CFP Flashcards
(22 cards)
Future value
The future amounts to which one dollar today will increase based on a defined interest rate and period of time.
PV
What are some of money to be received in the future will be worth today
Steps in the financial planning process
- Established
- Gather
- Determine financial status
- Present plan
- Implement
- monitor
Annuity
Ordinary annuity
A systematic payment occurring at the beginning of each compounding.
It is an ordinary annuity when the annuity occurs at the end of each compounding period
HP - 12c codes
n = compounding periods i = interest rate per compounding period PV = present value PMT = annuity FV= future value CHS = cash flow
HP-12c codes for annuities
g BEG = begin for annuity due. (used for cash outflows for college funding, retirement funding, gifting, and insurance premium payments, cash inflows received from Social Security benefits, pensions, retirement planning, and disability payments.)
Net present value
Is used to evaluate the cash flow associated with capital projects and capital expenditures. The method discounts the future cash flow at an appropriate discount rate and allows the present value of the inflows to be compounded to the present values of outflows.
Net present value and annuities for HP – 12c
gCFo =initial investment
g CFj = Amount needed
g Nj = # of years
f NPV - to calculate result
What the result of an NPV analysis tells us
If the answer is positive then undertake the investment. If the answer is negative do not undertake the investment. If the answer is zero and undertake the investment.
Internal rate of return
The method discounts the future cash flow at an appropriate method used to determine the exact discount rates to equalize cash inflows and outflows of a specific investment or project. Allows the financial planner to compare computer grade to required rate of return. The IRR calculation assumes the reinvestment rate is the IRR
NPV v IRR
The NPV is considered a superior model to the IRR when comparing investment projects on equal lives because investing at the required rate of return is more reasonable than at the IRR. With changes of more than two inflows/outflows in an investment project there is only one NPV but multiple IRR’s
Serial payments
A payment that increases at a constant rate (usually inflation) on an annual basis.
Examples include investment deposits, life insurance premiums, educational needs, and retirement needs.
Impact of inflation formula
(1 + RR / 1 + RI) - 1 =
Fiduciary
One who acts in the utmost good faith in a manner he or she reasonably believesto be in the best interest of the client.
Currently investments need to be suitable.
Seven areas of financial planning
Financial planning, insurance planning, employee benefits, investment planning, income tax planning, retirement planning and estate planning.
Principle of financial planning in the code of ethics
Integrity, competence, objectivity, confidentiality, fairness, professionalism, diligence
“I can obtain CFP designation”
Defining relationship with client
Gathering information from client. Determining who is doing what.examining the result of the current investments without any change. The formulation of any recommendation actions this is so potato and monitoring actions. Should be written out and engagement letter.if cover financial planning then a written letter governing the financial planning services must be entered into.including defining the scope of the relationship and the duration. Parties. Date of termination and how to terminate.
Information required and disclosure
state circumstances that prevent services. And written disclosure of compensation and any real or perceived conflict.
Securities act of 1933
Deals with issuance of primary securities to the public
Securities act of 1934
Deals with secondary market and created the securities and exchange commission
Investment Company act of 1940
Deals with who is responsible to register as an investment advisor
Blue sky laws
Allows reciprocity between states
