General Principals Flashcards

Question

Supply

Answer 1

Supply is the amount of goods a producer is willing to sell Price Cost of production Level of technology

Answer 2

Is the amount of goods or services that buyers are willing to purchase Price Price of other goods Consumers’ incomes and tastes

Answer 3

Anticipate move or change in the economy Unemployment claims New manufacturing orders New private housing units Stock prices, 500 common stock Index of consumer expectations

Answer 4

Move in tandem with economy Industrial production Personal income less social security, welfare Non farm payroll

Answer 5

Confirming indicator Average duration of unemployment Average prime rate charged by banks Commercial and industrial loans Credit outstanding to income Change cpi

Answer 6

Consumer price index basket of goods in various cities CPI-U is widely reported

Answer 7

Medical care Food and beverage Apparel Transportation Housing Education and communication Recreation

Answer 8

Farm products and industrial commodities The leading indicator to cpi is ppi As producer cost rise, they are passed to consumers

Answer 9

The slowing down of price increases

Answer 10

The direction of interest rates move determines what happens to bonds. The curve shows market rates of different maturities with the same rating

Answer 11

Shows that as maturities lengthen, yields increase. Investors demand better yield with added risk

Answer 12

When the fed tightens and raises interest rates, the short-term rates are more attractive then long term rates

Answer 13

Yield to maturity Same tax status Term-to-maturity Same bond quality

Answer 14

Can represent one, both or neither Suggest they get separate attorney’s

Answer 15

Paying the payee’s mortgage Paying the premium on the payee’s life insurance Making a payment for the payee ie IRA Not deducting-Paying of child support

Answer 16

When consumers have enough of everything so business activity ages

Answer 17

Consumer borrows on credit worthiness and no collateral is pledged Signature only debt

Answer 18

Interest rates fluctuates with the economy. Limits on the change, how much and how often

Answer 19

Payments due every two weeks, loan will be paid off faster

Answer 20

Long term mortgage at given interest rates. Example after 5 years the unpaid balance is due or you have to refinance

Answer 21

Benchmark rate used by financial institutions for adjustable rate mortgage loans

Answer 22

Government insurance that reduces risk to the lender for low and middle income individuals to have a down payment or meet the requirements for a conventional loan Max between $489k and 1.149 mill

Answer 23

Due at the end of the month Positive PV I Periods N Remember: Solve for payment 1-input

Answer 24

Lower years, consider leasing due to cost of owning

Answer 25

Consider keeping it until it recovers

Answer 26

Future financial statements are expected results for the next year or longer

Answer 27

Auto sales/manufacturing historically lead the business cycle to expansion

Answer 28

Like public utilities and pharmaceuticals are defensive and have little impact with business cycles

Answer 29

Inflation typically happens at the peak of a business cycle

Answer 30

Negligence leads to unintentional tort and is a violation of the fiduciary duty

Answer 31

Lock in long term bond in case in interest rates continue to increase

Answer 32

Mortgage+home insurance+taxes/All gross income (don’t subtract retirement plan contributions)

Answer 33

-RTFQ -If someone is having a kid perhaps 6 months is needed depending on their work -fixed and variable expenses, no taxes

Answer 34

Leaves parents/grandparents ownership and is owned by the child Reduces net worth

Answer 35

Must relate to the question ie rating when talking about provisions, options, and features

Answer 36

Pure life- payments until death A fixed annuity can lose most of it’s purchasing power in 30-40 years Removed from estate No beneficiary payout

Answer 37

Take full pension and supplement with life insurance PV of what is needed with a discount rate

Answer 38

Variable annuity is usually the correct choice in a suitability question

Answer 39

Investment/expected return=exclusion 1-exclusion=inclusion

Answer 40

The income is treated as ordinary income the year it is received, no deferral

Answer 41

They are charged interest for the year And can claim an ordinary loss

Answer 42

When it has no more than two of the following: Centralization of management Continuity of life Limited liability Free transferability of interests

Answer 43

A contract that controls ownership interest, the distribution of funds, capital structure

Answer 44

50% of dividend may be excluded from tax if less than 20% of the company is owned by the purchasing corporation 65% exclusion is they own 20-80% 100% exclusion if ownership is greater than 80%

Answer 45

Can turn a capital loss of $100k and turn that into $100k ordinary loss Still get $3000 of current year capital loss and the rest moves forward as a carry forward capital loss

Answer 46

Be considered a corporation paying a flat 21%, losing the advantage of a separate tax entity. They do not get the dividend deduction advantage

Answer 47

Elects a special tax treatment Conduit for income,deductions, and tax credits Becomes an S corp by UNANIMOUS election of its shareholders Losses status immediately if it lost it’s eligibility File taxes on 1120s

Answer 48

Limited to 100 shareholders Can only issue one single class of common shares but can be voting or non-voting shares Only individuals, estates and certain trusts can be shareholders Only available for us companies and us citizens or permanent resident aliens

Answer 49

Limited liability Conduit-pass through income or losses to owner but limited to basis Basis = cash plus direct loans made by the shareholder to the corporation

Answer 50

Corporate formalities Sale of stock is limited by eligibility standards

Answer 51

Must have a least one general partner Limited partners are liable only up to their basis Limited partner is restricted to passive investor If a limited partner is an active participant then they forfeit limited liability for partnership debt

Answer 52

Form 1065 for information purposes only Each partner must file income or loss on form k1 Partnership losses are deductible up to basis, cash, direct loans from partner and loans to partnership

Answer 53

This does not increase basis. Only personal loans to the business increases basis

Answer 54

If partnership, only an information return is filed. The tax will pass through to the individual members If the entity is a corporation, the business is a taxable entity and normally files form 1120 or 1120s

Answer 55

Unless exempt, a corporation that retains it’s earnings will be penalized with a tax equal to 20% of its accumulated taxable income A regular corporation can retain up to $250k ($150k personal service corporation) without establishing a business need. A bona fide business need allows corporations to avoid this tax Purpose is to coerce corporations to pay dividends

Answer 56

Taxable at 20%

Answer 57

Double taxation

Answer 58

K1 of 1120s K1 of 1041 is on trust and estate K1 of the 1065 is for partnerships 1099 is for self employment

Answer 59

LLC allows for pass through losses S corp is limited to the amount contributed as basis C corp will not allow passthrough losses

Answer 60

Certificant Practitioner Professional Certification Mark Exam

Answer 61

Automatically published

Answer 62

Capital withdrawals are positive ie going into bank account

Answer 63

The investment will generate less than the required rate of return. Inversely a positive rate of return will earn more NPV facilitates investment decisions When NPV is 0 the interest rate is the same as the required rate of return