General Principles

Question 1

Securities Act 1934

Answer 1

1. Regulates Secondary Market
2. SEC created to enforce laws

Question 2

Securities Act 1933

Answer 2

1. New issue - need a detailed prospectus
2. Full/Fair disclosure of risks

Question 3

Express Authority

Answer 3

Authority granted by insurance company

Question 4

CFP Code of Ethics

Answer 4

“The Practice Standards” is designed to dove tail with financial planning process

Question 5

Proper CFP marks are

Answer 5

CFP®
CERTIFIED FINANCIAL PLANNER®
CFP® & CFP® in the US

Question 6

Cases of conduct under “Presumptive Bar” or that may reflect adversely on CFP profession are reviewed by DEC (Disciplinary & Ethics Commission

Answer 6

They can revoke/deny marks
1. 2 personal bankruptcies are presumptive triggers
2. Convicted of financial crime - unfit to hold marks
3. To recertify after petition - must fulfill education, examination and experience again

Question 7

Investment Comp Act of 1940
Investment Advisors Act of 1940

Answer 7

Company Act: SEC regulates mutual funds
Advisors Act: registration of persons/firms advising others

Question 8

QTP (Qualified Tuition Plan)

Answer 8

1 gift of present interest
2. ower retains control
3. grows tax-deferred, distributions are tax-free if qual. education expenses.

Question 9

UTMA

Answer 9

1. gift of present interest
2. owner loses control when student is age of majority
3. growth/distributions can be subject to both regular tax & kiddie tax

Question 10

AOC American Opportunity Credit

Answer 10

100% of first $2000
25% of next $2000
Total $2500
*claim first 4 years of secondary education

Question 11

Lifetime Learning Credit

Answer 11

20% of first $10,000 qual tuition/related
Max of $2000

Question 12

Injury:
Single premium annuity taxation

Answer 12

100% excludable by taxpayer receiving pymts

Question 13

Leading Economic Indicators

Answer 13

-avg wk hours prod/mfg
-initial unemployment claims
-new mfg orders
-vendor performance (contract orders for equip/plants
-new private housing units
-interest rate spread
-stock prices/500 common - money supply
-index consumer expectations

Question 14

Coincident Indicators

Answer 14

• # employees or non-agric payrolls-Industrial productions

Question 15

Lagging Indicators

Answer 15

-avg duration unemployment
-avg prime rate charged by banks
-commercial/industrial loans outstanding
-ratio of consumer installment credit outstanding to personal income
-change in cons price index for services

Question 16

Recession vs Depression

Answer 16

2 qtrs of neg GDP (recession)
6 qtrs of neg GDP (depression)

Question 17

When is business cycle peak?

Answer 17

When business activity ages / public stps buying b/c they have enough

Question 18

Who sets prime rate?

Answer 18

Commercial banks

Question 19

Who sets Fed Fund rate?

Answer 19

Auction by member banks

Question 20

What must advisor file with SEC each year?

Answer 20

Form ADV Part 1 and Schedule 1

Question 21

How to find Real Rate of Return

Answer 21

[(1+ after-tax return/1 + inflation rate ) -1 ] x 100

Question 22

Are home equity loans NOT used for home improvement deductible?

Answer 22

No

Question 23

RIA & Reg Rep can accept funds to purchase stock when it hits certain price But…

Answer 23

Funds cannot be comingled with planner of firm funds

Question 24

RE: Financial Aid
What is considered owned by the child?

Answer 24

UTMA

*Not EE bonds, can only be owned by adults
*Not Coverdell ESAs
*Not 529s

Question 25

Negative slope yield curve, should we invest in short or long term bonds

Answer 25

Short If negative slope is returning to normal/positive, then look to Treasury Bonds

Question 26

What do you need to sell Variable Insurance?

Answer 26

State variable license + Series 6 or 7

Question 27

BEST

Answer 27

Buy = expansion Sell = tighten

Question 28

Which are taxable? -Compensatory damages -Punative damages Lottery Annuity (10 yrs w/i 60 days)

Answer 28

Compensatory damages (injury) - no Punative -yes unless wrongful death Lottery - yes - div by 10 years

Question 29

Is Coverdell future or present interest?

Answer 29

Present Interest

Question 30

When economy is recovering what purchasing increase?

Answer 30

Automobiles Appliance

Question 31

Suspensions by CFP Board

Answer 31

Automatically published If it wasn't appealed within 30 days of notice, it is permanent

Question 32

Home Equity Loans are deductible when

Answer 32

They are used for the home. Amount you can borrow is the difference in FMV and amount owed.

Question 33

Client wants to buy an investment that will produce positive ash flows of $6000, $7000, and $8000 over a three year period. At ene of 3 years, he will sell it for $115,000. He needs to make return of 12%. What amount should he pay for the investment?

Answer 33

$98,486.47 gold, clear all 0, CFj 6000, CFj 7000, CFj 123,000 CFj 12, I/yr gold, NPV

Question 33

Who controls monetary policy?

Answer 33

Federal Open Market Committee (FOMC) is the Federal Reserve's primary body for setting U.S. monetary policy

Question 34

Portfolio XYZ has folowing hcaracteriscc: Mart value: beg of year 1. $100,000 Capital w/d: end of year 1. $4000 end of year 2 $5000 end of year 3 $6000 Market value: $120,000

Answer 34

$10.92% gold, clear all $100,000 -$, CFj 4000, CFj 5000, CFj 126000, CFj gold, IRR/YR

Question 35

What is NPV?

Answer 35

Net Present Value When the NPV is zero, the interest rate is the same as the required rate of return. So if the NPV of an investment is ZERO using a 12% interest rate, the IRR (required rate of return) is 12%

Question 36

What is HRA?

Answer 36

Health Reimbursement Acct -solely ER funded -reimburses EE for substantiated medical expenses up to maximum dollar amount per coverage period

Question 37

Whole Life policy on key employees

Answer 37

-company can borrow but they must pay the interest -limited to $50k on each policy

Question 38

FSA

Answer 38

-have until 2 1/2 mos past yearend to spend -limited to $3200 (2024)

Question 39

Money Scripts: Avoidance Worship Vigilance Status

Answer 39

Avoidance-$ is negative, "root of all evil" Worship- "money = happiness" Vigilance- concerned about spending, limiting vacations, hard to enjoy Status-self worth tied to money/embarrassed by not having

Question 40

Uber Is A Drunk Person Immediate Mode

Answer 40

Understand client's circumstances Identify/select goals Analyze course of action Develop financial plan Present financial plan Implement Monitor

Question 41

Fee Based vs Fee Only

Answer 41

Fee based - commission and/or fee Fee only - no commission, only fee

Question 42

Prospect Theory

Answer 42

feeling losses more significantly than gains even though equal (loss aversion)

Question 42

The 4 F's of Behavioral Finance

Answer 42

Fear - Faith - Framing - FOMO (Fear of Missing Out) -

Question 42

Endowment Bias

Answer 42

Prefer investments they already have been endowed with. Value an owned object (such as a stock or piece of real estate) at a higher value than its market value.

Question 43

mental accounting in behavioral finance

Answer 43

An investor groups their investments into "safe" and "risky" categories and treats each category separately, even though all investments are part of the same portfolio.

Question 44

Loss Aversion

Answer 44

Sell profitable positions and hold onto losing security positions

Question 45

confirmation bias

Answer 45

confirmation bias, preferring to focus on information that confirms rather than contradicts his market opinion.

Question 46

Comingling funds are allowed when

Answer 46

Funds of clients can comingle with those of other clients. Mutual funds, investment pools etc are examples.

Question 47

Money scripts are:

Answer 47

avoidance worship vigilance status