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Additional Cards - CFP > CFP Exam > Flashcards

CFP Exam Flashcards

1
Q

Individuals have three methods to pay for stays after the 100th day:

A
  1. Long-term care insurance
  2. Individual savings
  3. Medicaid
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2
Q

All of the following are factors that can influence the amount of employer contribution to an individual’s age-based profit sharing plan account EXCEPT:

A

Years of service.

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3
Q

The taxable portion of the IRA distribution is calculated as follows:

A

Tax-free portion of distribution = (Basis / Fair Market Value) x Distribution

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4
Q
A

Support Level - usually bullish unless you see graph line go down

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5
Q
A

Head and Shoulder’s Top - sign that a stock has topped. White line is the “neck line”

“Topping pattern”

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6
Q
A

Inverse Head and Shoulders

“Bottoming pattern”

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7
Q
A

Resistance Level

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8
Q
A

Rounded Top

“Bearish” indication

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9
Q
A

Rounded Bottom

“Bullish” indication

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10
Q

Treasury Bonds

A

Interest is Federally Taxed

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11
Q

In-State Muni Bonds

A

Interest is Triple Tax Free

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12
Q

Common Stock

A

Dividend is subject to cap gains rate

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13
Q

Preferred Stock

A

Dividend is subject to Ordinary Income

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14
Q

Out of State Muni Bonds

A

Interest is subject to State and Local Tax

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15
Q

Mutual Funds

A

Dividend is subject to cap gains rate and Tax Inefficient, Distributes Cap Gains

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16
Q

Barbell bond strategy

A

has to do with long and short maturities in the portfolio

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17
Q

What does a stock dividend signal to investors?
The firm is retaining capital for growth related activities.
The firm is preparing to spin off certain unprofitable divisions.
The firm may be experiencing serious internal difficulties which is why it has no cash to put toward dividends.
The firm is in transition as far as management goes and in these situations, stock is the preferred compensation rather than cash.

A

The firm is retaining capital for growth related activities.

18
Q

You are currently reviewing Shanda’s Roth IRA investment portfolio. She is 35 years of age with a moderate risk tolerance. She is single and has no children. Which of the following investments are you likely to recommend she remove from the existing portfolio?

Large Cap Mutual Fund
International Mutual Fund
Corporate Bond Mutual Fund
Municipal Bond Mutual Fund

A

Municipal Bond Mutual Fund

19
Q

Of the following investment, which is designed to provide growth and income?

Raw land.
Fixed premium annuity.
Non-participating mortgage Real Estate Investment Trust (REIT.)
Convertible bond.

A

Convertible bond.

20
Q

Which of the following statement(s) regarding bond swaps is/are true?

A substitution swap is designed to take advantage of anticipated and potential yield differentials between bonds that are similar with regard to coupons, rating, maturities, and industry.
Rate anticipation swaps utilize forecasts of general interest rate changes.
The yield pickup swap is designed to alter the cash flow of the portfolio by exchanging similar bonds having different coupon rates.
The tax swap is made to substitute current yield in place of capital gains.

A

A substitution swap is designed to take advantage of anticipated and potential yield differentials between bonds that are similar with regard to coupons, rating, maturities, and industry.
Rate anticipation swaps utilize forecasts of general interest rate changes.
The yield pickup swap is designed to alter the cash flow of the portfolio by exchanging similar bonds having different coupon rates.

21
Q

Jennifer has asked you if you would advise her regarding several different types of investments. Her preference would be for an investment where she can simply put a fixed number of dollars into an investment and not worry about it. She wants the following: completely tax-advantaged investments, a moderately competitive interest rate, with relative safety, and very low fees. She would eventually like to be assured of getting her principal back, but does not require a great deal of liquidity. Which of the following would you recommend to her in order to best meet her goals?

Municipal Bond Mutual Fund.
Municipal Bond Unit Trust.
High Yield Money Market Fund.
Tax Free Money Market.

A

Municipal Bond Unit Trust.

22
Q

Lily Wassenbaum asks for your assistance in designing an educational investment program for her eight-year-old son, Max. She expects to need the funds in about 15 years when her AGI will be approximately $55,000. She wants to invest at least part of the funds in tax-exempt securities. Help her select which investment(s) would yield tax-exempt interest on her federal return if the proceeds were used to finance Max’s education.

Treasury bills.
EE bonds.
GNMA funds.
Zero coupon Treasury bonds.
III and IV only.
I, III and IV only.
II and III only.
II only.

A

EE bonds.

23
Q

The primary reason for using a ladder bond strategy is to:

Lower overall interest rate risk.
Achieve greater capital gains as the yield curve changes shape.
Avoid the “wash sale” rule.
Immunize the bond portfolio.

A

Lower overall interest rate risk.

24
Q

Which of the following investment vehicles are most appropriate for an emergency fund for a family with $12,000-a-year discretionary income?

Balanced mutual fund.
Line of credit.
Money market mutual funds.
Laddered CDs set to mature every 6 months.
I and II only.
II and IV only.
III and IV only.
I, II and III only.

A

Money market mutual funds.
Laddered CDs set to mature every 6 months.

25
Q

Question
Which of the following best describes a long hedge position?

The investor is short the underlying commodity and short the futures contract.
The investor is long the underlying commodity and long the futures contract.
The investor is short the underlying commodity and long the futures contract.
The investor is long the underlying commodity and short the futures contract.

A

The investor is short the underlying commodity and long the futures contract.

A long position in a futures contract is when the investor buys a futures contract. A short position in a futures contract is when the investor sells a futures contract. A long hedge means that the investor owns (buys) the futures contract to insure a certain price of a commodity that he or she does not yet own. Hedging is taking an opposite futures position than the investor’s inherent underlying position.

26
Q

Which of the following investments would be most appropriate for an investor wanting to maintain purchasing power while minimizing interest rate risk?

Laddered short-term CD portfolio.
Treasury bonds.
Conservative large-value mutual funds.
Collateralized mortgage obligations.

A

Conservative large-value mutual funds.

27
Q

The client wants all bonds to mature in 10 years, but he wants to reduce the interest risk. What is it called if the investor buys bonds that all mature in 10 years?

A

Bullets

A bullet is a portfolio of bonds that all mature at the same time.

28
Q

A barbell (dumbbell) strategy

A

A barbell (dumbbell) strategy is an investment in short-term and long-term bonds that require periodic re-balancing of the portfolio.

29
Q

Advice based

A

Calls for direct advice rather than presenting multiple recommendations to choose from.

30
Q

Information-based

A

Calls for presenting multiple solutions and their advantages and disadvantages and then allowing the client to choose among the alternatives

31
Q

Urge-based

A

Crises-driven approach where you urge a client to take immediate actuon

32
Q

Risk reduction

A

Means reducing the likelihood of a pure risk.

33
Q

Risk avoidance

A

Means a certain loss exposure is never undertaken.

34
Q

Active Retention

A

Means the client is KNOWINGLY retaining the risk.

35
Q

Passive Retention

A

A client is UNKNOWINGLY retaining the risk because of indifference, laziness, or failure to identify an important risk.

36
Q

What does not count as Medicaid income?

A

Federal housing benefits

37
Q

What does count as income for purposes of Medicaid?

A

SS retirement benefits
Veteran benefits
SS disability benefits

38
Q
A
39
Q
A
40
Q
A

Additional Cards - CFP (1 decks)

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