Other Stuff

Question 1

Life Insurance Provisions

Answer 1

Incontestable after 2 years 
Suicide Clause w/in 2 years 
Grace Period -premium default 
APL -automatic premium loan 
Reinstatement- proof of insurability after premium default 
Conversion no proof of insurability

Question 2

Annuity payout taxation

Answer 2

(Basis / Payout) - 1 
Make positive 
Multiply by payment 
100000/240000 = .4167 
1-.4167 = .5833
.5833 x $1000 = $583.30

Question 3

Coefficient of Variation

Answer 3

Divide standard deviation by mean

Ex 7.59%/5.75% = 132%

Question 4

Standard deviation

Answer 4

Variability of returns
Non-diversified portfolio
Total risk

Question 5

Beta

Answer 5

Volatility of returns
Diversified portfolio
Systematic risk

Question 6

IRR

Answer 6

Dollar Weighted
Manager to manager comparison
NPV
IRR

Question 7

Fiscal Policy

Answer 7

Federal taxation and spending 
Wants to achieve 
-full employment 
-price stability 
-sustained growth in economy

Question 8

Monetary policy

Answer 8

Fed Reserve Board
-supply of credit

Easy Money=reduce reserve req., lower discount rate, repo/buy bonds, decrease margin req.

Tight money= increase reserve req., raise discount rate, reverse repos/sell bonds, increase margin req.

Question 9

Geometric mean/Time weighted/ performance of a portfolio manager

Answer 9

Multiply returns
Then FV, -1PV, N, solve for I

40%, 30%, -40%, -20%
1.4 x 1.3x .6 x .8 = .8736

Answer -3.32

Question 10

Duty of Loyalty

Answer 10

Clients interests first

Manage conflicts of interest

Question 11

Duty of Care

Answer 11

Care 
Skill 
Prudence 
Diligence 
In light of Client goals, rt, objectives, financial and personal circumstances

Question 12

Integrity

Answer 12

Honesty, candor, cannot coexist with deceit or subordination of principle

May not scheme or defraud

Do not deceive

Question 13

Competence

Answer 13

Relevant knowledge and skill to apply knowledge

Must gain competence or obtain assistance or limit engagement

Question 14

Diligence

Answer 14

Timely action and responses to clients

Question 15

Disclose and manage conflicts of interest

Answer 15

Disclose conflicts
Make disclosure and obtain client consent
Written consent not required but document
Manage conflicts

Question 16

Sound and objective professional judgement

Answer 16

No gifts that could affect judgment

Question 17

Professionalism

Answer 17

Treat with dignity, care, and respect

Question 18

Capital utilization

Answer 18

Leaves no money behind

Calculate PV of future need

Question 19

Capital retention or preservation only interest is distributed

Answer 19

Annual need / investment rate plus first year

If inflation given, just user ROR - inflation