Foundations Of Financial Planning: An Overview 3rd Edition Flashcards
(140 cards)
1
Q
Which of the following would an advisor do in the “implementing the recommendation(s) “ step of the financial planning process?
(A) Review the changes in the client’s circumstances and the financial environment.
(B) Identify the strengths and weaknesses in the client’s present financial condition.
(C) Gather considerable information from the client via a fact finder.
(D) Motivate and help the client acquire all necessary financial products and services.
A
(D) Motivate and help the client acquire all necessary financial products and services.
2
Q
For insurance and financial planning purposes,risk is defined to mean the
(A) possibility of financial loss
(B) uncertainty of financial loss
(C) probability of financial loss
(D) cause of financial loss
A
(A) possibility of financial loss
3
Q
Which of the following statements concerning risk is correct?
(A) Personal risks include the possibility of damage to your property such as a residence.
(B) Property risks include the possibility of damage to your vehicle or
other possessions.
(C) Liability risks include the loss of income from retirement or a disability.
(D) Liability risks cannot be covered by insurance because insurance
companies cannot afford to take such large exposures to the risk.
A
(B) Property risks include the possibility of damage to your vehicle or
other possessions.
4
Q
Which of the following situations represents a speculative risk
(A) the possibility of damaging your new car in an accident
(B) the possibility of a person needing medical care at a hospital
(C) the possibility of losing a wage-earner’s income due to premature death
(D) the possibility of a house appreciating or depreciating in market value
A
(D) the possibility of a house appreciating or depreciating in market value
5
Q
Insurance is used most efficiently in dealing with risk situations involving losses that are both
(A) low frequency and low severity
(B) low frequency and high severity
(C) high frequency and low severity
(D) high frequency and high severity
A
(B) low frequency and high severity
6
Q
Which of the following statements concerning life-cycle planning is correct?
(A) The career development phase for most people is between ages
25 to 35.
(B) The preretirement phase typically lasts 10 to 15 years before retirement occurs.
(C) A client in the peak accumulation phase generally has the greatest
opportunity for accumulating wealth.
(D) Clients in the early career phase are most concerned with estate planning goals.
A
(C) A client in the peak accumulation phase generally has the greatest
opportunity for accumulating wealth.
7
Q
If the daily benefit for institutional care in a long-term care insurance policy is $250 and the benefit period is 1,095 days (or 3 years),the policy’s pool of money would be
(A) $91,250
(B) $182,500
(C) $273,750
(D) $821,250
A
(C) $273,750
8
Q
Kirk is moving into an unfurnished apartment that he just rented. He wants a homeowners policy to protect his personal property. As Kirk’s financial advisor, which of the following homeowners forms would you recommend
that be buy?
(A) IH0-2
(B) H0-4
(C) H0-6
(D) H0-8
A
(B) H0-4
9
Q
Which of the following types of total-disability definitions contained in disability income policies is most beneficial for an Insured?
(A) own occupation definition
(B) own occupation for 2 years, then any suitable occupation
(C) own occupation for 5 years, then any suitable occupation
(D) any occupation for which the insured is reasonably suited by education, training, or experience
A
(A) own occupation definition
10
Q
A variable universal life (VUL) policy differs from a universal life (UL) policy in which of the following ways?
(A) A VUL policy provides for a flexible premium after the first year.
(B) A VUL policy permits partial withdraws from its cash value.
(C) A VUL policy permits the policyowner to decrease the death benefit at any time.
(D) A VUL policy allows the policyowner to direct the investment of the cash value.
A
(D) A VUL policy allows the policyowner to direct the investment of the cash value.
11
Q
Trends creating opportunities for advisors engaged in financial planning include which of the following?
I. impact of technology in the financial services industry
II. continuing stability of financial conditions in the economy
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(A) I only
12
Q
Reasons people begin financial planning include which of the following?
I. building a retirement fund
II. home purchase/renovation
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(C) Both I and II
13
Q
Which of the following statements concerning whole life insurance is (are) correct?
I. The cost per thousand for any given issue age is cheaper for whole
life than for term policies.
II. Whole life insurance is appropriate when there is a permanent need
for coverage.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(B) II only
14
Q
Which of the following statements regarding Part D (coverage for damage
to your auto) of an auto insurance policy is (are) correct?
I. The two primary coverages are “collision” and “other-than-collision.”
II. Damage payments under Part Dare subject to a deductible limit
chosen by the insured.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(C) Both I and II
15
Q
Personal umbrella liability policies typically cover which of the following
types of losses?
I. damage to the insured’s own property from a covered peril
II. personal injury in the form of libel and slander
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(B) II only
16
Q
Which of the following statements regarding Coverage 8 (other structures) of homeowners .insurance policies is (are) correct?
I. Coverage B covers all structures owned by the insured.
II. All losses to other structures covered by Coverage 8 are settled on an actual cash value basis.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(D) Neither I nor II
17
Q
Which of the following statements regarding Part 8 (medical payments
coverage) of the Personal Auto Policy (PAP) is (are) correct?
I. Medical expenses of the named insured and/or family members are covered if they are struck by a motor vehicle.
II. Medical expenses of persons other than the named insured and family members are covered if they are injured while in a covered auto.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
A
(C) Both I and II
18
Q
All the following advisors using the financial planning process would be considered to be practicing single-purpose financial planning EXCEPT
(A) a stockbroker who advised a customer to buy shares of common stock of a particular company
(B) a tax attorney who assists clients with their income, estate, and gift tax planning
(C) a banker who opens a trust account for the benefit of a customer ‘s handicapped child
(D) a life insurance agent who sells key person life insurance to the owner
of a small business
A
(B) a tax attorney who assists clients with their income, estate, and gift tax planning
19
Q
All of the following statements regarding annuities are correct EXCEPT
(A) Life annuities guarantee a lifetime income for the annuitant.
(B) Annuities can be purchased on a qualified or nonqualified basis.
(C) Variable annuity payments depend on the performance of an underlying portfolio.
(D) Immediate annuities can be used to accumulate a retirement nest egg.
A
(D) Immediate annuities can be used to accumulate a retirement nest egg.
20
Q
Loss control techniques typically available to individuals and families include all the following EXCEPT
(A) loss prevention
(B) retention
(C) risk avoidance
(D) loss reduction
A
(B) retention
21
Q
Life insurance can be used to provide funds for all the following needs
EXCEPT
(A) to create emergency and adjustment funds
(B) to leave money to a charitable cause
(C) to replace income lost due to a disability
(D) to settle expenses associated with burial
A
(C) to replace income lost due to a disability
22
Q
All of the following statements concerning life insurance policies are correct
EXCEPT
(A) Term life policies provide coverage for limited periods such as 5 or
10 years.
(B) Whole life insurance will pay the face amount to a beneficiary upon death of the insured, regardless of when death occurs , if the policy has remained in force.
(C) Universal life insurance policies require payment of at least a minimum premium in all policy years.
(D) Variable universal life (VUL) policies shift the investment risk to the policyowner.
A
(C) Universal life insurance policies require payment of at least a minimum premium in all policy years.
23
Q
All of the following statements concerning annuities are correct EXCEPT
(A) Life annuities can be purchased with either a single premium or on an installment basis.
(B) All deferred annuities are purchased with a single premium, even though the annuity payments are deferred to some future date.
(C) Deferred annuities can provide for liquidation of one’s financial resources over the lifetime of the annuitant.
(D) Deferred annuities provide a tool to accumulate financial resources on a tax-deferred basis.
A
(B) All deferred annuities are purchased with a single premium, even though the annuity payments are deferred to some future date.
24
Q
All of the following are common obstacles that prevent or hinder clients from developing effective financial plans EXCEPT
(A) the human tendency to procrastinate
(B) the tendency for individuals and families to live beyond their financial means
(C) the lack of financial knowledge among consumers
(D) the lack of available insurance and tax-favored vehicles clients can use to meet financial planning goals
A
(D) the lack of available insurance and tax-favored vehicles clients can use to meet financial planning goals
25
All of the following are considered major planning areas that follow the general principles of financial planning EXCEPT
(A) insurance planning and risk management
(B) divorce planning
(C) investment planning
(D) estate planning
(B) divorce planning
26
Which of the following statements concerning traditional major medical plans is correct?
(A) They restrict insureds to specific physicians and hospitals.
(B) They limit reimbursement to reasonable and customary charges.
(C) They are typically less expensive than managed care plans.
(D) They negotiate deep discounts with physicians and hospitals.
(B) They limit reimbursement to reasonable and customary charges.
27
Dental expenses are paid on a reasonable-and-customary basis (subject to any exclusions or limitations in the contract) under which type of dental plan?
(A) scheduled plan
(B) nonscheduled plan
(C) qualified plan
(D) nonqualified plan
(B) nonscheduled plan
28
Employer contributions for dependent life insurance are not taxable to the employee if the amount of the coverage on the dependent does not exceed
(A) $2,000
(B) $5,000
(C) $10,000
(D) $50,000
(A) $2,000
29
Emily quits her job at ABC Company to start her own business. Under
COBRA, she will be eligible to extend her current group health plans for
up to
(A) zero months
(B) 12 months
(C) 18 months
(D) 36 months
(C) 18 months
30
The cost of continuing coverage under COBRA may be passed on to the employee , but it cannot exceed what percent of the cost of the plan for a similarly situated active employee?
(A) 100 percent
(B) 102 percent
(C) 105 percent
(D) 108 percent
(B) 102 percent
31
Preferred provider organizations (PPOs) typically differ from HMOs in which of the following ways?
I. Employees are not required to use the practitioners or facilities in the plan's network.
II. POS plans generally do not cover preventive care while HMOs generally do.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
32
Characteristics that distinguish HMOs from traditional medical expense contracts include which of the following?
I. HMOs provide for the delivery of medical services.
II. HMOs emphasize control of medical expenses.
(A) I only
(B) II only
(C) Both Iand II
(D) Neither I nor II
(C) Both Iand II
33
Which of the following statements concerning taxation of employee benefits is (are) correct?
I. The cost of providing benefits is generally tax deductible for the employer.
II. Taxation is consistent from benefit to benefit and from type of plan to type of plan.
(A) I only
(B) II only
(C) Both Iand II
(D) Neither I nor II
(A) I only
34
Which of the following statements concerning the taxation of disability benefits is (are) correct?
I. All benefits paid from fully contributory plans are taxable income to the employee.
II. All benefits paid from noncontributory plans are received by the employee tax free.
(A) I only
(B) II only
(C) Both Iand II
(D) Neither I nor II
(D) Neither I nor II
35
Which of the following statements concerning employee benefits is (are)
correct?
I. Most employee benefits are issued without evidence of insurability on the employee.
II. No underwriting is required for group benefits because all employees are still healthy and actively working.
(A) I only
(B) II only
(C) Both Iand II
(D) Neither Inor II
(A) I only
36
All of the following statements regarding the taxation of group term life insurance are correct EXCEPT
(A) Premiums are taxable income for key employees if the plans are
considered discriminatory.
(B) Death proceeds generally are not taxable income to beneficiaries
when paid in one lump sum.
(C) Employer contributions for dependent life coverage are not taxable to the employee if death benefits do not exceed $2,000.
(D) Death proceeds are fully-taxable income to beneficiaries if they are paid in installments over more than one taxable year.
(D) Death proceeds are fully-taxable income to beneficiaries if they are paid in installments over more than one taxable year.
37
Group medical expense plans containing coordination-of-benefits (COB) provisions have established all of the following priorities for determining which plans pay benefits EXCEPT
(A) Coverage as a retired employee is primary to coverage as an active employee. ·
(B) Coverage as an employee is usually primary to coverage as a
dependent.
(C) If a child lives in a two-parent household, the plan of the parent whose birthday falls earlier in the calendar year is primary.
(D) If a child does not live with both parents,the plan of the parent with custody of the child is primary in the absence of a court order specifying otherwise.
(A) Coverage as a retired employee is primary to coverage as an active employee.
38
Group term insurance contracts often provide additional insurance benefits in the·form of all of the following coverages EXCEPT
(A) supplemental life insurance
(B) accidental death and dismemberment insurance
(C) dependent life insurance
(D) long-term disability income insurance
(D) long-term disability income insurance
39
All of the following factors have contributed to the growth of employee benefits EXCEPT
(A)industrialization of the American economy
(B) organized labor
(C) the decreasing role of Social Security for American workers
(D) wage controls during the 1940s and 1950s
(C) the decreasing role of Social Security for American workers
40
All of the following are qualifying events under COBRA EXCEPT
(A) the divorce or legal separation of the covered employee and spouse
(B) when the spouse of the covered employee becomes eligible for Medicare
(C) a child's ceasing to be an eligible dependent under the employer plan
(D) the death of the covered employee
(B) when the spouse of the covered employee becomes eligible for Medicare
41
Harry owns some municipal bonds that provide him with a tax-exempt yield of 4 percent. If Harry is in the 25 percent marginal income tax bracket, what is his equivalent fully taxable yield from the bonds?
(A) 3.25 percent
(B) 4.75 percent
(C) 5.33 percent
(D) 16.00 percent
(C) 5.33 percent
42
Jasmine owns stock that currently sells at $100 per share and pays an annual dividend of $4 per share. If Jasmine is in the 25 percent marginal income tax bracket, what is her after-tax current yield from the stock?
(A) 0.75 percent
(B) 3.00 percent
(C) 4.00 percent
(D) 4.25 percent
(B) 3.00 percent
43
Which of the following is a privilege that provides preferred stockholders a preferential position relative to common stockholders?
(A) the right to receive dividends before dividends are paid out to the common stockholders
(B) the right to maintain their relative voting power by purchasing shares of any new issues of common stock
(C) the right to elect the board of directors
(D) the right to vote on issues such as mergers and stock splits
(A) the right to receive dividends before dividends are paid out to the common stockholders
44
Which of the following asset categories historically has provided the largest average annual before-tax returns?
(A) long-term corporate bonds
(B) common stock investments
(C) U.S.Treasury bills
(D) long-term government bonds
(B) common stock investments
45
The net asset value of a mutual fund is equal to
(A) number of shares outstanding/(total assets + total liabilities)
(B) number of shares outstanding/(total assets- total liabilities)
(C) (total assets+ total liabilities)/number of shares outstanding
(D) (total assets- total liabilities)/number of shares outstanding
(D) (total assets- total liabilities)/number of shares outstanding
46
Which of the following statements regarding an investment's expected return and risk is (are) correct?
I. An asset with a wide range of possible returns is considered a risky
investment
II. Investing is based on a reasoned consideration of expected return
and the risk associated with that return.
(A) Ionly
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
47
Which of the following statements concerning corporate debt instruments is (are) correct?
I. If they have features that benefit the bondholders , the interest rate
paid will be higher.
II. High yield bonds have strong quality ratings from ratings agencies and are considered investment grade securities.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
48
Components of the interest rate risk include which of the following?
I. business (default) risk
II. reinvestment rate risk
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
49
```
Which of he following statements regarding an open-end investment
company IS (are) correct?
```
I. Its shares are traded in the stock market like those of large corporations.
II. It issues a given number of shares at formation and rarely, if ever, issues additional shares.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
50
Which of the following is (are) a source of investment risk?
I. purchasing power risk
II. Interest rate risk
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
51
Which of the following statements regarding holding periods for common stock Investments 1s (are) correct?
I. Short holding periods, such as one year or less, may produce negative total returns.
II. Individually owned stocks should generally have planned holding periods of at least 5 years.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
52
All of the following statements concerning asset allocation models are correct EXCEPT
(A) They are portfolio recommendations of asset categories.
(B) They emphasize the category and percentage to be placed in each category.
(C) They provide specific assets in which clients should invest
(D) They are most effective when they reflect a client’s risk-tolerance level.
(C) They provide specific assets in which clients should invest
53
All of the following are considered cash equivalents EXCEPT
(A) American depository receipts (ADRs)
(B) nonnegotiable certificates of deposit (COs)
(C) money market deposit accounts (MMDAs)
(D) U.S. Treasury bills (T-bills)
(A) American depository receipts (ADRs)
54
All of the following statements regarding the ownership of liquid assets are correct EXCEPT
(A) Liquid assets tend to have the lowest expected rates of return.
(B) Owning liquid assets provides flexibility for emergency purposes.
(C) There are often substantial opportunity costs to owning liquid assets.
(D) There typically is a sizable investment risk in owning liquid assets.
(D) There typically is a sizable investment risk in owning liquid assets.
55
Reasons for the popularity of investment companies include all of the following EXCEPT
(A) Each share in an investment company benefits from the pooled diversification of the portfolio.
(B) The wide diversity of investment companies allows an investor to select the portfolio that best suits her objectives.
(C) Investment companies typically perform better than the market averages because they have no fees.
(D)lnvestment companies have professional managers that select and continuously monitor the portfolio's securities .
(C) Investment companies typically perform better than the market averages because they have no fees.
56
Helen has unreimbursed medical expenses totaling $7,000. If Helen's adjusted gross income (AGI) is $40,000 and she itemizes deductions ,how much of the medical expenses will she be allowed to deduct for income tax purposes?
(A) $3,000
(B) $4,000
(C) $6,475
(D) $7,000
(B) $4,000
57
Marco owns a rental property but the income goes to his grandson. Most likely, Marco will be taxed on the income based on the
(A) fruit-and-the-tree doctrine
(B) assignment-of- income doctrine
(C) constructive-receipt doctrine
(D) economic-benefit doctrine
(A) fruit-and-the-tree doctrine
58
During the past taxable year, Susan sold some common stock she held for several years and incurred a capital loss of $6,000. Susan had no capital gains during the year, and her other income for the year was $60,000. How
much of the capital loss can Susan deduct for the taxable year?
(A) None
(B) $3,000
(C) $5,000
(D) $6,000
(B) $3,000
59
Taxpayers must generally include which of the following in their gross incomes?
I. gifts and inheritances
II. workers' compensation benefits
(A) I only
(B) II only
(C) Both Iand II
(D) Neither I nor II
(D) Neither I nor II
60
Which of the following statements regarding tax credits is (are) correct?
I. A $100 tax credit provides the taxpayer the same benefit as a $100 deduction.
II. A $200 tax credit is worth more to a taxpayer in the 35 percent bracket than to one in the 15 percent bracket.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
61
Which of the following statements regarding federal income tax rates is (are) correct?
I. The highest marginal tax rate for an individual taxpayer is currently 39 percent.
II. An individual taxpayer's effective tax rate is always higher than his marginal tax rate.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
62
Which of the following statements regarding "tax-preference items" is (are) correct?
I. They provide a taxpayer with greater tax benefits than regular deductions.
II. They are items deductible for regular tax but face different rules under
the alternative minimum tax (AMT).
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
63
Which of the following types of entities are classified as taxable entities?
I. C corporation
II. S corporation
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
64
All of the following statements concerning itemized deductions are correct EXCEPT
(A) All itemized deductions are below-the-line deductions.
(B) A taxpayer can either itemize deductions or claim the standard deduction.
(C) Itemized deductions are claimed on Schedule B of IRS Form 1040.
(D) The standard deduction amounts are indexed annually for inflation.
(C) Itemized deductions are claimed on Schedule B of IRS Form 1040.
65
All of the following statements regarding tax credits are correct EXCEPT
(A) Tax credits are more beneficial to the taxpayer than deductions of an equal amount.
(B) A tax credit is a dollar-for-dollar reduction of the actual tax payable.
(C) Each tax credit has its own set of rules for eligibility.
(D) Tax credits are itemized on Schedule A of IRS Form 1040.
(D) Tax credits are itemized on Schedule A of IRS Form 1040.
66
All of the following are taxpayer's filing statuses for federal income tax purposes EXCEPT
(A) married taxpayer filing jointly
(B) married head of household
(C) married taxpayer filing separately
(D) single taxpayer
(B) married head of household
67
All of the following statements regarding the standard deduction are correct EXCEPT
(A) The amount of the standard deduction depends on the taxpayer's filing status.
(B) The standard deduction is classified as an above-the-line deduction.
(C) The taxpayer may choose to itemize deductions instead of taking the standard deduction.
(D) The standard deduction amounts are indexed annually for inflation.
(B) The standard deduction is classified as an above-the-line deduction.
68
All of the following are pass-through entities for federal income tax purposes EXCEPT
(A) C corporations
(B) limited liability companies (LLCs)
(C) S corporations
(D) partnerships
(A) C corporations
69
All the following statements regarding the alternative minimum tax (AMT) for individual taxpayers are correct EXCEPT
(A) The taxpayer pays the AMT amount if the AMT is greater than the regular tax.
(B) The AMT is a separate and parallel income tax system to the regular system.
(C) The computational process for determining the AMT is different from that used to determine the regular tax.
(D) The AMT calculation permits taxpayers to deduct the same items that they can deduct for regular tax purposes.
(D) The AMT calculation permits taxpayers to deduct the same items that they can deduct for regular tax purposes.
70
All of the following statements regarding the standard deduction and dependency exemptions are correct EXCEPT
(A) The taxpayer may claim the standard deduction in addition to her exemptions.
(B) The amount of the exemption(s) is subtracted from gross income to determine adjusted gross income.
(C) The exemption amount changes annually with an inflation adjustment.
(D) A taxpayer is permitted to claim a dependency exemption for each qualified individual she supports as a dependent.
(B) The amount of the exemption(s) is subtracted from gross income to determine adjusted gross income.
71
Which of the following correctly describes the unit-benefit formula found in defined-benefit pension plans? ·
(A) It directly ties the participant's pension benefit to both service and salary.
(B) It bases the participant's pension benefit on final average salary only.
(C) It provides each participant with the same pension benefit.
(D) It provides each participant with a flat benefit amount for each year of service
(A) It directly ties the participant's pension benefit to both service and salary.
72
Which of the following is a method for determining retirement income that assumes that the standard of living enjoyed during the years just prior to retirement will be the determining factor for the standard of living during retirement?
(A) expense method
(B) capital-utilization method
(C) capital-retention method
(D) replacement-ratio method
(D) replacement-ratio method
73
Which of the following types of retirement plans is a qualified plan?
(A) a SIMPLE plan
(B) a 401(k) plan
(C) a SEP plan
(D) a 403(b) plan
(B) a 401(k) plan
74
Which of the following statements concerning contributions to traditional IRAs is correct?
(A) Contributions may be used to buy life insurance policies.
(B) Contributions may be deductible or nondeductible.
(C) Contributions may be commingled with a taxpayer's other assets. .
(D) The maximum contribution is 10 percent of the taxpayer's income.
(B) Contributions may be deductible or nondeductible.
75
Which of the following expenses tend to decrease for retirees?
I. mortgage payments
II. medical and dental costs
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
76
Which of the following statements concerning defined-contribution plans (is) are correct?
I. The employer assumes the preretirement inflation and investment risks.
II. All contributions are allocated to the accounts of individual employees.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
77
Which of the following statements regarding a 403(b) plan is (are) correct?
I. It allows deferrals in the form of a salary reduction chosen by the employee.
II. It can be used in conjunction with most other retirement plans.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
78
Which of the following statements regarding a Roth IRA is (are) correct?
I. Contributions can be made even after the owner attains age 70 1/2 is he has earned income.
II. Distributions must begin no later than when the owner attains age 70 1/2.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
79
Which of the following statements regarding qualified plans is (are) correct?
I. Distributions can be rolled into an IRA.
II. A SEP is a qualified plan that uses an IRA.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
80
Which of the following statement(s) concerning Roth IRAs is (are) correct?
I. Contributions are not deductible.
II. Qualifying withdrawals are not subject to income tax.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
81
Nonqualified retirement plans are potentially subject to all of the following problems EXCEPT
(A) somewhat inflexible withdrawal provisions
(B) the forfeiture or loss of benefits
(C) nondiscrimination rules that limit benefit amounts
(D) the threat of immediate taxation that would reduce the benefit amount
(C) nondiscrimination rules that limit benefit amounts
82
All of the following statements concerning simplified employee pension plans (SEPs) are correct EXCEPT
(A) Contributions typically are allocated as a level percentage of compensation.
(B) The allocation formula may be integrated with Social Security.
(C) All employer contributions are 100 percent vested at all times.
(D) Employers are required to make annual contributions in each plan
year.
(D) Employers are required to make annual contributions in each plan
year.
83
All of the following statements regarding SIMPLE plans are correct EXCEPT
(A) Assets cannot be invested in life insurance or collectibles.
(B) Participants are allowed to borrow from their accounts.
(C) Participants must be fully vested in all benefits at all times.
(D) Any type of business entity can establish a SIMPLE plan.
(B) Participants are allowed to borrow from their accounts.
84
All of the following statements regarding defined-benefit plans are correct EXCEPT
(A) Plan contributions are not allocated to individual employee accounts.
(B) The employer assumes the risk of preretirement Inflation and
investment performance.
(C) The costs associated with a defined-benefit plan are unpredictable. ·
(D) The law specifies the maximum allowable annual contribution that can be made for an employee.
(D) The law specifies the maximum allowable annual contribution that can be made for an employee.
85
All of the following statements regarding a reverse mortgage are correct EXCEPT
(A) It typically is available only when the home is the borrower's principal residence.
If property values erode, the lender may end up with a loss.
(C) It typically is available regardless of the borrower's age.
It does not have to be repaid as long as the borrower lives in the home.
(C) It typically is available regardless of the borrower's age.
86
Which of the following provides the holder the ability to transfer property to a limited class of potential recipients?
(A) a power of appointment
(B) a conventional power of attorney
(C) a durable power of attorney
(D) a special power of appointment
(D) a special power of appointment
87
The most complete ownership interest one can have in property is a
(A) fee simple estate
(B) life estate
(C) tenancy by the entirety
(D) future interest
(A) fee simple estate
88
A life insurance policy death benefit paid to a named beneficiary is an example of a transfer of property by operation of
(A) will
(B) law
(C) contract
(D) intestacy
(C) contract
89
A power of appointment over property that gives the holder the broad power to transfer the property to virtually any recipient is referred to as a
(A) special power of appointment
(B) general power of appointment
(C) legal power of appointment
(D) reversionary power of appointment
(B) general power of appointment
90
Which of the following types of concurrently owned property is freely transferable by a deceased owner's will?
(A) tenancy by the entirety
(B) community property
(C) joint tenancy with right of survivorship
(D) tenancy in common
(D) tenancy in common
91
Which of the following property transfers at the client's death is by operation of law?
(A) life insurance proceeds payable to a named beneficiary
(B) property transferred by an irrevocable living trust
(C) pay-on-death (POD) accounts
(D) retirement plan death benefits payable to a named beneficiary
(C) pay-on-death (POD) accounts
92
Which of the following statements concerning a durable power of attorney is (are) correct?
I. It takes effect immediately upon execution.
II. It can replace or complement a revocable trust.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
93
Which of the following statements regarding the gift tax annual exclusion is (are) correct?
I. It is available only for gifts to close relatives of the donor.
II. It is available only for gifts that provide the donee with a future interest.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
94
The federal gift tax applies only if which of the following elements is (are) present?
I. There is a completed transfer and acceptance of the property.
II. The transfer of the property is for less than full and adequate consideration.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
95
Advance medical directives include which of the following?
I. durable power of attorney for health care
II. living will
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
96
All of the following statements concerning tenancy by the entirety are correct EXCEPT
(A) It is a property Interest restricted solely to spouses.
(B) It is joint ownership of the property with rights of survivorship.
(C) It is a property interest that is disposed of by the will of the deceased spouse.
(D) It is a property interest that is severed automatically upon divorce.
(C) It is a property interest that is disposed of by the will of the deceased spouse.
97
All the following statements concerning a revocable trust are correct EXCEPT
(A) It can receive property from the client that avoids inclusion in the client's estate at his or her death.
(B) It allows the client to observe the management of trust assets without relinquishing ultimate control of them.
(C) It can be drafted to provide the dispositive directions normally contained in the client's will.
(D) It avoids the publicity, delay, and some expenses associated with the probate process.
(A) It can receive property from the client that avoids inclusion in the client's estate at his or her death.
98
All of the following statements regarding a testamentary trust are correct EXCEPT
(A) It escapes probate at the client's death.
(B) It does not receive property until the client dies.
(C) It is created under the client's will.
(D) It is not irrevocable until the client dies.
(A) It escapes probate at the client's death.
99
All of the following statements regarding a revocable trust are correct EXCEPT
(A) The creation involves a transfer that is a completed gift.
(B) It avoids the publicity, delay, and expense of probate.
(C) It becomes irrevocable at the grantor's death.
(D) Its creation has no effect on the grantor's gross estate.
(A) The creation involves a transfer that is a completed gift.
100
All of the following statements regarding a durable power of attorney are correct EXCEPT
(A) It takes effect immediately upon execution.
(B) It can be designed for use in making medfcal care decisions.
(C) It becomes inoperative if the principal is incapacitated.
(D) It can replace or complement a revocable trust.
(C) It becomes inoperative if the principal is incapacitated.
101
Which of the following statements concerning Medigap insurance plans is correct?
(A) Employer-provided Medicare supplement plans must meet all Medigap requirements.
(B) Persons age 65 or older may buy any Medigap plan after enrolling in Medicare Part B.
(C) Medigap insurance only covers deductibles and copayments for expenses paid under Medicare Part B.
(D) All Medigap insurance plans issued since 2006 are required to provide prescription drug coverage.
(B) Persons age 65 or older may buy any Medigap plan after enrolling in Medicare Part B.
102
Jean died and left behind a surviving spouse, age 37, and a child age 12. The surviving spouse's salary exceeds the earnings test threshold by $2,000. The surviving spouse's annual benefit amount will be reduced by
(A) $500
(B) $1,000
(C) $2,000
(D) $4,000
(B) $1,000
103
Which of the following statements regarding monthly Social Security benefits for the family members of a 66-year-old retiree receiving full retirement benefits is correct?
(A) The 60-year-old spouse of the retired worker is eligible to receive
75 percent of the worker's PIA.
(B) The 15-year-old daughter of the retired worker is eligible to receive 50 percent of the worker's PIA.
(C) The 22-year-old son of the retired worker is eligible to receive 75 percent of the worker's PIA if he stays in college.
(D) The 87-year-old mother of the retired worker is eligible to receive 50 percent of the worker's PIA if she is a dependent.
(B) The 15-year-old daughter of the retired worker is eligible to receive 50 percent of the worker's PIA.
104
Which of the following statements concerning quarters of coverage under Social Security is correct?
(A) The amount of earnings necessary for a quarter of coverage is adjusted annually.
(B) Credit for up to 10 quarters of coverage may be earned in any one calendar year.
(C) A person is fully insured if he or she has at least 20 quarters of coverage.
(D) A person is currently insured if he or she has at least 4 quarters of coverage.
(A) The amount of earnings necessary for a quarter of coverage is adjusted annually.
105
Which of the following statements regarding Social Security disability benefits is correct?
(A) Benefits are subject to a waiting period and commence one year after a disability begins.
(B) Benefits are payable as long as the disabled worker is unable to perform his or her regular job .
(C) Benefits are payable as tong as the disabled worker is considered to be currently insured.
(D) Benefits cease at full retirement age but are replaced by comparable Social Security retirement benefits.
(D) Benefits cease at full retirement age but are replaced by comparable Social Security retirement benefits.
106
Which of the following persons will have his or her SocialSecurity benefits reduced or terminated because of the earnings test?
(A) A widow, aged 39, who receives survivors benefits and has annual income of $24,000 from a full-time job.
(B) A child, aged 12,who receives survivors benefits and has a monthly annuity income of $1,000 from a settlement option of her father's
life insurance policy.
(C) A retired worker, aged 73, who earns $14,000 annually from part-time employment.
(D) A retired worker, aged 64, who receives $18,000 annually from investment income.
(A) A widow, aged 39, who receives survivors benefits and has annual income of $24,000 from a full-time job.
107
Which of the following statements regarding Medicare Advantage programs is correct?
(A) Health maintenance organizations (HMOs) cannot be used in a Medicare Advantage plan.
(B) The Affordable Care Act of 2010 will provide gradually increasing reimbursements to Medicare Advantage programs in the future.
(C) Medicare Advantage programs allow most Medicare beneficiaries to elect health care benefits through alternatives to traditional Medicare Parts A and B.
(D) In 2012, approximately 50 percent of Medicare beneficiaries are in a
Medicare Advantage program.
(C) Medicare Advantage programs allow most Medicare beneficiaries to elect health care benefits through alternatives to traditional Medicare Parts A and B.
108
To be "disability insured" under Social Security, a worker must meet which of the following requirements?
I. be fully insured under Social Security
II. be expected to die within 2 years (as diagnosed by two physicians)
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
109
Which of the following statements regarding Social Security benefits is (are) correct?
I. Social Security benefits are increased automatically in accordance with increases in the CPI-W.
II. If a person is eligible for more than one type of Social Security benefit, only the higher benefit is paid.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
110
Tracy dies, leaving behind a 40-year-old spouse and a child under age Tracy's PIA is $2,000 per month. Which of the following statements
concerning survivor benefits is (are) correct?
I. The surviving spouse will receive $2,000 per month.
II. The child will receive $1,500 per month.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
111
All of the following persons are also eligible for monthly benefits if a retired worker is receiving retirement benefits EXCEPT
(A) spouse aged 62 or older
(B) divorced spouse whose marriage lasted five years
(C) dependent unmarried child aged 13
(D) disabled child aged 26 who was disabled at age 15
(B) divorced spouse whose marriage lasted five years
112
Basic benefits required to be in all Medigap insurance policies include all of the following EXCEPT
(A) copayment for Part A benefits for the 61st through the 90th day of hospitalization
(B) copayment for Part A benefits for the 21st through the 100th day of skilled-nursing facility care
(C) Part B percentage participation for Medicare-approved charges for physicians' and medical services
(D) yearly 3 pint deductible for Part A coverage of blood as an inpatient
hospital expense
(B) copayment for Part A benefits for the 21st through the 100th day of skilled-nursing facility care
113
All the following statements concerning Social Security (OASDI) taxes are correct EXCEPT
(A) They are paid by all persons covered under Social Security.
(B) They are paid by the employers of all covered persons.
(C) All wages of covered persons are subjected to these taxes.
(D) The tax rate applicable to both employers and their employees is 6.2 percent.
(C) All wages of covered persons are subjected to these taxes.
114
Part A of Medicare provides benefits for all of the following types of expenses EXCEPT
(A) inpatient hospital services
(B) hospice care
(C) physicians' and surgeons' fees
(D) home health care visits
(C) physicians' and surgeons' fees
115
All the following are types of Medicare Advantage plans used with Part C of Medicare EXCEPT
(A) preferred-provided organization (PPO) plans
(B) private fee-for-service (PFFS) plans
(C) health maintenance organization (HMO) plans
(D) supplementary (Medigap) insurance plans
(D) supplementary (Medigap) insurance plans
116
Step 6 (implementing the recommendation(s)) of the financial planning process is where the advisor
(A) reviews changes in the client's circumstances and the financial environment
(B) identifies the strengths and weaknesses in the client's present financial condition
(C) does fact-finding by gathering
considerable information from the client
(D) motivates and helps the client acquire all the necessary financial products and services
(D) motivates and helps the client acquire all the necessary financial products and services
117
Which of the following typically is the most expensive benefit for employers to provide?
(A) medical expense insurance
(B) life insurance
(C) disability income insurance
(D)dental insurance
(A) medical expense insurance
118
Which of the following types of retirement plans .ca be adopted only by tax-exempt organizations and public schools?
(A) 403(b) plans
(B) SEPs
(C) SIMPLEs
(D) 401(k) plans
(A) 403(b) plans
119
This year Pete has unreimbursed medical expenses totaling $9,500. If Pete has an adjusted gross income (AGI) of $80,000 and he itemizes deductions, how much of the expenses will he be allowed to deduct for income tax purposes?
(A) $1,600
(B) $3,500
(C) $6,000
(D) $9,500
(B) $3,500
120
Tom wants to buy a life insurance policy that will give him some flexibility in changing the death benefit after policy issue. He also wants a policy with flexible premiums. Which of the following types of life insurance would you recommend?
(A) traditional whole life
(B) variable life
(C) universal life
(D) 20-year level term
(C) universal life
121
The most important specialization in financial planning, based on the number of people affected is:
(A) education planning
(B) divorce planning
(C) closely held business planning
(D) nontraditional family planning
(A) education planning
122
Sandra receives interest semiannually from a $1,000 bond she owns and gives it to her son, Brett. Which of the following tax
doctrines explains why Sandra is required to pay income tax on the interest income even though Brett actually receives it?
(A) constructive receipt doctrine
(B) shotgun doctrine
(C) fruit-and-tree doctrine
(D) economic benefit doctrine
(C) fruit-and-tree doctrine
123
Bob is moving into a condominium that he bought, and he wants a homeowners insurance policy to protect the unit and its contents. As.Bob's insurance advisor' which of the followmg homeowners forms would you recommend that he buy?
(A) H0-2
(B) H0-4
(C) H0-6
(D) H0-8
(C) H0-6
124
Which of the following forms of jointly owned property becomes part of the probate estate at an owner's death?
(A) property owned as a tenancy by the
entirety
(B) property owned as a joint tenancy With
right of survivorship
(C) property owned as community property
(D) property owned as a tenancy in common
(D) property owned as a tenancy in common
125
The Social Security and Medicare programs are important to financial advisors and their clients for which of the following reasons?
I. The most significant insurance expense for most individuals is their FICA contributions to these programs.
II. These programs form the foundation on
which employee benefits and individual
insurance plans are built.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(C) Both I and II
126
Which of the following statements regarding the use of insurance for risk financing is (are) correct?
I. Insurance involves the transfer of risk to an lnsuran company for a relatively small premium.
II. The use of insurance is especially appropriate when both the frequency and severity of the loss are high.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
127
Which of the following statements regarding long-term disability income plans is (are) correct?
I. Most long-term disability income policies provide benefits of 90 to 100 percent of the insured's earnings.
II. Long-term disability income plans are commonly called sick-pay plans.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
128
Which of the following statements regarding a testamentary trust is (are) correct?
I. It is created under the will of a testator.
II. It becomes part of a deceased's nonprobate estate .
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
129
Which of the following statements regarding tax credits is (are) correct?
I. They are expense items that reduce the amount of a taxpayer's income subject to taxation.
II. They are beneficial to a taxpayer but not as valuable as deductions of an equal amount.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(D) Neither I nor II
130
Which of the following statements regarding a worker's primary insurance amount under Social Security is (are) correct?
I. It is the primary amount a worker's beneficiary receives as a lump-sum because of the worker's death.
II. It is the amount on which monthly income for a worker's eligible
dependents is based.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
131
Which of the following statements regarding coverage to supplement Medicare is (are) correct?
I. Only about 5 to 10 percent of Medicare recipients have some type of coverage to supplement Medicare.
II. The NAIC adopted 10 standard Medigap plans that require specified basic benefits.
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(B) II only
132
Sam is a financial advisor who always uses the financial planning process when dealing with clients. In which of the following situations would Sam be practicing single-purpose financial planning?
I. when he sells key-person life insurance to a single client who owns a small business
II. when he assists a single client with
the client's income,gift , and estate tax
planning
(A) I only
(B) II only
(C) Both I and II
(D) Neither I nor II
(A) I only
133
The growth of employee benefits stems from all of the following factors EXCEPT
(A) falling employee productivity
(B) increasing urbanization
(C) cost advantages
(D) government legislation
(A) falling employee productivity
134
All of the following are types of governmental debt securities EXCEPT
(A) revenue bonds
(B) general obligations
(C) agency bonds
(D) convertible bonds
(D) convertible bonds
135
All of the following are considered roadblocks to retirement saving EXCEPT
(A) unexpected expenses
(B) frequent employment changes
(C) a large inheritance
(D) inadequate insurance coverage
(C) a large inheritance
136
All of the following are methods for measuring an investment's return EXCEPT
(A) current yield
(B) nominal rate of return
(C) holding-period return
(D) approximate yield
(B) nominal rate of return
137
All of the following are examples of nonprobate property that is transferred to the deceased's beneficiary by operation of law EXCEPT
(A) life insurance proceeds payable to a beneficiary
(B) property held jointly with survivorship rights
(C) property held in a revocable living trust
(D) a joint securities account with survivorship rights
(A) life insurance proceeds payable to a beneficiary
138
Expenses that tend to increase for new retirees Include all of the following EXCEPT
(A) utilities and telephone costs
(B) medical and dental costs
(C) entertainment and dining costs
(D) income and property taxes
(D) income and property taxes
139
Determining whether a particular investment is suitable for a client requires the financial advisor to consider all of the following the client's EXCEPT
(A) goals for making the investment
(B) possibility of inheriting a large sum of
money
(C) psychological attitudes toward risk taking
(D) capacity to sustain a financial loss
(B) possibility of inheriting a large sum of
| money
140
All of the following statements regarding long-term care insurance premiums are correct EXCEPT
(A) The longer the elimination period selected for a policy, the lower will be the policy's premium.
(B) Most insurers offer a premium discount if both spouses purchase coverage from the company.
(C) Inflation protection is provided with no
increase in premium for most policies.
(D) The longer the maximum benefit period selected for a policy, the higher will be the policy's premium.
(C) Inflation protection is provided with no
| increase in premium for most policies.
