General Principles

Question 1

Pro Forma Statement

Answer 1

Projects profitability or return of the next year or longer

Question 2

Capitalization of income

Capitalized Value Formula

Answer 2

projected flow of income

= Annual income/Capitalization Rate

Question 3

Housing Expense Ratio
PITI: Principal, Interest, Taxes, Insurance (Property Only)

Answer 3

PITI (Includes total Monthly Debt) / Annual Gross Income

PITI: Principal, Interest, Taxes, Insurance (Property Only)
Less than or Equal to 28% of gross income

Question 4

Liquidity (Current) Ratio

Answer 4

Current Assets / Current Liabilities

Question 5

Acceptable amount of yearly debt

Answer 5

36% of gross income

Question 6

Financial Enmeshment

Answer 6

Sharing Financials with someone who doesn’t need to know

EX. Little boy cant sleep after overhearing a Convo about their lack of ability to pay rent.

Question 7

Securities Act of 1933

Answer 7

Requires purchasers of NEW ISSUES be provided with prospectus

Question 8

Securities Act of 1934

Answer 8

Regulates Secondary market (Trading of issued securities)

A “SALE” is an agreement between buyer and seller

Question 9

Investment Advisor Act 1940

Investment Company Act 1940

Answer 9

Advisor
Defines role and responsibilities of an IA

Company
Authorizes SEC to Regulate Mutual funds

Question 10

Kiddie Tax

Answer 10

$0 - $1,300 Not Tax Applies

$1,300 - $2,600 10% (Child income tax level)

Greater than $2,600 (parents marginal Tax Bracket)

Question 11

Alimony Vs Child Support

Answer 11

Taxable to Payee and Tax Deductible to Payor before 12/31/2018

Vs

Not Taxable nor Deductible

Question 12

Best Transfer arrangements for unmarried couple

Answer 12

Revocable Trusts
&
Tenancy in common

Question 13

COBRA

Answer 13

Must offer terminated employees the right to buy continued health coverage.
Solo coverage: additional 18 months

Employee + Dependents or Spouse: Additional 36 Months

*Companies with fewer than 20 employees are exempt

Question 14

Fiscal Policy
&
Fiscal Activities

Answer 14

Represents Federal Taxation and spending designed to level out business cycles and achieve
- Full Employment
- Price Stability
- Sustained economic growth

Activities
- Money Supply
- Taxation
- Debt Management

Question 15

Monetary Policy

Answer 15

Action taken by the fed to influence the growth of money Supply

Reserve Requirements
Discount Rate
Open Market Operations
Margin Rates

Question 16

Cyclical Industries
Vs
Defensive Industries

Answer 16

Industries Sensitive to business cycle
- Auto industry
appliance manufactures
- Durable Goods

Vs

Little to so sensitivity to Business cycle. Will out preform in recession
- Food, pharmaceuticals,
utilities
- Non-durable goods

Question 17

Endowment Affect

Answer 17

Describes an emotional bias that cause individuals to value an owned object higher, often irrationally

Question 18

Which of the following is insured:
1)
- Bonds
- Variable Annuities
- Time Deposits
- Treasury Bills

2)
- Securities Held in Brokerage Account
- Treasury Bonds
- Mutual Funds
- Annuities

Answer 18

1) Time Deposits AKA CDs
- Treasuries bills are guaranteed by Gov not insured.

2) Securities Held in Brokerage Account
- SPIC insures investors against losses arising from failure of brokerage firm

Question 19

What Agency regulates Brokerage Companies?

Answer 19

SEC regulates through FINRA

Answer is FINRA

Question 20

Pell Grant

Answer 20

Needs Based

Offered during College Years

Question 21

Life Time Learning Credit