80,000

Savings $2,500

Rent $18,000

Dry Cleaning $200

Entertainment $2,000

Utilities $1,800

Car Payment $6,600

Auto Insurance $2,400

Student Loans $6,000

Credit Cards $1,200

 

Utilizing targeted benchmarks, which of the following statements is FALSE regarding Kelli’s financial situation?

 

a. Kelli’s Housing Ratio 1 is adequate.

 

b. Kelli’s emergency fund is adequate.

 

c. Kelli’s Housing Ratio 2 is deficient.

 

d. Kelli’s current ratio is less than 1.

 

Utilizing investment assets to gross pay benchmarks, which              

Damian invests $5,000 today in an account earning 6% per year. How much is the investment worth in 4 years?

 

a. $5,000.00.

 

b. $6,200.00.

 

c. $6,312.38.

 

d. $6,326.60.              

During their meeting with you, Johnny and June call the benefits office to adjust their tax withholding to better suit their financial needs.             

During your meeting with Jeff, you provide him with three education saving plans to choose from.               

During your meeting with your client, Hayden Doyle, you recommended he purchase a personal liability umbrella policy (PLUP). Which part of the financial planning process were you engaged in?

 

a. Implement Financial Plan Recommendations.

 

b. Develop and Present Financial Planning Recommendations.

 

c. Gather Client Data.

 

d. Monitor Plan.                   

Financial planners earn compensation in the form of:

 

a. A percentage of assets managed.

 

b. An hourly rate or fee.

 

c. A commission on investment and insurance products sold.

 

d. All of the above.               

Jamie deposits $10,000 in an account earning 3% interest, compounded quarterly. How much will the account balance be in 7 years?

 

a. $10,176.32.

 

b. $10,724.14.

 

c. $12,327.12.

 

d. $22,879.28.             

Making a decision based on whatever information exists in your memory bank best describes which of the following:

 

a. Affect Heuristic.

 

b. Availability Heuristic.

 

c. Similarity Heuristic.

 

d. None of the Above.           

Maria Chen has been a client of yours for many years. In your quarterly meeting with Maria, you evaluate her retirement portfolio performance and ensure that progress is being made as expected. Which part of the financial planning process are you engaged in?

 

a. Establish and Define Client Relationship.

 

b. Monitor Plan.

 

c. Implement Financial Plan Recommendations.

 

d. Develop and Present Financial Planning Recommendations.            

Megan purchased a new vehicle for $40,000. She put $5,000 down and financed the $35,000 balance over 5 years. What is the impact of this transaction on her net worth?

 

a. Her net worth increases.

 

b. Her net worth decreases.

 

c. Her net worth remains the same.

 

d. None of the above.            

Mila has an investment account with a balance of $125,000. She intends to make withdrawals each year for the next 15 years from this account. If the investment account earns 10%, compounded annually, how much can Mila receive at the end of each year?

 

a. $12,500.00.

 

b. $14,940.20.

 

c. $16,434.22.

 

d. $17.386.16.             

Starting today, Armand deposits $100 in a savings account at the beginning of each month. If the account earns 6% annually, what is the account value after 6 years?

 

a. $697.53.

 

b. $739.38.

 

c. $8,640.89.

 

d. $8,684.09.              

Use the following financial information for Jay (age 30) and Maria (age 30) Handberger:

 

¥ Cash and Cash Equivalents: $75,000

 

¥ Investment Assets: $220,000

 

¥ Personal Use Assets: $350,000

 

¥ Current Liabilities: $45,000

 

¥ Long-Term Liabilities: $300,000

 

Before your next meeting with the Handberger’s, you create a pie chart to visually depict their current balance sheet. Utilizing targeted benchmarks, which of the following statements are you most likely to make during your next meeting?

 

a. “Your investment assets make up 34% of your asset pie chart, which is too low for your age group.”

 

b. “Given your assets and liabilities, your net worth is appropriate for your age group.”

 

c. “Relative to the rest of your assets, your cash and cash equivalents are too low for your age group.”

 

d. “Compared to your net worth and current liabilities, your long-term liabilities are excessive for your age group.”                   

Utilizing investment assets to gross pay benchmarks, which of the following individuals is likely on target with their investment assets?

 

a. Jerry age 55 earns $120,000 a year and has invested assets of $450,000.

 

b. Liam age 25 earns $45,000 a year and has invested assets of $5,500.

 

c. Sarah age 35 earns $90,000 a year and has invested assets of $325,000.

 

d. Alex age 45 earns $110,000 a year and has invested assets of $170,000.                

Which of the following best describes the cognitive bias herding?

 

a. Individuals that mimic the actions or decisions of a larger group, even though the individual may not have necessarily made the same choice.

 

b. A propensity of investors to believe that they can outperform the market based on their beliefs or skills.

 

c. Attaching ones thoughts to a reference point even though there may be no logical relevance or is not pertinent to the issue in question.

 

d. People tend to filter information and focus on information supporting their opinions.                  

Which of the following best describes the financial approach that uses quantitative benchmarks that provide guidelines of where a client’s financial profile should be.

 

a. Metrics Approach.

 

b. Strategic Approach.

 

c. Cash Flow Approach.

 

d. Present Value of Goals Approach.              

Which of the following is most likely the beginning of a closed question?

 

a. Why did you...?

 

b. How did you...?

 

c. Is it true that...?

 

d. None of the above are closed questions.              

Which of the following is most likely to affect a rational investor, as described in Traditional Finance?

 

a. The Disposition Effect.

 

b. Overreaction Bias.

 

c. Anchoring.

 

d. None of the Above.           

Which of the following is most likely to take place in the Analyze & Evaluate Client’s Financial Status step?

 

a. After meeting with David, you prepare his current financial statements.

 

b. In your meeting with Rosie, you sell her a new life insurance policy.

 

c. During your meeting with Alexis, she provides you with several documents including her employee benefits information and bank statements.

 

You provide your client with a description of the fees and costs of your financial planning services               

Which of the following is not a valid method for determining life insurance needs?

 

a. The Financial Needs Method.

 

b. The Human Life Value Method.

 

c. The Dependency Method.

 

d. The Capitalization of Earnings Method.                 

Which of the following is NOT true of insurable risks?

 

a. Risks can be insured even if they are not measurable or determinable.

 

b. A large number of similar exposures must exist.

 

c. The loss must not pose a catastrophic risk for the insurer.

 

d. Insured loses must be accidental.              

Which of the following is usually included in an engagement letter?

 

a. Defined parties to the agreement.

 

b. Description of the fees and costs.

 

c. Time horizon for the work to be completed.

 

d. All of the above.               

Which of the following measures is appropriate for a risk that has a low frequency of occurrence and a high severity?

 

a. Avoid Risk

 

b. Transfer/Share risk.

 

c. Reduce risk.

 

d. Retain risk.            

Which of the following statements is/are correct?

 

1. A new automobile loan for 60 months is an example of a long-term liability.

 

2. Unpaid taxes are an example of a long-term liability.

 

a. 1 only.

 

b. 2 only.

 

c. Both 1 and 2.

 

d. Neither 1 nor 2.                

Which of the following statements is/are correct?

 

1. Loss frequency refers to the potential size or financial damage of a loss.

 

2. Loss severity is the expected number of losses that will occur within a given period of time.

 

a. 1 only.

 

b. 2 only.

 

c. Both 1 and 2.

 

d. Neither 1 nor 2.                

Which of the following would NOT be considered an investment asset?

 

a. Cash Value in Life Insurance.

 

b. A Money Market Account.

 

c. A Brokerage Account.

 

d. A 401(k) Plan.                   

After generating financial statements for your client, Doug, you list each line item on the income statement as a percentage of total income and each item on the balance sheet as a percentage of total assets. Which comparative financial statement tool are you utilizing?

 

a. Monte Carlo Analysis.

 

b. Horizontal Analysis.

 

c. Vertical Analysis.

 

d. Sensitivity Analysis.            

Assume $1,500 is invested for one year earning 9% and the inflation rate during that period is 3%. What is the inflation adjusted rate of return?

 

a. 4.36%.

 

b. 4.91%.

 

c. 5.83%.

 

d. 6.31%.                  

Ella purchases a new house for $300,000. She put 20% down and will finance the rest over 15 years at 4.5%. What is her monthly payment?

 

a. $1,829.12.

 

b. $1,835.98.

 

c. $1,921.35.

 

d. $2,294.98.              

Five years ago today, Ron purchased a stock for $45. Over the past five years, the stock has paid the following dividends: $1.25 (year 1), $2.00 (year 2), $2.50 (year 3), $3.25 (year 4), $1.75 (year 5). At the end of the fifth year, the stock is selling for $47. What was Ron’s compounded rate of return (IRR)?

 

a. 3.85%.

 

b. 4.69%.

 

c. 5.52%.

 

d. 6.32%.                  

In a disability policy, the time between the disability event and the point at which benefits, under the contract, begin is known as the:

 

a. Wait Room Period.

 

b. Discount Period.

 

c. Elimination Period.

 

d. Disabled Period.                

Insurance, as a contract, is adhesive, meaning:

 

a. The insured had no opportunities to negotiate terms.

 

b. The coverage is conditioned upon the payment of premiums.

 

c. What is paid by the insured and paid out by the insurer may not be equal amounts.

 

d. Only the insurer is making a promise.                   

Jason is saving for a new TV. He currently has $1,200 in his account that earns 3%, compounded monthly, and the new TV costs $4,500. Assuming Jason deposits $100 in his account each month, how many months until his account has enough money to purchase the new TV?

 

a. 24 months.

 

b. 29 months.

 

c. 31 months.

 

d. 33 months.            

Jenny, who is married and the mother of three, is 25 years and expects to work until 70. She earns $45,000 per year. Jenny expects inflation to be 3% over her working life, and the appropriate risk-free discount rate is 5%. Her personal consumption is equal to 25% of her after-tax earnings, and her combined federal and state marginal tax bracket is 15%. What is the amount of life insurance necessary for Jenny using the Human Life Value method?

 

a. $509,893.63.

 

b. $743,672.85.

 

c. $855,597.84.

 

d. $900,000.00.           

Julia purchases a new piece of equipment for her business. The equipment was purchased for $65,000 and is expected to generate the following cash flows at the end of each year for the next seven years: $14,000 (year 1), $19,000 (year 2), $21,000 (year 3), $21,000 (year 4), $16,000 (year 5), $11,000 (year 6), and $9,000 (year 7). Assume the equipment can be sold for $10,000 at the end of 7 years and Julia required rate of return is 9%. What is the net present value of this investment?

 

a. $20,635.27.

 

b. $21,828.55.

 

c. $22,280.23.

 

d. $23,957.29.             

Slippery roads after a rainstorm are an example of a:

 

a. Morale Hazard.

 

b. Morale Peril.

 

c. Physical Hazard.

 

d. Physical Peril.                   

Which of the following is the formula to calculate Net Discretionary Cash Flow (NDCF)?

 

a. Income - Savings = NDCF.

 

b. Income + Savings - Expenses = NDCF.

 

c. Income - Savings - Expenses - Taxes = NDCF.

 

Income + Savings - Expenses - Taxes = NDCF            

Which of the following statements is/are correct?

 

1. Term life insurance is considered “pure insurance.”

 

2. Term life insurance premiums are significantly more expensive than premiums for permanent policies.

 

a. 1 only.

 

b. 2 only.

 

c. Both 1 and 2.

 

d. Neither 1 nor 2.                

Which of the following transactions is most likely to appear on a statement of net worth?

 

a. Inheriting property from someone other than cash.

 

b. Employer contributions made to a retirement savings account.

 

c. Appreciation in value of a primary residence.

 

d. All of the above.               

Jason earns an annual salary of $50,000. His company matches 50% of his 401(k) contributions up to 6% of his compensation (max 3% company contribution). Jason contributed $5,000 to the plan this year and his company made the matching contribution before the end of the year. The balance of his account at year’s end was $95,000. What is his savings rate this year?

 

a. 10.0%.

 

b. 11.0%.

 

c. 13.0%.

 

d. 16.0%.                  

Which of the following insurance recommendations will result in a positive cash flow?

 

a. Increasing the amount of current coverage.

 

b. Change name of beneficiary to someone with a better credit score.

 

c. Raise insurance deductibles.

 

d. Purchase a new life insurance policy.          

Which of the following is most likely to be considered a discretionary cash flow?

 

a. Food.

 

b. Tuition.

 

c. Netflix Subscription.

 

d. Auto Loan.             

Ashley deposits $1,500 into an account at the beginning of each year. If she earns 5%, compounded annually, how much will the account be worth in 17 years?

 

a. $38,760.55.

 

b. $40,698.58.

 

c. $41,386.96.

 

d. $48,078.68.             

Which of the following best describes the financial approach that provides a visual representation of how a client distributes resources?

a. Strategic Approach.

b. Two-Step/Three-Panel Approach.

c. Pie Chart Approach.

d. Life Cycle Approach.          

Your client, Donald, provides you with his tax returns from the previous year.            

 

An investment policy statement is created to: 1: Outline the general rules for the advisor. 2: Lists the client’s objectives and constraints. 3: Assists with future investment advisors understanding the past investment positions. 4: Risk is part of the list of objectives.

 

Joe would like to know which portfolios performed the best, on a risk adjusted basis. Given the portfolios below and assuming a risk free rate of return of 3%, which portfolio returned the most per unit of risk, (from highest to lowest), using the Sharpe ratio? Stock A: 8% Actual Return; 5% Standard Deviation Stock B: 12% Actual Return; 8% Standard Deviation Stock C: 10% Actual Return; 6% Standard Deviation Stock D: 6% Actual Return; 4.25% Standard Deviation

 

The P/E ratio of the S&P 500 should be 20 based on historical analysis and your projection of the future. If the earnings of the S&P 500 are currently $50 then the S&P 500 should be at:

 

A client comes to you with a portfolio of securities that he has put together. Based on your analysis the beta of the portfolio is +1. What does this mean?

 

Which of the following best describes the investment characteristics of a high­quality longterm municipal bond?

 

Which of the following is not a method used to measure investment returns?

 

XYZ has a current market price of $30 per share with earnings last year of $2.50 per share, a beta of 1.1 and a dividend of $1.25. Using the price/earnings multiplier, what price do you expect the stock to trade at if earnings per share next year are $3?

 

All of the following federal income tax penalties are correct except:

 

Which of the following statements concerning a CFP designee’s disclosure of confidential client data is generally correct? 1: Disclosure may be made to any state agency without subpoena. 2: Disclosure may be made to any party on consent of the client. 3: Disclosure may be made to comply with an IRS audit request.

 

Which of the following statements is/are correct? 1: Some tax credits are refundable. Some tax credits are nonrefundable.

 

Randy has ten shares of stock that he bought on March 1, 2012, for $5 each. On March 1, 2013, he sells all of the shares for $200. What is the income tax consequence of the sale?

 

Which, if any, of the following statements is (are) correct? 1: C corporations offer limited liability. 2: Sole proprietorships offer limited liability.

 

Sydney has a portfolio with 50 shares of AAA with a current value of $20 per share, a return of 12%, and a beta of 1.30. She also has 25 shares of BBB with a return of 10%, a 0.80 beta, and currently priced at $60 per share. Finally she owns 75 shares of CCC priced at $50 per share, with a 1.1 beta and a 14% return. What is the weighted average portfolio return of Sydney’s portfolio?

 

The four stages of a business cycle would not include:

 

Walter has come to you asking about investments that will produce steady income, provide relative safety of principal, and give him a tax advantage. What will you recommend that he consider adding to his portfolio?

 

Which of the following is not a primary responsibility of the Federal Reserve (Fed)?

 

Which of the following statements is/are correct? 1: A general power of appointment may cause inclusion of the assets under the power in the gross estate of the power holder without having had the power holder exercise the power. 2: A medical durable power of attorney permits the power holder to direct the withholding of artificial life sustaining methods are procedures.

 

Unsystematic risk can be reduced by buying:

 

The type of risk that CANNOT be eliminated through diversification is:

 

Your client, Alex, has only two assets in his portfolio: assets A and B. Asset A had a standard deviation of 40%, and Asset B has a standard deviation of 20%. 50% of his portfolio is invested in Asset A, and 50% is invested in Asset B. The correlation for assets A and B is 0.90. What is the standard deviation of Alex’s portfolio?

 

A new client owns a U.S. Treasury bond that matures in 26 years. She purchased the bond because she was told that Treasury bonds are risk free. Which of the following statements about Treasury security risks should you communicate to your client? 1: Treasury securities do not have interest rate risk because their coupons are fixed at the time of issue. 2: Treasury securities with long maturities have purchasing power risk because their coupon returns are fixed, even if interest rates rise substantially over the holding period. 3: Treasury securities do not have default risk because the federal government has the powers to tax and create money.

 

Which of the following persons, if any, is (are) not a party to a trust? 1: Trustee 2: Beneficiary

 

Which, if any, of the following statements is (are) correct? 1: Financial risk has to do with the amount of leveraging or the use of borrowed funds that a firm utilizes to structure its investment and finance its asset. 2: Debenture bonds are backed by the income from a specific project.

 

Which of the following statements regarding close­end investment companies, if any, is correct? 1: Close­end funds continually create new shares as new monies are obtained. 2: Close­end funds offer price guarantees.

 

Which of the following are advantages to being a shareholder? 1: The expected returns for equities are higher than debt securities. 2: Equities have prices listed on major exchanges and are marketable. 3: Equities typically earn their expected return. 4: Equities that do not pay a dividend are tax efficient.

 

Mr. and Mrs. Meyer own 800 acres of farmland titles as “joint tenants with rights of survivorship, not as tenants in common.” Currently the land is appraised at $5,000 per acre. In addition, Mr. Meyer holds a $200,000 CD in his name only, and Mrs. Meyer holds a $200,000 CD in her name only. Mr. and Mrs. Meyer have no debts. Mrs. Meyer’s last will and testament provides that “all of my assets at my death shall be divided in three equal portions among my two children and my husband.” Mrs. Meyer dies unexpectedly, leaving her husband and two children as her sole heirs. Which of the following statements is true?

 

An analysis of the monthly returns for the past year of a mutual fund portfolio consisting of two funds revealed the following statistics. Fund A total return = 18% Fund A Standard deviation = 23% Fund A Percentage of portfolio = 35% Fund B total return = 11% Fund B Standard deviation = 16% Fund B Percentage of portfolio = 65% The Correlation Coefficient (r) between the two funds equals 0.25. What is the standard deviation of the portfolio?

 

Bob wants to accumulate wealth, but he has told you that he is risk-averse. Which of the following is the most crucial action he should take first to achieve his goal of accumulating wealth?

 

Which of the following statements regarding investment risk is correct? 1: Beta is a measure of systematic, non-diversifiable risk. 2: Rational investors will form portfolios and eliminate systematic risk. 3: Rational investors will form portfolios and eliminate unsystematic risk. 4: Systematic risk is the relevant risk for a well-diversified portfolio. 5: Beta captures all the risk inherent in an individual security.

 

Which of the following situations would cause a shift in the demand curve, as opposed to a change in the quantity demanded?

 

Based on the CAPM, what return should Jordan expect from a security that last year returned 9% with a standard deviation of 12%, a beta of 1.2, when the overall market return has been 10.2%, and the risk free rate of return is 3%?

 

Colin is considering the purchase of a preferred stock that pays a fixed dividend of $6 per year. If his required rate of return is 9%, what is the maximum that Colin will pay for this stock using the zero growth dividend model?

 

Which of the following types of investment risk cannot be eliminated through diversification?

 

What is the geometric rate of return for a stock that has experienced the following prices? Year 1 = $25 Year 2 = $32 Year 3 = $35 Year 4 = $37

 

Which, if any, of the following statements is (are) correct? 1: The value of a gift for gift tax purposes is equal to the fair market of the gifted property on the date of the gift or date of death. 2: The value of a publicly traded security for estates and gift tax purposes is equal to the average of the high and low trading price on the date of the gift or date of death.

 

John purchased a stock that has a beta of 1.2, a standard deviation of 13%, and returned 16% this year. The market’s return was 12% with a standard deviation of 14%. If the risk free rate of return is 3%, what is the alpha of John’s stock?

 

If the risk/return performance of a stock lies below the Security Market Line, the stock is said to have a:

 

Which of the following methods of joint ownership permits the right to partition the asset without the consent of the joint owner? 1: Community property 2: Joint tenancy with the right of survivorship 3: Tenants by the entirety 4: Tenants in common

 

Edwin has a security that returned 8%, -2%, 6% and 12% over the last four periods. What is the time weighted rate of return?

 

 

 

 

 

Bob worked for the city of Philadelphia last year. The money he earned as a salary is considered what kind of income?

 

Bubba owns Bubba’s Big Burritos (BBB) and works there as well. BBB is an S corp. This year, Bubba sold the business to another company, Massive Mexican Meals. What type of income does Bubba have?

 

Parker is a dog whisperer who has consulted with some of the most famous Hollywood stars and their canine friends. He was so successful that he sold the business. The company issued him restricted stock.

 

When analyzing and advising clients about their retirement, qualitative factors are of much less significance that quantitative factors.

 

The three separate and distinct federal tax systems that are relevant to financial planning are the income tax system, the estate and gift tax system, and the property tax system

 

The 14th amendment of the US Constitution grants Congress the authority to lay and collect taxes on income

 

Tom and Betty have AGI of $150,000 and have not planned for their children’s education. Their children are ages 18 and 17. Which option do you recommend?

 

Which one of the following statements is wrong?

 

The three types of income in the US income tax system are ordinary income, portfolio income, and passive income

 

For an income tax itemizer, medical expenses are fully deductible if prescribed by a doctor

 

The three primary sources of tax law are statutory sources, administrative sources, and judicial sources

 

Assuming Fred owns a fire arms training business, which is a sole proprietorship, and he has net self employment income of $140,000 and he pays SE tax of $20,000 (assumed), the most that he can contribute to a Keogh plan is $26,000.                   

 

The deduction for a contribution to a retirement plan for an owner of a sole proprietorship is not taken on Schedule C.                 

 

A family limited partnership generally separates the value of the business equally between the general partner(s) and the limited partners.              

 

The most common types of entities in the United States are sole proprietorships, partnerships, LLCs, C corporations and S corporations.               

 

One of the benefits of a FLP is that transfers of the limited partnership interests can be completed at a substantial valuation discount.                

 

Partnerships can have special allocations in which income is allocated disproportionately to ownership.                   

 

This biggest issue with a sole proprietorship is the tax they are subject to.               

 

Which entities can check-the-box in terms of choice of taxation?

1. LLCs.

2. Partnership.            

 

Which of the following statements comparing S corporations and LLCs (taxed as partnerships) is/are correct?

1. Both have the same type of flow through of income (all income for owners is on Schedule K-1 and all is subject to SE tax).

2. Personal liability as an owner of either entity type is limited.

3. Either type of entity may have multiple types of ownership interests with various rights.               

 

Bob is a CFP® professional and has entered into a signed engagement letter to provide the first four steps of the financial planning process. Once Bob has made the recommendations, the engagement letter clearly identifies that the scope of the relationship ends and the client is solely responsible for implementation. Six months after Bob provided a client with his recommendations, the client approached Bob about purchasing life insurance through Bob, which was one of the recommendations in his plan. Is Bob still engaged with the client?

 

a) No, the engagement letter limited the scope of the services to be provided. Bob is no longer engaged in the financial planning process with the client. Bob is now selling product beyond the scope of the engagement.

b) Yes, Bob is still engaged with the client because Bob previously established a professional relationship and is now providing implementation services to the client by selling life insurance.

c) No, a planner is not engaged with a client when only selling a single product. The planner would be engaged if applying multiple steps in the financial planning process.

d) Yes, because even by providing one step in the financial planning process, a planner is considered engaged with a client.          

 

Mr. and Mrs. Meyer own 800 acres of farmland titles as “joint tenants with rights of survivorship, not as tenants in common.” Currently the land is appraised at $5,000 per acre. In addition, Mr. Meyer holds a $200,000 CD in his name only, and Mrs. Meyer holds a $200,000 CD in her name only. Mr. and Mrs. Meyer have no debts. Mrs. Meyer’s last will and testament provides that “all of my assets at my death shall be divided in three equal portions among my two children and my husband.” Two weeks after Mrs. Meyer died, Mr. Meyer died and his will provided, “I hereby give all my real property to my brother James, and I give all my personal property to my children, share and share alike.” Which one of the following statements is true?

 

a) The children will inherit Mr. Meyer’s CD and his interest in the farm.

b) The children will inherit Mr. Meyer’s CDs and none of his interest in the farm.

c) The children will inherit no interest in either Mr. Meyer’s CD of the farm.

d) Mr. Meyer’s CDs are subject to probate, but Mr. Meyer’s farm interest is not subject to probate.