GP, Insurance, Investments

Question 1

punitive damages and compensatory

Answer 1

punitive damages are taxable but compensatory are not

Question 2

A CFP certificant shall notify the CFP Board of a responsible matter within how many days

Answer 2

30

Question 3

talking with a CPA without getting clients permission to share data

Answer 3

violating the duty of confidentiality and privacy

Question 4

When to decline and not to decline the client

Answer 4

Decline:
-refusing to giving information
-does not want 1099 reportable income

Not decline:
- just because they’re being rude

Question 5

suspension when not an official CFP yet

Answer 5

suspensions automatically posted

Question 6

when an order of the commission is not appealed within 30 days after the notice was sent to the certificate

Answer 6

IT”S FINAL

Question 7

you have a new client…what is really step you really should take?

Answer 7

provide the client with written disclosures of all material information

Question 8

who controls the monetary policy?

Answer 8

FOMC

Question 9

Will Mary’s 75k income qualify her for pell grants, stafford student loans, and PLUS loan?

Answer 9

MAYNOT qualify for Pell Grants and Stafford
She

Question 10

fed reserve controls money supply WHAT DO THEY NOT DO

Answer 10

discount rate- offered by commercial banks to their most credit worthy borrowers
fed funds rate- overnight lending

Question 11

checking account for emergency fund

Answer 11

usually just savings, treasury, money market

Question 12

capital withdrawals

Answer 12

additions :)

Question 13

what 4 education savings strategies can’t be used together

Answer 13

AOC, LLC, 539, coverdell

Question 14

when to decline the client

Answer 14

• squirming and not providing information
• wants to do investments and not have 1099

Question 15

new client walks into your office. they have a baby. they have done no planning. they own limited assets, carry a reasonable amount of credit card debt, and a fair amount of college debt. they are confused and seeking your help. what should they do first?

Answer 15

medical insurance. this is the most serious and immediate concern.

Question 16

tom and helen are married. this is a second marriage for both of them. they are both taking social security retirement benefits. other than a house (paid for) and person property (cars paid for) they each have IRAs totaling around $2 mil. Helen’s mother (84) needs financial help. Both tom and helen feel medicaid is charity. If helen’s mother needs assistance to live, what do you recommend Tom and Helen do?

Answer 16

They should invite her to move in with them. Who is the client?? Tom and Helen are the clients, not Helen’s sister. At 84, LTC is probably not available or too expensive. They rejected Medicaid.

Question 17

replacement cost

Answer 17

the answer shouldn’t be ‘not enough info’ and just assume 80%

Question 18

HRA

Answer 18

solely employer funded and reimburses employees for substatianited medical expenses up to a maximum dollar amount

Question 19

what recommendation should come first: executing a will or talking to an attorney

Answer 19

talking to an attorney!

Question 20

other than LTC insurance, what other means provides nursing home care coverage for longer than 100 days?

Answer 20

Medicaid!
Medicare LTC is limited to 100 days. A Medicare supplement policy or a Medigap policy may provide for a rehabilitation stay but not for extended nursing home coverage

Question 21

a company owns whole life policies on key employees. the company is considering borrowing the cash value of the policies for business reasons. the company must pay the interest on the loans. Is the interest an eligible business deduction?

Answer 21

Yes, but it is limited to a $50,000 loan on each policy.

A business may deduct a limited amount of interest paid on contracts covering a ‘kay person’ to the extent that each loan doesn’t exceed $50,000

Question 22

Rita elects a salary reduction of $2,850 to her medical expenses FSA account. Which of the following statements is true if the plan has a grace period?

Answer 22

The medical expense portion is limited to $2,850

There is an extra 2.5 months to spend the money for medical expenses. the plan has a grace period provision. The medical expense is limited to $2,850 in 2022.

Question 23

taxable fringe benefits for an employer

Answer 23

-personal use of the company apartments on the weekend (OCCASIONAL would be tax free)
-thresholds:

Question 24

Employer Group Coverage: TAX DEDUCTIBLE to employer

Answer 24

group life, group legal, group disability

NOT: code section 125. flexible spending accounts (125) are funded solely by the employee. the other plans are normally paid for by the employer (tax deductible). Code section 125 is not group coverage, it is a cafeteria plan

Question 25

Tom and Sue had W-2 earnings of $100,000 last year. They deposited $5,000 into each of their IRAs from money that was in their checking account. They also sold their five-year-old car for$1,000 less than it was worth. Due to a slow-down in the housing market, the value of their home decreased by $25,000. What is their change in net worth?

Answer 25

Minus $26,000

Question 26

Kate and Ashley, twin sisters, are 19 years old. Kate is a full-time student at a local college. Ashley “hates” school and just got full-time job starting next year as an assistant manager at a retail store in the local mall. Both of the sisters live at home with their parents. Their grandparents set up UTMA accounts for each of them that earned $3,000 in interest last year. Their parents are in the 35% tax bracket. How much income tax does each of the two sisters have to pay if they had no other income?

Answer 26

Both owe $360.

Question 27

The DJIA just fell another 350 points; housing starts are on a downward trend; consumer confidence is down; new claims for unemployment are continually rising. What action is the Federal Reserve likely to consider taking?

Answer 27

Buy government securities using a repurchase agreement
The Fed should buy securities to loosen the money supply. The Fed cannot lower the prime rate, the banks do that.

Question 28

GDP would not include which of the following?
A. Orange juice made in Florida from oranges grown in Brazil
B. Toyotas manufactured in Tennessee
C. Chevrolet produced in Canada but sold in New York
D. Drugs made in California and sold in Mexico

Answer 28

Answer: C Chevrolet produced in Canada but sold in New York

GDP includes goods and services ultimately produced within a country’s borders. The orange juice is actually made in the Unites States.

Question 29

Under the Fair Credit Reporting Act which of the following is not correct?
A. A consumer has a right to see why he/she was denied credit.
B. The maximum liability a consumer has for a lost credit card is $50 if he/she reports it timely.
C. Only interested parties can access a consumer’s credit files.
D. Consumer has a right to one free copy of his/her credit report per year.

Answer 29

Answer: B
Credit card liability is covered under the Consumer Credit Protection Act.

Question 30

Joe is an aggressive stock market investor who wants to establish a college savings program for his granddaughter McKenzie. He wants to deposit as much as he can without incurring gift taxes yet still control the individual investments. What type of plan would be best for him?

Answer 30

Answer: UGMA/UTMA
Joe cannot control the investments in the 529 plan. He is the trustee of the trust (beneficial enjoyment) which makes the trust income taxable to him plus includes it in his estate. The Coverdell has a limit of $2,000 per year.

Question 31

Securities Investor Protection Act (SIPC) insures against which of the following?

Answer 31

Broker-Dealer Failure
A person can lose principal by poor investing but SIPC insures against broker-dealer failure.

Question 32

Kevin owns a mid-sized printing business with approximately 200 employees. Rather than pay
high premium costs for commercial insurance, he decides to provide insurance benefits directly to his employees. You advise him that a major disadvantage to this type of plan is exposure to catastrophic loss and recommend that he acquires insurance to pay claims in excess of $5 million. What is this method of protection called?

Answer 32

A Partially Self-Funded Plan

Question 33

Joe owns a small chemical manufacturing plant with 6 employees. He has been offered a
contract to produce a new construction compound that will dramatically decrease the time it takes to cure concrete. However, the long-term financial impact of the contract on the
company is unknown, and it may lead to a substantial financial liability in the future. In advising him on how to respond to the potential risk, you tell him which of the following?

Answer 33

He should reject the contract to avoid the potential of a future loss.

He cannot buy enough liability insurance to cover the potential losses. Either answer A or C may
be true, but they do not tell him what he should do. You are supposed to advise him.

Question 34

The highest Standard and Poor’s rating for insurance companies is which of the following?

Answer 34

AAA

Question 35

Lloyd purchased a small house for $200,000 that he uses as an office building. Its replacement cost is $150,000. Because of the location, the carrier required 90% coinsurance. Lloyd insured the building for $120,000. Recently, he had a small electrical fire that caused $5,000 of smoke and other damage. Using the formula method, how much of the claim did the carrier pay if his
deductible was $500?

Answer 35

$3,944

Question 36

Leroy lives in South Georgia. Due to a major drought, a large number of sinkholes have begun to appear in his neighborhood. He is especially concerned about one that developed in his front yard extending from the street to within 5 feet of his basement wall but fortunately doing no structural damage to his house. The hole was several feet deep and cost $6,250 to repair. If he has an HO-5 policy with $150,000 dwelling coverage and a replacement cost of $100,000 on his
home, how much will the insurance company reimburse him if his deductible is $250?

Answer 36

0

The sinkhole did no damage to his house. If the sinkhole damaged his home, then he would
have coverage.

Question 37

Ulmer is an underwriter for a major insurance company. He is reviewing the life insurance
application submitted by Allison, a 25-year-old professional singer who has been divorced twice and has two children. Which of the following information will he not consider?
A. Information from the insurance broker
B. Medical information bureaus
C. Newspaper articles on her professional career
D. Physical examinations

Answer 37

Answer: C
Although C is interesting to the underwriter, the other answers are underwriting considerations.

Question 38

Louis has a 300/500/50 PAP auto policy on his brand-new BMW and an HO-3 policy with
$500,000 dwelling coverage on a home which he purchased for $400,000 but has a replacement cost of $600,000. He also has a $1,000,000 umbrella policy that requires a base policy of $250,000 on his PAP and 80% replacement cost on his home. If a flood destroys his car and it costs $75,000 to replace it, how much will be covered by his auto policy (ignoring any
deductible)?

Answer 38

$75,000

Question 39

Sherry wants to purchase a life insurance policy that has value she may be able to borrow
against in the future. She is very nervous about the stability of the state of the insurance
industry due to some recent financial news she has read. She has always thought that she has a moderate risk tolerance. What type of policy would you recommend she purchase?

Answer 39

Variable Universal Life

Question 40

Lucy just graduated from college and is considering purchasing a $250,000 20-year term life insurance policy. She does not have a lot of discretionary cash flow, so she wants to keep the premium low yet provide as much protection as possible. To keep the policy low, the policy cannot include which of the following?
A. A Reinstatement Clause
B. A Waiver of Premium Clause
C. A Convertibility Clause
D. A Reentry Clause

Answer 40

Answer: B
The waiver of premium clause will cost an extra premium. The other clauses are part of the
policy.

Question 41

Last year, during a physical exam to increase the death benefit of his universal life policy from
$500,000 to $1,000,000, Mel was diagnosed with HIV. His doctor told him he had a year to a
year-and-a-half to live. The death benefit increase was not approved. Mel decided to make the best of the little time he had left and exercised the 50% accelerated benefit rider, the only one that was included in his policy. Mel survived beyond his doctor’s expectations and died last month. How much will the insurance company pay his beneficiaries?

Answer 41

Answer: B
He received 50% of $500,000 as an accelerated benefit. The remainder will be paid to his
beneficiaries

Question 42

Dr. Smith buys a disability policy with a base benefit of $5,000 and a SIS (Social Insurance
Substitute benefit) of $1,200. Dr. Smith is disabled and ultimately receives $600 in Social
Security disability benefits. How much in benefit will he receive from his policy when Social
Security pays $600?
A. $600/mo
B. $5,000/mo
C. $5,600/mo
D. $6,200/mo

Answer 42

Answer: C
The $1,200 policy SIS benefit will be reduced by $600. The policy will pay the base of $5,000
plus the $600 SIS benefit

Question 43

. ABC has a group legal services plan. ABC pays the premium. The employee benefits will be which of the following?
A. Taxable
B. Tax-free
C. Tax-free up to $1,000 per year
D. Non-includible income

Answer 43

Answer: A
Group legal premiums are deductible by ABC, but benefits are taxable to the employee.

Question 44

Is Insurace FDIC per titling or per account?

Answer 44

titling

Question 45

GNMA interest and yield

Answer 45

can be variable because of principle prepayments

Question 46

UITs

Answer 46

self liquidate and trade on secondary market

Question 47

matching duration offsets what?

Answer 47

interest rate and reinvestment rate risk

Question 48

what CC reduce SD

Answer 48

anything less than +1.0

Question 49

______ is the most important consideration to the efficient frontier

Answer 49

RISK

Question 50

are retirement accounts current assets?
are mortgages liability for current ratio?

Answer 50

hell naw to both
liability= credit card and accounts payable and taxes due
current assets= Checking/Money Mkt/GNMA

Question 51

an upward movement in the yield curve shows

Answer 51

interest rates have increased
duration has decreased

Question 52

THE LOWER THE COUPON

Answer 52

the greater the relative price fluctutations

Question 53

when warrants are exercised, the corporation does what?

Answer 53

issues new outstanding stock

Question 54

where should you place REITS

Answer 54

in an IRA- ordinary income dividends (not taxed at corporate level)

Question 55

current yield

Answer 55

annual interest in dollars/bond’s market price

can be used in holding period return question

Question 56

once the NOI has been computed, what do you have to do to calculate the intinstic value?

Answer 56

divide by capitlization rate

Question 57

Linda owns the following CDs at different branches of the Second National Bank. What amount is insured?
* Her name $300,000
* JTWROS with her son $300,000
* JTWROS with her daughter $300,000

Answer 57

D. $800,000

Question 58

Eurodollar
Yankee Bond
Banker’s Acceptance
ADR

Answer 58

Eurodollar- deposit in any foreign bank that is denominated in dollars

Yankee Bond- dollar denominated bond issued in the US by foreign banks and corporations

Banker’s Acceptance- US

ADR- dividends paid in US dollars

Question 59

GICs are not subject to which type of risk?
A. Purchasing Power Risk
B. Reinvestment Rate Risk
C. Inflation Risk
D. Interest Rate Risk

Answer 59

Answer: D Interest Rate Risk
Purchasing power risk is inflation risk. GICs are not subject to interest rate risk. The Insurance
Company takes all the interest rate risk.

Question 60

Gloria lives in New York City. Her federal tax rate is 25%; the New York state rate is 6%, and herNew York City tax rate is 3%. If she buys a T-Bond with a 5% coupon, what will be her after-tax yield?

Answer 60

Tax exempt yield = 5% x (1-.25) = 3.75%
T-bonds are not subject to state or local taxes

Question 61

You hold two bonds in equal amounts in your portfolio. Bond A has duration of 10 years, and
bond B has duration of 15 years. You will need the money in 13 years. You want to change the proportion you hold of these two bonds to immunize your portfolio. Approximately what
should you end up with?
A. 55% A; 45% B
B. 60% A; 40% B
C. 45% A; 55% B
D. 40% A; 60% B

Answer 61

Answer: D
The current duration is 12.5 [(10 + 15) ÷ 2]. You need more of Bond B.
45% of A 4.5
55% of B 8.25
12.75

Using 40% of A and 60% of B, you get exactly 13, the correct answer

Question 62

If AD, Inc. generally trades between a low of $30 and a high of $60 a share, then the $60 a share is called __________, and the $30 a share is called the ____________.

Answer 62

The $60 is the resistance level, and the $30 is the support level.

Question 63

An investor purchases 1,000 shares of Q2, Inc. at $75 per share on margin. The initial margin requirement is $37,500 (borrows $37,500). If the maintenance margin is 30%, what is the amount of the maintenance call if the stock drops to $45?
A. $5,000
B. $5,750
C. $6,000
D. $6,250

Answer 63

Answer: C
He has a margin loan of $37,500 and the 1,000 shares of stock are currently worth $45,000.
30% of $45,000 $13,500 equity required
$45,000 - $37,500 $ 7,500 actual equity
Maintenance call $ 6,000

Question 64

Which of their assets is (are) Marketable?
I. Money Market Mutual Fund
II. Tech Fund (Closed-End)
III. ETF (Foreign Large Value)
IV. Software Stock
V. SEP Account

A. I, II, III
B. II, III, IV
C. IV, V
D. I, V

Answer 64

B. II, III, IV
Tech Fund (Closed-End)
ETF (Foreign Large Value)
Software Stock

The money market is liquid but not marketable (It is redeemable). The SEP is an IRA for early distributions (ordinary income plus 10% early withdrawal penalty). The tax outcome makes it unattractive to distribute (sell/market) at this time.
NOTE: Brokered CDs are marketable. Open-end mutual funds are not marketable (per Mayo) because they are redeemed. ETFs and closed-end funds are marketable.

Question 65

When Linda purchased the state municipal bonds at 1050, she noted that they were fairly volatile. Based on the original data, if interest rates decreased by 1/2%, what would be the change in bond value?

Answer 65

If the price of the bond was $1,050, then the bond value would change as follows: $1,050 times 5.13% equals $53.83.

Question 66

When a client tells you start splitting up stock in their joint account, what should you do?

Answer 66

Tell him you need to meet with both him and joint account holder before you can respond

Question 67

Harry purchased ten listed bonds (XYZs 8.00s 10/1/35) on July 1 2015 at market price of 105 (10,500). Harry’s transaction cost from the trade was $100. He paid his broker $10,800 for the bonds. His broker reported $400 on a Form 1099-INT (2015) as taxable interest on the bonds. How much is Harry’s taxable interest?
A. 0
B. 200
C. 400
D. 800

Answer 67

B. 200

On October 2015, he will be paid $400 (the only semi annual payment for the year to him) .

Of the $10,800 he paid for the bonds, $10,500 was the cost of the bonds and $100 was the commission, therefore $200 was accrued interest. He has to report $400 on Schedule B (Form 1099-INT) and then subtract $200 as accrued interest. His taxable interest is $200.

Question 68

Which of the following investments will not be subject to phantom income taxation?
A. Treasury Income STRIPS
B. CATS
C. OIDs
D. TIPs

Answer 68

C. OID

OID on tax exempt obligations are not taxable. On a sale or redemption, any gain attributed to the OID is tax exempt. OID refers only to the original bond issue. Tax exempt zeros are not subject to phantom income.

Question 69

The deed of trust between the issuer of bonds and the trustee covers such considerations as:

Answer 69

property pledged
working capital and current ratio
any provisions for a sinking fund
call provisions

Question 70

Which of the following statements about investment companies is true?
A. closed end funds can trade at a premium or discount to their NAVs
B. UITs can be purchased on one of the national exchanges
C. Open end funds are negotiable securities
D. UITs offer a limited number of shares when issued

Answer 70

A. Closed end funds can trade at a premium or discount to their NAVs

*UITs issue units, not shares

Question 71

Which of the following statements about REITs is NOT true?
A. REITs normally distribute 90% of all net investment income
B. REITs are listed and trade on stock exchanges
C. REITs issue redeemable shares. Issuers make a market
D. REITs must invest at least 75% of their assets in real estate related activities to qualify for conduit treatment

Answer 71

C. REITs issue redeemable shares. Issuers make a market.

**REITs are not redeemable. They are negotiated and trade on exchanges.

Question 72

Your client is bearish on Canine, Inc. The client sells Canine short at $50. If Canine drops to $20, what must the client do to offset the position?

Answer 72

He must purchase Canine to close the short sale.

The act of delivering a stock closes (offsets) the sale.

Question 73

You have 2 funds in your portfolio (45% Fund A 55% Fund B). The Covariance is 0. Fund A has a return of 5.5% and a risk of 9.5%. Fund B has a return of 6% and a risk of 12.5%. What is the standard deviation of your portfolio?
A. .5%
B. 7.85%
C. 8.09%
D. 11.29%

Answer 73

C. 8.09%

Select the first answer below 11%. It is the square root of 65.54^2.

Question 74

A stock with a beta of .6 is only ___% as volatile as an average stock?

60% or 40%?

Answer 74

60%.

A stock with a beta of .6 is 40% less volatile than the market as a whole

Question 75

Mr. Merilee lives in New York City. His federal tax rate is 35%. The New York state tax rate is 7%, and his new york city tax rate is 2%. if he bought US treasury bonds with a 6% coupon, what is his after tax yield?

Answer 75

after tax yield= tax exempt yield in this case
= 6% * (1-.35)= 3.9%

Interest on federal bonds (EE, T bills, and other treasures) is not subject to state and local taxes but is subject to federal tax

Question 76

What is the callable duration of a BB rated bond with a 10-year call provision and a 20 year maturity. The bond has a 5% coupon and is selling for $900 when comparable bonds are paying 6%?
A. 7.82
B. 8.02
C. 9.90
D. 10
E. 12.62

Answer 76

B. 8.02

Answer C is too close to 10 years. Answer E is the maturity.

Question 77

When is the duration of a BB rated bond with an 8 year and a 6% coupon selling for $110 when comparable bonds are paying 5%
A. 6.41
B. 6.54
C. 6.63
D. 8

Answer 77

C. 6.63

When a bond pays a coupon, pick the next lowest reasonable number under the year to maturity. It has to be less than 8 because the bond pays interest.

Question 78

Which of the following occurs when a stock is split two-for-one?
A. The price of the stock doubles
B. The firm’s liabilities decreases
C. The firm raises additional equity financing
D. The par value of the stock is reduced

Answer 78

D. The par value of the stock is reduced

With a stock split, the par value of the stock is lowered to reflect the lower per share value

Question 79

If Tuesday December 14th is the date of record of XYA, when must an investor purchase XYZ to get the cash dividend?

Answer 79

December 10th

The ex dividend date is December 13th. The investor must have purchased the stock before the ex dividend date or 2 business days before the record date (T+2). There is a weekend in this question. Regular way settlement is 2 business days.