Final weeks

Question 1

Code of Ethics and Professional Responsibility Principles

Answer 1

IOC FCPD
International Olympic Comittee is Fair, Competent and Proficient Daily
Integrity
Objectivity
Competency
Fairness
Confidentiality
Professionalism
Diligence

Question 2

Rules of Conduct

Answer 2

RIPOOO
Rule 1 - Relationship with client (define)
Rule 2 - Information disclosed to prospective client
Rule 3 - Property of client
Rule 4- Obligation to client
Rule 5 - Obligation to employer
Rule 6- Obligations to CFP Board

Question 3

Financial Planning Practice Standards

Answer 3

100- Establishing and defining the relationship with the client (Domain 1)
200 - Determining the clients personal and financial goals, needs and priorities (Domain 2)
300 - Analyzing and evaluating the clients financial status (Domain 3)
400-1 Identifying and evaluating planning alternatives (Domain 4) May consult others
400-2 Developing financial planning recommendations (Domain 4)
400-3 Presenting Financial Planning recommendations (Domain 5) Advantages/disadvantages
500 Implementing financial planning recommendations (Domain 6)
600 Defining monitoring responsibilities (Domain 7)

Question 4

Disclosures in Writing

Answer 4

Parties to the agreement
Date and duration
Terms under which agreement can end
Services to be provided
Specific compensation arrangements
Summary of conflicts of interest
Area of expertise
Contact Information

Annually there after:
Cost and compensation
other sources of comp paid to CFP or employer

Question 5

Included in Brochure

Answer 5

Written disclosure to client detailing
-Advisory Service provided and fees
-Types of securities and investments
-Education and background of the Adviser
-Participation or interest in securities transactions
-MUST be given 48 hrs prior to entering into contract or at the time of contract but client has 5 days to “look and see”
ADVII

Question 6

Notifying the board -contact info change or crime conviction

Answer 6

Contact info- 45 days
email
telephone
physical address
etc

Convicted of crime- 10 calendar days
*no misdemeanor traffic violations unless involve drugs and alcohol

Question 7

Current Ratio

Answer 7

Current Ratio= Current Assets/Current Liabilities

Ability to meet short term obligations 1 or higher is good
(always use credit card debt even if paid off monthly)
(only use taxes when material says “taxes due” or “taxes payable”
(mortgage if say current amount due)

current assets can be converted to cash in 1yr or less

Question 8

Housing Cost Ratio

Answer 8

aka Housing Expense Ratio (PITI)

Principal interest, taxes, insurance/ gross monthly income

< or = 28%

Question 9

Debt to Income Ratio

Answer 9

Consumer and housing debt/ gross monthly income

< or = 36%

Question 10

Consumer Debt Ratio

Answer 10

non housing monthly payments (no PITI) / NET monthly income

(not gross income like other ratios)

< or = 20%

Question 11

FINRA Must be notified in writing…..

Answer 11

Must be notified in writing PROMPTLY if firm or advisor:

1. violated securities law
2. written customer complaint -theft, misappropriation or forgery
3. defendant or respondent in any lawsuit alleging violation of Securities Act by regulatory authority
4. indicted, convicted, or pleads guilty to criminal offense.

Question 12

Education Funding Needs Analysis

Answer 12

1. Determine the cost of the first year of college
2. Determine the amount that must be available at 18 inflation adjusted
3. Determine what is needed in lump sum now (PV beg or end) or payments deposited (PMT).

Question 13

Coverdell ESA

Answer 13

$2000 per year per student by tax filling date
contribution not deductible/ grow tax deferred
distributions tax free qualified education expenses
student < or =18
Phaseout Single $95,000-$110,000
Married $190,000-$220,000
Can use for elementary and high school
broad range of expenses covered
funds must be used before 30 (30 day grace period)
can be rolled to another family member
generally considered assets of parent even if parent is not owner

tuition, fees, tutoring, special needs services, extended day programs, supplies, equipment, room and board, uniforms, transportation. Also computer, technology internet used by bene or bene’s family whole in school.

Question 14

Kiddie Tax

Answer 14

Have more than $2100 of unearned investment income.
Child $1050 standard deduction, next $1050 taxed at 10%
Remainder at parents marginal rate (up to 39.6%)

*Thekiddietaxdoesnotapplytochildrenwho:
-are19to23andnotfull timestudents;
-providemorethan halfoftheirownsupportfrom
earnedincome;
-areover 24andstilldependentsoftheirparents;
-orunder 24butmarriedandfileajointtaxreturn.
Thesechildrenare alltaxedlikeadultsat
theirowntaxrate.

Question 15

American Opportunity Tax Credit

Answer 15

ax credit for 100% of first $2000 and 25% of next $2000 of tuition, fees and course material ($2500max).
Phaseout S $80,000-$90,000
MFJ $160,000-$180,000

Conditions:

• First 4 years of post secondary education
• At least 1/2 time student
• Can’t be used with lifetime learning credit
• Expenses paid with grants and scholarships don’t qualify
• felony drug convictions restriction
• no room and board expenses

*New 2014 Allows above the line deduction alternative:

$4000 deduction for MAGI up to $65,000 S and $130,000 MFJ

$2000 deduction for MAGI up to $80,000 S and $160,000 MFJ

Question 16

Lifetime Learning Credit

Answer 16

Per period, not per student (per taxpayer for all eligible students)

20% of first $10,000 ($2000 max)

Conditions:

• no particular course load
• does not need to be seeking a degree (can be for a class) grad or undergrad
• unlimited period
• no felony drug conviction restriction
• no room and board expenses

Phaseouts S $55,000-$65,000
MFJ $111,000-$131,000

*can be used with AOC as long as not on same student

Question 17

Open Market Operations

Answer 17

Adjusted daily by Federal Reserve Trading Desk in NY

repurchase and reverse repurchase agreements with dealers

Repo- repurchase - Fed gives dealers money in exchange for pledge of gov securities (buy bonds) - Loosen

Reverse-repo - Fed give dealer pledge of gov securities in exchange for money(sell bonds) - Tighten

Question 18

Reserve Requirements

Answer 18

Amount of money banks must hold in reserve from deposits (% must maintain in cash)
Increasing will tighten credit and increase interest rates
Decreasing will loosen credit and decrease interest rates
Fed rarely changes this rate

Question 19

Discount Rate

Answer 19

Rate Fed charges member banks to borrow reserves.
Increasing discount rate will tighten credit
Decreasing discount rate will loosen credit

Question 20

Feds Fund Rate

Answer 20

overnight bank to bank borrowing- set at auction

Question 21

Excess Reserves

Answer 21

Money in excess of reserve requirement that banks hold at FED or central bank

Increase in excess reserve rate = more banks will hold onto money and less in economy…tighten

Decrease in excess reserve rate = more banks will less money, which increases money to lend. Loosen.

Question 22

Prime Rate

Answer 22

The interest rate that commercial banks charge their most credit-worthy customers. Generally, a bank’s best customers consist of large corporations.
Largely determined by the federal funds rate, which is the overnight rate that banks use to lend to one another;
Directly affects the lending rates available for a mortgage, small business loan or personal loan.

Question 23

Leading Economic Indicators

Answer 23

1. Initial Claims for unemployment insurance
2. New manufacturing orders
3. New private housing units
4. Stock Prices (500 common stocks)
5. Index of consumer expectations
6. Contracts/orders for plants/equipment
7. Interest rate spread
8. Money supply
9. Average weekly hours for production manufacturing workers
10. Vendor performance- % companies reporting slower deliveries

Question 24

Coincident Indicators

Answer 24

1. # employees on non-agricultural payrolls
2. Personal Income (less transfer payment -ss, welfare)
3. Industrial Production

Question 25

Lagging Indicators

Answer 25

AKA; Confirming Indicators 1. Average duration of unemployment 2. Average prime rate changed by banks 3. Commercial and industrial Loans Outstanding 4. Ratio of consumer installment credit outstanding to income 5. Change in CPI

Question 26

Business Cycle

Answer 26

Movement in economic activity Expansion (recovery) - Increasing GDP, interest rates and inflation. Productivity rising, labor cost falling. Activity expanding. Peak- GDP at its highest. Inflation and interest rates peaking. Unemployment lowest. When business activity ages (public stops buying; they have what they need). Contraction (recession) Slowing of GDP, decreasing interest rates and inflation. Unemployment increasing. Productivity falling, labor cost rising. Trough - Public starts buying; unemployment at highest, interest rates, inflation and GDP lowest.

Question 27

Durable Goods

Answer 27

A hard good that does not easily wear out - (perform well in recovery/expansion) cars, appliances, home furnishings, photographic equipment, recreational goods, etc.. Consumer durables and capital goods cyclical and fluctuate directly with business cycle

Question 28

Non- Durable Goods

Answer 28

Soft Goods or consumables - short life span or used once. "you always need them" Not affected by a recession. cosmetics, food, fuel, office supplies, paper, personal products, plastic, clothing, footwear

Question 29

Yield Curve

Answer 29

``` Shows the market rate of interest for bonds that have: different maturities (term to maturity) same credit ratings (bond quality) same tax status different yield to maturity (curve) ``` Normal: (positive slope) as maturities lengthen, yields increase. Inverted: (negative slope) FED tightens short-term credit to slow economy - short term rates rise above long-term. Happens when economy is overheating.

Question 30

Inflation

Answer 30

Rise in the price of goods and services Too much money chasing too few goods CPI- lagging indicator to inflation PPI - Leading indicator it inflation

Question 31

Deflation

Answer 31

Decline in the price of goods and services Disinflation - slowing down of price increases Individuals hold cash - can buy more goods and services at decreased prices.

Question 32

Stagflation

Answer 32

slow economic growth high unemployment rising prices

Question 33

Medicare Part A

Answer 33

Hospital Insurance -65 or older/ or disabled receiving benefits for 2 years -disabled widows of workers 50 or over -benes 18 or older receiving benefits before 22 (disabled Part A and B) Benefits - Hospital deductibles 60/30/60 days max 150 - skilled nursing 100 days - unlimited post hospital home health - Hospice - Patient pays first 3 pints of blood Limitations - Services provided outside us not covered (limited Canada, Mexico, Caribbean or US territorial waters) - Secondary payer always

Question 34

Medicare Part B

Answer 34

Voluntary Monthly Premiums 80/20 no stop loss - deductible applies Benefits 1. Doctors Services 2. Diagnostic tests, Radiology/pathology, mental illness, transfusions, PT/OT, Drugs and biologicals not self administered!!) 3. Out Patient services for Dx and Tx illness or injury 4. Unlimited home health 5. Preventive care (free) 6. Depression Screening, counseling alcohol, obesity, and behavioral therapy for CD ``` EXCLUDED dentures and dental glasses and hearing aids immunizations (other than flu shot) Prescription drugs ```

Question 35

COBRA

Answer 35

EXEMPT- Small companies (fewer 20 employees 1/2 yr) Plan Coverage 1. > 20 employees more 1/2 previous yr 2. full and part time employees count (part time count as fraction worked) Events 1. Voluntary/Involuntary termination or move to 1/2 time--- employee and dependents - covered up to 18 months 2. Death divorce legal separation ---spouse and dependents up to 36 months. divorce-children still on plan..they are not divorced 3. Loss of dependent status ---children up to 36 mo 4. Disability - 29 months * if disabled within 60 days of triggering event coverage extended 11 mo (29). Continuation is not automatic...must be elected May be 102% of actual ins (2% employer admin fee)

Question 36

HSA

Answer 36

Eligibility Covered under High Deductible plan No other health plans Min and Max OOP S$1300-$6550 F$2600-$13100 Contributions deductible (above the line adjustment) $3350 S $6750 F Grow tax deferred Qualified distributions tax free (20% penalty) Employer Contributions tax deductible no income to employee $1000 Catch up over 50 Ordinary income after 65 for other than med expense ``` Qualified Expenses MD visits SX RX drugs (OTC and Vit not covered unless insulin) Acupuncture/Chiro Eye Hearing Dental Alcohol and Drug LTC ``` ``` No payment for other ins except -COBRA -Health while on unemployment -Part A/B premiums and out of pocket -Medicare HMO -LTC ins No Medigap ```

Question 37

Insurable Risk

Answer 37

1. Large number of homogeneous (not heterogenous) exposure units 2. Definite and measurable (Pure, Objective) 3. Accidental or fortuitous (happening by accident or chance rather than design) 4. Can't be catastrophic to insurance co No moral hazards Affordable premiums

Question 38

Contract Requirements

Answer 38

1. Offer and acceptance (signing application and paying or premium) 2. Consideration paid (money, services or property) 3. Legal Capacity - 18; competent; sober (can be voided by incompetent, minor... Minor can contract for necessities. 4. Lawful purpose

Question 39

Contract characteristics

Answer 39

Unilateral - only one party makes a binding promise (insurer) Adhesion- accepted as is or not at all (take it or leave it) courts rule in favor of insured) Waiver Provision - Provision of contract- explains who may alter...accepted as is or not at all. Aleatory - money exchanged may be unequal. (Small premium, large benefit) Recission - null from the beginning due to misrepresentation; fraud; concealment; or mistake of material fact. Reformation- contract is revised to express original intent of both parties Collateral Source Rule -measure of damage may not be mitigated by payments received from other sources. Subrogation - insurer take over legal right its insured has against responsible third party (car claim)

Question 40

Parts of Insurance Contract

Answer 40

Declaration Page: specific person, property, or activity being insured. Definitions: Key terms Insuring Agreements: Basic promises of the insurance co Exclusions: when the insurer will not pay Conditions: duties of both parties in detail

Question 41

Tort

Answer 41

Wrongful act other than a breach of contract Intentional Tort - Deliberate; Infringement of rights (slander, libel, assult) Unintentional Tort - Negligence/ carelessness Attractive nuisance - pool Negligence per se - violation of a statute (failing to stop at cross walk) Strict Liability - product liability (faulty tires) Absolute Liability - keeping wild animals; workers comp Vicarious Liability - Principle Responsible for Agents respondeat superior

Question 42

Contributory neglagence

Answer 42

Negligence on behalf of the injured party that defeats the claim. Jaywalking, drunk driving...

Question 43

Comparative negligence

Answer 43

Any degree of negligence by injured party that doesn't defeat the claim but used to mitigate damages.

Question 44

Stop Loss Coverage

Answer 44

Used by small companies. Sell insure up to a certain amount and acquire insurance for larger amounts. AKA: Partially self-funded plan or cash flow plan

Question 45

Business Owners Policy BOP

Answer 45

``` Small to medium sized business real property contents liability medical ``` Profession liability is excluded Premium IS deductible

Question 46

Other Business Insurances

Answer 46

Commercial Umbrella Policy - exclude E&O, malpractice, and professional mistake...premium is deductible Professional Liability - failure to use care and degree of skill required. Premium is deductible Malpractice Insurance - standard of conduct results in bodily injury Errors and Omissions E&O - standard of conduct results in property damage. Includes loss of $ (lawyers, stock brokers, CFP) Protects directors and officers of companies

Question 47

Basic Perils

Answer 47

VVL WEATHR FS vehicles vandalism lightening ``` windstorm explosion aircraft theft hail riot ``` fire smoke

Question 48

Broad Named Perils

Answer 48

RAFF All Basic and : Rupture of a system Artificially generated electricity Falling objects 9ice, snow, sleet) Freezing pipes

Question 49

Exclusions to Broad Perils

Answer 49

OPEN WIF Ordinance of Law - construction or demolition Power Failure- power plant failure Earth Movement - landslide earthquake Neglect- must make reasonable means to save and mitigate loss War - including nuclear hazard (power plant) Intentional Acts - burning down home Flood - including water underground and backing up from sewer

Question 50

Property Loss Calculation

Answer 50

nsurance < %80 of dwelling cost, insurer pays greater of: 1. ACV (not applicable for >%80) (depreciation info must be given) 2. Replacement Cost ((Insurance carried/insurance required) x loss) - deductible = apportion of ins co Replacement cost x coinsurance = insurance required * homeowners replacement value always 80% * commercial can be 90% * always use 80% if none given