Intro To Financial Planning Flashcards
John, an agent for XYZ Insurance Company, is restricted from binding certain risks, changing any of the terms of coverage, or writing coverage above certain amounts. What is the doctrine which covers these acts?
- Appleton Rule
- Law of Agency
- Adhesion
- Estoppel
Law of Agency - This is actually referring to express authority. This is given to the agent under the law of agency.
Mr. and Mrs. Adams, ages 73 and 71, are having financial problems in their retirement years due to health reasons. Mr. Adams took a single-life pension payout (monthly as long as he lives). Both Mr. and Mrs. Adams are receiving reasonable Social Security benefits due to their work history and taking benefits after NRA (Normal Retirement Age). Unfortunately, one of their children suffered a financial reversal due to a loss of job, and they had been supporting him and his family. They are considering taking a reverse mortgage on their family home. What do you suggest?
- A reverse mortgage will be a burden to them and their cash outflow. Do not do a reverse mortgage.
- A reverse mortgage could distribute over time the entire value of the home. At their combined deaths, no assets would pass to their son. Do not do a reverse mortgage.
- The reverse mortgage could provide them with additional needed monthly cash flow. Do the mortgage.
- If either Mr. or Mrs. Adams dies, the loan will be due. Do not do the reverse mortgage.
- They do not fit the general rules for a reverse mortgage.
The reverse mortgage could provide them with additional needed monthly cash flow. Do the mortgage. They fit the general rules of doing a reverse mortgage.
Mr. and Mrs. Wright want to set up 529 plans for their four grandchildren. What is the maximum amount he can contribute in one year without making a taxable gift?
- $140,000
- $300,000
- $560,000
- $1,120,000
$75,000 x 4 = $300,000
The question says “he”, not them.
A married couple using individual, joint, and revocable trust spousal beneficiary accounts may have an FDIC insured account totaling what amount at one bank?
- $1,000,000
- $1,250,000
- $1,500,000
- $1,750,000
Husband and wife each $250,000 = $500,000
Husband and wife joint account = $500,000
Wife’s trust for husband (as trust beneficiary) = $250,000
Husband’s trust for wife (as trust beneficiary) = $250,000
Total = $1,500,000
Which of the following is not an example of qualitative data?
- The client’s priorities.
- The client’s personal and financial goals.
- The client’s desired retirement date.
- The fair market value (FMV) of the client’s assets.
The fair market value (FMV) of the client’s assets. Since the client’s desired retirement date is subjective, the selection of the appropriate time horizon is considered qualitative. FMV of the client’s assets is clearly quantitative.
In the gathering-client-data step of financial planning process, there are two types of data. Which of the following is an example of qualitative data?
- The client’s date of birth.
- Amounts invested in stocks and bonds.
- That the client would like to retire by age 65.
- The names of the client’s financial advisors.
- A copy of the client’s ILIT.
That the client would like to retire by age 65. The ability of the financial advisor might be considered qualitative but when you can retire is a clear quality of life issue.
Tony purchased a mountain cabin 5 years ago for $40,000. Subsequent transactions were the following.
- End of year one, (new roof): $3,000
- End of year two, (new well): $5,000
- End of year three, (new fireplace): $10,000
- End of year four, (new windows): $8,000
- End of year five, (sold property): $85,000
What is the IRR?
IRR = 6.64%
HP 10BII
- CFo $40,000 ±
- CFj $3,000 ±
- CFj $5,000 ±
- CFj $10,000 ±
- CFj $8,000 ±
- CFj $85,000
- gold IRR/YR
You have calculated that the NPV of an investment is zero using a 12% interest rate. The purchase price of the investment is $100,000. Which of the following is true?
- The IRR is 12%.
- The IRR is less than 12%.
- The IRR is more than 12%.
- No other answer is true.
The IRR is 12%. When the NPV is zero, the interest rate is the same as the IRR.
Which of the following is not included on the cash flow statement?
- Taxes
- Salaries
- Auto note balance
- Mortgage note payments
- Interest income
Auto note balance is on the financial statement. The other answers are included in cash flow.
Which of the following expenses qualify as an alimony payment to a spouse if made pursuant to a divorce instrument? (Divorce was finalized before December 31st, 2018).
- Paying of the payor-spouse’s mortgage
- Paying of $4,000 into the payee spouse’s IRA
- Paying of child support by the payor spouse
- Paying of the premium on a life insurance policy on the life of payor (paid by the payee spouse)
Paying of $4,000 into the payee spouse’s IRA
Answer A is wrong. It is the payee’s mortgage that qualifies as alimony. Child support is never deductible alimony (covered next). Answer D would have been correct if it were paid by the payor spouse.
Louise wants to purchase a home in 5 years. She anticipates making a 20% down payment on a $150,000 home. How much should Louise invest at the end of each year if she expects a return of 9% per year on the investment?
- $2,720.70
- $4,598.87
- $5,012.77
- $22,994.37
End mode 10BII
- FV = $30,000
- n = 5
- I = 9
- PMT = $5,012.77
Mrs. Able has the following assets at one FDIC-insured bank:
How much is currently insured?
- $800,000
- $950,000
- $975,000
- $1,000,000
$250,000 single + $200,000 IRA + $250,000 + $300,000 = $1,000,000
*With the $150,000 she has the maximum of $250,000 in joint accounts. Her husband gets 1/2 of $400,000. The remaining $50,000 is not insured. Remember FDIC insurance is per titling, not per account.
During the current year, Mr. Thomas Edwards, the grandfather, contributes $10,000 to the Florida 529 plan for his grandson (Joseph). During the same year, Mr. David Edwards, the father, contributes $2,000 to a Coverdell ESA for each of his three children Joseph, Susan, and Ted. Which of the following is true?
- Both Mr. Thomas Edwards’ and Mr. David Edwards’ contributions will be allowed.
- Mr. David Edwards’ Coverdell ESA contributions for all three children will be disallowed.
- Mr. David Edwards’ Coverdell ESA contribution for only Joseph will be disallowed.
- Mr. David Edwards can only make one ESA contribution.
Both Mr. Thomas Edwards’ and Mr. David Edwards’ contributions will be allowed. The situation would have triggered an excise tax prior to 2002. ESA is $2,000 per child per year.
Which of the following statements about ESA plans is true?
- All funds must be used by the end of a college age participant and enrollment
- The funds can be set up in a trust.
- The ability of married taxpayers filing jointly is phased out between $95,000 and $110,000.
- Expenses are limited to elementary and secondary education needs.
The funds can be set up in a trust.
All funds must be used before the student reaches age 30. The phaseout for married filing jointly is $190,000 to $220,000. Expenses can be used for elementary or secondary education needs, but also can be used for college.
Eloise Fisk deposited $500 from her checking account into her savings account at the end of each month for 4 years, at which point she had accumulated $27,000. If interest was compounded monthly, what was the annual compound rate of return on the account over the 4-year period?
- 0.493
- 5.68%
- 5.91%
5.91%
HP 10B
- gold, clear all
- gold, end
- PMT = 12 gold, P/YR
- FV = 27,000
- 4, gold, xP/YR (N key)
- I/YR = 5.91%
Think simple. Making a deposit from your checking account is a negative input.
