Contrast a segmented and a comprehensive financial plan.
> Doris Jenkins is a 71-year-old widow with a son and daughter ages 43 and 45, respectively, and six grandchildren. Doris has an estate currently worth $572,000, which includes her home valued at $250,000 and a life insurance policy on her life with a face
> If a client’s primary goal in making lifetime gifts to his children is to lower his estate taxes, he should make gifts of property that a. are expected to depreciate significantly in the future. b. are expected to appreciate significantly in the future.
> Five years ago, Tom Mohy bought 10,000 shares of stock at $10 per share in a pharmaceutical company. Today, the stock is worth $200,000 and is paying a dividend of $8,000 per year. Tom feels that the stock will continue to appreciate at a rate of 12 perc
> What is an appropriate standard estate planning strategy for married couples to minimize taxes over two deaths? a. Bequeath the entire estate to a trust, giving the surviving spouse a general power of appointment. b. Bequeath the applicable exclusion amo
> An individual received a bequest of 100 shares of XYZ stock from a relative who died on March 1 of this year. The relative bought the stock at a total cost of $5,500. The value of the 100 shares of XYZ stock was $5,750 on March 1. Its value rose to $6,25
> Before her death, LaDonna Kiniston, age 74, gave her three grandchildren some money for their private school education. She paid $12,000 to the school for Jake’s tuition and gave a like amount to Sarah and Nicole. What would be the adjusted taxable gifts
> Jorge is single and owns $30,000 of stock he originally purchased four years ago for $7,000. His adjusted gross income (AGI) is $40,000. If Jorge donates the stock to his church, which of the following is the maximum amount he can deduct as a charitable
> A client purchased a mutual fund with a $10,000 lump-sum amount four years ago. During the four years, $4,000 of dividends were reinvested. Today the shares are valued at $20,000 (including any shares purchased with dividends). If the client sells shares
> As the owner of a business, you must make an investment decision. The investment will expand your company’s production plant at a cost of $1 million. The expansion will generate income of $150,000 per year for 10 years; the required rate of return on the
> The tax bracket and holdings of your client are as follows: Federal tax bracket = 33% During the 12 months from June 30 last year through June 30 this year, the portfolio earned, in annual yield and before-tax appreciation, respectively a. 5.5% and 17.
> Your client’s federal marginal tax rate is 36 percent, and the state marginal rate is 7 percent. The client does not itemize deductions on his federal return and is considering investing in a municipal bond issued in his state of residence that yields 5
> Ron and his wife Susan, both 61 years of age, ask a CFP® professional to provide a recommendation on whether or not Susan should start to draw Social Security benefits when she first becomes eligible at age 62. Which of the following would be least impor
> A client, Tom, informs a CFP® professional that his daughter, Susie, graduated from college last month and landed her first job. Tom wants to establish a Roth IRA for Susie. Tom wants to make a $5,000 contribution for Susie and explains that she does not
> Marcus has a salary of $150,000. He contributes the maximum to his 401(k) and wishes to make the highest possible level of additional tax-deferred savings for retirement. Which of the following are feasible options for Marcus? 1. Invest in a flexible pre
> Which of the following are common actuarial assumptions used in determining the plan contributions needed to fund the benefits of a defined benefit plan? 1. Investment performance. 2. Employee turnover rate. 3. Salary scale. 4. Ratio of single to married
> Which of the following is/are true concerning nonqualified deferred-compensation plans? 1. They can provide for deferral of taxation until the benefit is received. 2. They can provide for fully secured benefit promises. 3. They can give an employer an im
> Your client, the chief financial officer of a new company, wishes to install a retirement plan in the company in which the pension benefits to employees are guaranteed by the Pension Benefit Guarantee Corporation (PBGC). Identify the plan(s) below that m
> Which one of the following statements is not true for a defined benefit plan? a. Favors older participants. b. Arbitrary annual contribution. c. Requires an actuary. d. Maximum retirement benefit of the lesser of $90,000 (indexed) or 100 percent of pay p
> The investment portfolio for a defined benefit retirement plan has declined in value during a year in which most financial market investments have incurred losses. Which one of the following entities would be impacted most by this decline in portfolio va
> John is considering buying a new car for $15,000 if purchased today. He also could wait to purchase the vehicle three years from now for $18,000. If John can invest in the capital markets and earn a 10 percent return, should he purchase the vehicle today
> An HO-3 policy (Special form—“All risks of physical loss” except those specifically excluded) with no endorsements excludes which one of the following perils? a. flood b. fire c. collapse d. weight of ice e. volcanic eruption
> Ginny is a sole proprietor. She wants to provide 60 percent of salary disability coverage to Joanna, her employee who is in a 35 percent combined tax bracket. Joanna’s W-2 wages are $40,000 and Ginny’s annual contribution to her qualified profit-sharing
> Under the Consolidated Omnibus Budget Reconciliation Act (COBRA) of 1985, an employer is required to extend medical plan coverage to eligible members of the employee’s family if the employee 1. dies. 2. retires. 3. divorces. 4. terminates employment (pri
> Typically, when group long-term disability income insurance premiums are paid by a C corporation, all disability benefit amounts received by an employee are a. not includable in the income of the employee for federal tax purposes without regard to any ot
> Terry Underwood purchased a 15-year-old compact car with 10,000 miles for his teenage son who recently received his license. Which of the following auto insurance coverages should be included in the policy for this auto? 1. Part A—liability coverage 2. P
> A successful architect wants to purchase disability income insurance. She is concerned about becoming totally disabled, but also about a reduction in income if she is obliged to reduce her workload because of a less-than-total disability. To satisfy thes
> A client recently purchased a new home from a builder for $150,000, including the lot valued at $40,000. How much insurance would you recommend that your client purchase to cover full replacement of the house in the event of a loss? a. $88,000 b. $110,00
> Conditions that increase either the frequency or severity of loss are called a. subrogation b. risks c. hazards d. perils e. extenuating circumstances
> Bob, age 47, has worked for XYZ Company the past 12 years. XYZ Company has lost a major contract and must begin downsizing immediately. Bob was laid off yesterday. What should Bob do first? a. File for unemployment benefits. b. Roll over his company 401(
> Which of the following best describes the difference between a variable life policy and a universal life policy? a. Variable life has a variable death benefit and universal life has a fixed death benefit. b. Variable life subaccounts do not guarantee mar
> Billy is considering enrolling in an MBA program. It would cost him $22,000 a year for two years. He believes it would raise his salary, which is now $50,000 a year, by the following amounts: Year …………………………………Amount 1–5 …………………………………………..$15,000 6–10 …
> Veronica recently purchased a car for $1,500 for her 16-year-old child. Which of the following risk management techniques would be most appropriate for handling the collision exposure of this automobile? a. Subrogation. b. Insurance. c. Retention. d. Avo
> What is the main responsibility of the underwriting department of a life insurance company? a. To guard against adverse selection. b. To set a limit on the amount of insurance issued. c. To set adequate insurance rates. d. To avoid exposures that could r
> Regarding the characteristics of insurance, which of the following is/are fundamental? 1. Probability (possibility and predictability of a loss). 2. Law of large numbers. 3. Transfer of risk from individual to group. 4. Insurance is a form of speculation
> A young, single client approaches a CFP® professional with $5,000 stating that he would like to develop a financial plan and invest in the market. This is his first experience investing and he like help choosing he appropriate account. What is the CFP® p
> A client has a $1,200,000 portfolio consisting of the following four stocks: 1. $300,000 ABC @ 1.1 beta. 2. $225,000 RTR @ 0.7 beta. 3. $405,000 XYZ @ 0.3 beta. 4. $270,000 PDQ @ 1.3 beta. What is the beta of the portfolio as a whole? a. 0.8. b. 0.85. c.
> Modern “asset allocation” is based upon the model developed by Harry Markowitz. Which of the following statements is/are correctly identified with this model? 1. The risk, return, and covariance of assets are important input variables in creating portfol
> Which of the following are non diversifiable risks? 1. Business risk. 2. Management risk. 3. Company or industry risk. 4. Market risk. 5. Interest rate risk. 6. Purchasing power risk. a. 1 and 3 only b. 1 and 4 only. c. 2 and 4 only. d. 4 only. e. 1, 2,
> If the market risk premium were to increase, the value of common stock (everything else being equal) would a. Not change because this does not affect stock values. b. Increase in order to compensate the investor for increased risk. c. Increase due to hig
> If the client needs to accumulate wealth but is risk-averse, which of the following is the most crucial action the planner must take to have the client achieve the goal of wealth accumulation? Advise investing the client’s current assets a. In the produc
> Stock prices adjust rapidly to the release of all new public information.” This statement is an expression of which one of the following ideas? a. Random walk hypothesis. b. Arbitrage pricing theory c. Semi strong form of the EMH d. Technical analysis
> Marcia had a choice of two washing machines of equal performance. One cost $400 and had a present value (PV) of $230 in savings over having clothes done through an outside service. The second cost $600 and had a PV of $450. Which one should she select?
> A CFP® professional meets with two new clients who would like advice about their mortgage. In the review, the CFP® professional finds that their essential expenses exceed their income. Mortgage rates have come down significantly and they intend to refina
> A young couple would like to purchase a new home using one of the following mortgages: Mortgage no. 1: 10.5 percent interest with 5 discount points to be paid at time of closing Mortgage no. 2: 11.5 percent interest with 2 discount points to be paid at t
> The Moores recently found out that they can reduce their mortgage interest rate from 12 percent to 8 percent. The value of homes in their neighborhood has been increasing at the rate of 7.5 percent annually. If the Moores were to refinance their house wi
> A cash-basis taxpayer includes income from a service business when a. The services are performed. b. The client is invoiced for the services. c. The client’s check is deposited in the bank. d. The client’s check is received.
> A client provides a current balance sheet to the financial planner during the initial data gathering phase of the financial planning process. This financial statement will enable the financial planner to gain an understanding of all of the following exce
> Why is integration so important in financial planning?
> Describe some similarities and differences between a financial planning practitioner and a physician.
> Describe the personal financial planning process and relate it to planning procedures.
> Explain the terms PV and FV.
> Helen, a sociologist, is considering buying a new power lawn mower. It would save her 30 minutes of work a week, which she would use to see another client. Her fee is $16 per hour and she works 50 weeks a year. The lawn mower would cost $1,400. What woul
> Why does personal financial planning involve other disciplines as shown in Figure 1.3? Give some practical examples of their use. Figure 1.3: FINANCE TOOLS OTHER DISCIPLINES AND TOOLS Micro and macroeconomics - Time value of money - Cash flow analy
> Why did it take until the 1970s for the field of financial planning to begin?
> Explain withdrawal risk.
> Why is it advisable to have a significant amount of a retirement portfolio invested in equity?
> How does investing for retirement differ from investing after retirement? Why?
> What are the similarities and differences between retirement needs and insurance?
> Why should a family have umbrella insurance?
> Identify and briefly explain the principal types of social insurance.
> Why is an own occupation definition for disability so valuable?
> Contrast an HMO and a PPO.
> Laurence was presented with a capital expenditure for a furnace that would cost $12,000 today and would generate the following savings. Year ………………..Amount 1 ……………………………$2,000 2 ……………………………$3,000 3 …………………………….$2,000 4 ……………………………$4,000 5 ……………………………$5,
> Define adverse selection and give an example of it.
> What is longevity risk and explain the two different scenarios that exist?
> Identify the three parts of an insurance policy?
> What is indexed universal life insurance and how is it different from the other whole life policies?
> How does portfolio management enter into the risk management process?
> Name three strengths and weaknesses of whole life and term insurance.
> Julian was considering whole life and term insurance for his 20-year need. Which one should he select?
> Why can term insurance be deducted from whole life to determine the return on the whole life policy?
> Describe the insurance needs approach.
> List the types of risks to human assets and briefly explain how to reduce them.
> Louis had the following cash flow items: Cash flow from operations ………………………$40,000 Interest payments ………………………………………6,000 Total interest and debt payments …………………9,000 If Louis is in the 30 percent tax bracket, how many times are fixed payments earned
> What are the significant factors in selecting an insurance company?
> How can insurance modify portfolio risk?
> What are the weaknesses of mutual funds?
> In what cause would you to suggest direct ownership over private partnership? Why?
> Compare and contrast the value in owning a home versus investing in real estate investment trusts (REITs).
> Why is a home a good inflation hedge? Should a home be included as an asset if its occupants aren’t sure they could sell it? Explain.
> Why is the home often a better investment than renting? Under what circumstances would renting be preferred?
> What are the significant characteristics of a mortgage?
> Contrast life cycle human-asset valuations for skilled and unskilled workers.
> What are the strengths and weaknesses of the net present value (NPV) and internal rate of return (IRR) methods?
> Smith invests in a limited partnership that requires an outlay of $9,200 today. At the end of years 1 through 5, he will receive the after-tax cash flows shown below. The partnership will be liquidated at the end of the fifth year. Smith is in the 28 per
> Why should capital expenditures be treated separately on a cash flow statement?
> Briefly explain total portfolio management (TPM).
> Discuss the advantages and disadvantages of leasing a car.
> What factors should you consider when you aren’t sure whether to buy or lease a car?
> Describe the three approaches to decision making for capital expenditures.
> Contrast the strengths and weaknesses of a fixed-rate mortgage with those of a variable-rate mortgage.
> List and explain the borrowing factors.
> Why is operating leverage as it pertains to risk important?
> Contrast the interests of young people and seniors.
> What is the difference between debt and fixed obligations?
> Investment A costs $10,000,000 and offers a single cash inflow of $13,000,000 after one year. Investment B costs $1,000,000 and will be worth $2,000,000 at the end of the year. The appropriate discount rate or required rate of return is 10 percent compou
> Richard e-mailed me that he and Monica differed about the impact of his extra spending over the past 15 years. He calculated it at about $3,000 a year. He said the total cost of $45,000 was well within his capability to make up. Monica said the cost was
> How would you interact and advise a client with goals you personally find outlandish but that the client values greatly. Creating a mock dialogue could be helpful.
> What would you consider to be the financial equivalent of Maslow’s hierarchy of needs? What are the basics? What comes last?
> What is the difference between feeling sympathy and empathy for the client? Is one more valuable than the other? Why?
