Extra CFP Notecards

Question 1

CML
What is the intersection of CML called?
What is the B point called?
What happens if the portfolio moves from point of tangency to Rf?

Answer 1

1. Rf or risk free (t-bills)
2. The optimal risky portfolio, a portfolio percentage of all risky assets, or the tangent of the CML and the markowitz effecient frontier
3. The investor sells risky assets (like stocks and long term bonds) and buys T bills

Question 2

Capm
Market risk premium
Stock risk premium

Answer 2

Market risk-in sml (also known as capm) formula, the term (Erf-rf) is the market risk premium -reflects slope of SML

Stock risk premium -term (Erm-rf)B is the stock risk premium

Question 3

Gross income

TOBAC UPRITS

Answer 3

Taxable interest
Ordinary dividends 
Business income or losses
Alimony received 
Capital gains/losses

Unemployment income 
Pensions/annuities/punitive
Real estate 
IRA distribution 
Taxable social security

Question 4

Adjustments for AGI

KAISS

Answer 4

Koegh or sep
Alimony  paid (pre 2019)
IRA contribution 
Self employment tax 1/2 (.07065)
Self employment health insurance 

2500 student loan interest
HSA contribution
Penalty for early withdrawal of savings
Moving expenses

Question 5

Itemized deductions

Answer 5

Medical, dental and LTC (7 1/2) 
Casualty losses (federal disaster)
Real estate taxes*
State local and sales tax*
*limited to 10k
Home mortgage interest 
Charitable gifts
Investment interest expense

Question 6

Assets subject to probate

Answer 6

STEC
Community property(50% attributable to each spouse
estate is beneficiary
TIC property
“Singly” owned assets (individual ownership)

Question 7

Gross estate

Answer 7

All probate assets -COMESTIC

All non-probate assets-JLGG

Question 8

All non probate assets

Answer 8

JLGG
Jtwros and the
Life insurance 
General powers of appt
Gift taxes pd (within 3 years of death)*
Gstt paid within 3 years of death are not added back into gross estate.

Question 9

Leading economic indicators

Answer 9

Initial claims for unemployment insurance
New manufacturing orders
New private housing units
Stock prices, 500 common stocks
Index of consumer expectations

Question 10

Coincidental indicators

Answer 10

Industrial production

Question 11

Lagging indicators

Answer 11

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

Question 12

Risks of:

1. GNMA
2. Investment grade bonds
3. Government bonds
4. Zero
5. GICS

Answer 12

Gnma-IR
Investment grade bonds-DRIP
Government bonds-RIP
Zero-IP - (no reinvestment risk)
GICS- no interest rate risk

Question 13

Basic and broad

Answer 13

Whavves/flt
Windstorm, hail, aircraft, vandalism, vehicle, Explosion, smoke, fire, lightening , theft

Broad-all basic +RAFF
Rupture or system, artificial generated electricity, falling objects and freezing of plumbing

Question 14

Exclusions of insurance

Answer 14

Openn wif

Ordinance or law, power failure, earthquake, neglect, nuclear, war, intentional and flood

Question 15

Dividend options

Answer 15

Crapo 5
cash, reduction of premium, accumulated with interest,
purchase paid up
One term or 5th dividend

Question 16

Nonforfeiture options
And
Settlement options

Answer 16

CPR
Cash
Reduced paid up insurance
Paid up term insurance

Settlement
Cash, interest, installed for Fixed period or installment for fixed amount or life income options