General Principles

Question 1

Education calculation

Answer 1

Step 1: Inflate PV is current cost of college solve for FV

Step 2: BEGIN MODE amount needed when child turns 18
Pmt is what you go in step 1
N is the number of years in college
I is real rate of return
Solve for PV

Step 3: how much you need to save
FV is step 2 PV
N is number of years until college
I is investment return
Solve for PV

Question 2

American Opportunity Credit

Answer 2

Tax credit
Max of $2,500
100% of first 2,000 of expenses then 25% of next 2,000
First four years of college
Can’t be a convicted felon with drug charges

Up to 40% can be refundable credit

Question 3

Punitive damages

Answer 3

TAXABLE

Question 4

Compensatory damages

Answer 4

TAX FREE

Question 5

Monetary Policy

Answer 5

Influence supply of credit
Reduce reserve/lower discount rate/ buy bonds - easy money
Increase reserve/ raise discount rate/ sell bonds- tighten money

Question 6

Leading economic indicators

Answer 6

Manufacturing workers hours
Claims for unemployment insurance
New manufacturing orders
Contradicts for plants and equipment
New private housing units
Stock prices
Money supply
Index of consumer expectations

Question 7

Coincident indicators

Answer 7

Move in tandem with broad economy

Number of employees on non agricultural payroll
Personal income less transfer payments
Industrial production

Question 8

Lagging indicators

Answer 8

Average duration of unemployment
Average prime rate charged by banks
Commercial and industrial loans
Ratio of consumer installment credit outstanding to personal income
Change in consumer price index

Question 9

Gross domestic product

Answer 9

Dollar value of all goods and services newly produced within the US. DOES NOT TAKE INTO ACCOUNT INFLATION

Question 10

Durable goods

Answer 10

Goods that don’t wear out quickly they are cyclical

Cars, business equipment, electronic equipment, toys games

Question 11

Non durable goods

Answer 11

Short life span
Food, fuel, make up, paper

Not be affected by recession because people need them

Question 12

Economy and different industries

Answer 12

Right before recovery cyclical industries tend to outperform other industries like cars because consumers don’t buy high ticket items during a recession

Question 13

Normal yield curve

Answer 13

As maturities lengthen yields increase. Extra risk due to the amount of time so extra premium

Question 14

Inverted/ negative yield curve

Answer 14

When the federal reserve tightens economy to slow it down short term rates can rise above long term rates. Happens with inflation

Question 15

Reverse mortgage

Answer 15

Have to be 62 years or older
No income qualifications
Proceeds are tax free

Question 16

American opp credit, lifetime learning credit, coverdell and 529

Answer 16

YOU CANNOT combine these for same child experience see if they don’t give you an amount

Question 17

NPV

Answer 17

NPV is zero the interest rate is the same as the required rate

NPV is positive the investment will earn more than required rate

NPV is negative the investment will earn less than required rate

Question 18

Shift in demand curve

Answer 18

Change in income taxes, savings rate and disposable income
Think consumer

If discretionary income increases shift up and to the right

Question 19

Shift in supply curve

Answer 19

Think producer
Technology, competition anything other than price

Anything cause production to improve will shift curve down and to the right

Question 20

Demand curve perfectly elastic vs inelastic

Answer 20

Perfectly elastic results in a horizontal demand curve

Perfectly inelastic results in a vertical demand curve

Question 21

Lifetime learning credit

Answer 21

Subject to AGI phaseout

Can have felony one record

For graduate and undergrad

$2k

Question 22

Adv form delivery

Answer 22

Federal covered advisors must update their ADV forms No later than 90 days following fiscal year

Question 23

Financial enmeshment

Answer 23

Generational
Bringing kids into financial stress

Question 24

FDIC

Answer 24

$250k coverage
Each title gets same coverage
If two rev trusts with specified benes each covered fully

Question 25

Red herring

Answer 25

Doesn’t include selling price and size of issue

Question 26

Able 529

Answer 26

Max contribution is annual exclusion gift

Question 27

Uncomfortable client

Answer 27

Terminate the relationship!

Question 28

Broker/dealer complaints

Answer 28

Client should first contact the broker/dealer

Question 29

Divorced clients

Answer 29

CFP can represent both clients before divorce after clients are divorced can represent with separate contracts

Question 30

Continuing education requirements

Answer 30

30 hours every two years

The ethic portion is 2 hours of the 30 listed above also every two years

Question 31

Money script

Answer 31

Unconscious beliefs a person has concerning money that often start in childhood and manifest and affect behavior in adulthood

1. Money status
2. Money worship
3. Money avoidance
4. Money vigilance

Question 32

Room and board from college savings vehicles

Answer 32

Tax free distributions for UTMA, 529 and coverdell

NOT EE bonds

Question 33

Scholarships and taxes

Answer 33

The portion of the scholarship attributable to room and board is taxable

Question 34

Cashing out 529 plans

Answer 34

Ordinary tax and 10% penalty on the earnings of 529

Contributions are return of capital

Question 35

Client complaints

Answer 35

First addressed by the CFP Board counsel
Then if serious enough, it is passed to the Disciplinary and ethics commission

Question 36

Extension to respond to a compliant

Answer 36

CFP board may deny or grant extension.

Question 37

DEC hearing panels

Answer 37

They are volunteers or members of DEC itself

Question 38

Opportunity cost

Answer 38

Pick the answer with the lowest PV.

If value remains at end of lease that would be your FV in your calculation

Question 39

Representativeness Heuristic

Answer 39

Making judgements about the probability of an event of uncertainty