Question: Investing abroad has substantial individual asset

> Howard said he wouldn’t have to pay taxes on the money he inherited from his deceased father because it was under the $5.34 million threshold. He promptly withdrew the $900,000 that was in his father’s traditional IRA. Was his belief correct? Explain.

> What is a letter of instruction and why have it?

> Explain the difference between an executor and a guardian.

> Why is life insurance potentially useful in estate planning matters?

> Carl and his wife had a total estate of $400,000. What estate planning tool would you recommend? Why?

> Why set up an irrevocable trust when you can establish a revocable one that provides you with more flexibility?

> Why is it preferable to donate appreciated property to a charity rather than sell it and contribute the cash?

> Why can tax deferral be so advantageous?

> John discovered a $400 tax deduction. In order to calculate its cash benefit, should he use his marginal or average tax bracket? Why?

> A person’s marginal tax bracket includes the sum of the relevant federal, state, and local income taxes. True or false? Explain.

> Randy had two term policies to compare, with costs as shown below. Calculate the NPV at a 6 percent after-tax discount rate and the IRR. Which one should she select and why? Years A B 1 $225 $300 2 $275 $350 $310 $320 3 4 $400 $330 $500 $340

> Contrast marginal and average tax brackets.

> Give three examples of tax elimination.

> What is the difference between conversion and shifting income?

> What does capital needs analysis provide?

> What is the principal benefit of nonqualified plans over other forms of savings?

> Why do people save through qualified pension plans?

> List the principal concerns of people in planning retirement.

> Identify the factors that will help make the decision as to whether to take Social Security early.

> Name three strengths and weaknesses of annuities.

> What is longevity risk?

> A stock has an expected rate of return of 9 percent and the risk-free rate is 3 percent. What is the risk premium?

> Why is retirement perceived as so important to people?

> Contrast the traditional tort system and no-fault auto insurance.

> Erin purchases disability insurance from her employer. Will any payments she receives be taxable?

> Marisa has a policy with replacement cost coverage and has a loss of $100,000 on a house. Total policy coverage is $300,000 and replacement cost is $400,000. Because the loss is less than the coverage, she expects to get the full amount of the claim paid

> Distinguish between an HO-3 and an HO-4 property policy.

> Why are group policies often cheaper than individual ones?

> Gerald wanted to purchase a medical policy with 100 percent coverage. The best he could get was $200 deductible and 80 percent coinsurance. Why wouldn’t companies provide fuller coverage?

> Why are insurable interest and indemnity basic insurance beliefs?

> For what type of retired individuals is long-term care insurance particularly appropriate?

> Explain why life insurance is so much more popular than disability insurance.

> Gennaro purchased a stock for $24 that paid $2.00 at the end of each year in dividends (dividends remained level over time). He sold it four years later for $28 at the time of the last dividend payment. What was his IRR?

> John was young and Lisa elderly. Discuss potential provider preferences.

> Indicate what type of life insurance you would recommend for someone who is scheduled to be financially independent in eight years. Why?

> How would you decide whether to transfer risk or share risk?

> A person who trades in his 15-year-old automobile and purchases a new car with disk brakes is practicing which method of managing risk?

> Which type of insurance might be more susceptible to moral hazard: term or whole life? Why?

> Contrast business and personal risk and separate the household’s risk exposure into one or the other.

> What are the functions of a risk manager?

> Why is diversification important in risk management?

> Contrast variable and universal life insurance.

> Assuming continuing payments, will the cash value of whole life always go up over a life cycle? Why?

> Josh earns $80,000 a year. He would like to purchase a home and applies for a mortgage from the bank. The bank requires that the debt not exceed 28 percent of his annual income. With the current down payment he is willing to pay, his monthly mortgage pay

> How is whole life insurance able to maintain a flat payment?

> Define risk management.

> What types of investments are most appropriate for short-term needs?

> What are the strengths of mutual funds?

> Why can real estate be an attractive portfolio holding?

> Under the semi strong form of the EMH, should you read an annual report? Why?

> Under the weak form of the EMH, if you are given the following recent day price performance: is the likely future performance higher than nine? Why? Day 2 Days Ago The Day before Yesterday Yesterday Today Price 6. 7 8 9.

> Under the EMH, can you outperform the market?

> Stocks C and D move in opposite directions. Does that mean they have no correlation? Explain.

> Mary purchased a home for $200,000. By living in the home, she saved $18,000 annually because she did not have to pay rent. She had to pay $3000 annually for upkeep of the home. By the end of the first year, the home price had appreciated to $210,000. Wh

> Stock A and stock B have no correlation. Does that mean we don’t have to include correlation in calculating portfolio return? Explain.

> How are income taxes determined for mutual funds?

> How has mutual fund performance compared with overall indexes? Why do you think that is the case?

> What are the advantages of a passive approach to investing?

> X Co. has the latest 12 months’ earnings per share (EPS) of $2.50, expected EPS in the current year of $3.00, and normalized EPS of $4.00. If its current stock price is $20, solve for its three P/E multiples based on the separate time frames given.

> If a preferred stock has annual payments of $6.00 and a required rate of return of 8 percent, what is its current price?

> Frances donated $20,000 to a charity each year. This year she thought that, instead of cash, she would donate $25,000 of a stock that cost her $8,000. She was going to sell the shares anyway. If the combined federal and state capital gains tax for France

> Harry decides to purchase an apartment building as an investment. He pays $6,000,000 for the building. The building has a net income of $150,000, annual depreciation $150,000, annual taxes of $75,000, and annual interest payments of $105,000. a. Calculat

> Henry will be giving $50,000 to each of his five children. Indicate how much of his assumed $5.34 million gift tax exemption will remain.

> Murray was in the following marginal tax brackets: federal, 35 percent; state, 7 percent; local, 4 percent. What is his total marginal tax bracket?

> Jack purchases a house for $90,000 and spends $15,000 to renovate it. He holds the house for 35 years and then sells it in middle of a real estate bubble for $400,000. On how much of that amount does he have to pay taxes?

> Harold and Mary Anne Miller are a married couple in their early 40s with three children, ages 7, 10, and 12. Harold earns $350,000 per year as General Counsel of a mid-sized IT firm and Mary Anne is a homemaker. They have major assets of $1,500,000 cash

> A young couple (both age 30) come to a financial planner with the desire for assistance in improving their family’s financial position. They have two healthy children, ages three and six. The husband is a foreman for a manufacturer of auto parts. His cur

> Six months ago, a client purchased a new bedroom suite for $6,500. For purposes of preparing accurate financial statements, this purchase would appear as a(an) 1. use asset on the client’s net worth statement. 2. investment asset on the client’s net wort

> Robert Smith asks for your help in preparing his cash flow statement. He tells you that his salary before taxes is $250,000 and that he has no mortgage on his home. Which of the following statements is true about Robert’s cash flow statement? a. The valu

> A couple wants to accumulate a retirement fund of $300,000 in current dollars in 18 years. They expect inflation to be 4 percent per year during that period. If they set aside $20,000 at the end of each year and earn 6 percent on their investment, will t

> Billy’s objective is to retire at age 65 with $2,000 in monthly retirement income, exclusive of Social Security benefits. He assumes a life expectancy of age 95. The union retirement plan will provide him with $1,000 monthly. (There are no matching contr

> A client is concerned about the impact that inflation will have on her retirement income. The client currently earns $40,000 per year. Assuming that inflation averages 5.5 percent for the first five years, 4 percent for the next five years, and 3.5 perce

> Which of the following is/are characteristics of a municipal bond unit investment trust? 1. Additional securities are not added to the trust. 2. Shares may be sold at a premium or discount to net asset value. 3. Shares are normally traded on the open mar

> According to fundamental analysis, which phrase best defines the intrinsic value of a share of common stock? a. the par of the common stock. b. the book value of the common stock. c. the liquidating value of the firm on a per-share basis. d. the stock’s

> The current annual dividend of ABC Corporation is $2.00 per share. Five years ago, the dividend was $1.36 per share. The firm expects dividends to grow in the future at the same compound annual rate as they grew during the past five years. The required r

> Joan has a choice of purchasing a car for $20,000 with 9.7 percent interest cost to borrow and a three-year repayment period for leasing the vehicle. Leasing the auto would cost $300 a month for a three-year term. The sales tax is 6 percent. The car is e

> Richard and Monica asked if they could come in to discuss an issue. At that meeting, Monica seemed worried, and Richard sunk back in his chair. Monica said Richard was having second thoughts about going ahead with the financial plan. He wanted to know wh

> Company ABC is currently trading at $35 and pays a dividend of $2.30. Analysts project a dividend growth rate of 4 percent. Your client, Tom, requires a rate of 9 percent to meet his stated goal. Tom wants to know if he should purchase stock in Company A

> The Performance Fund had returns of 19 percent over the evaluation period and the benchmark portfolio yielded a return of 17 percent over the same period. Over the evaluation period, the standard deviation of returns from the fund was 23 percent and the

> Match the investment characteristics listed below with the appropriate type of investment company in the items that follow. A. Passive management of the portfolios. B. Shares of the fund are normally traded in major secondary markets. C. Both A and B. D.

> The standard deviation of the returns of a portfolio of securities will be__________________ the weighted average of the standard deviation of returns of the individual component securities. a. equal to. b. less than. c. greater than. d. less than or eq

> Given the following diversified mutual fund performance data, which fund had the best risk-adjusted performance if the risk-free rate of return is 5.7 percent? a. Fund B because the annual return is highest. b. Fund A because the standard deviation is

> The Zeta Corporation’s current dividend is $3.85. If future dividends are expected to grow at 4 percent forever, which of the following amounts should Zeta stock sell for if the required rate of return on the stock is 14 percent? a. $28.57. b. $38.50. c.

> A $1,000 bond originally issued at par maturing in exactly 10 years bears a coupon rate of 8 percent compounded annually and a market price of $1,147.20. The indenture agreement provides that the bond may be called after five years at $1,050. Which of th

> Which combination of the following statements about investment risk is correct? 1. Beta is a measure of systematic, non diversifiable risk. 2. Rational investors will form portfolios and eliminate systematic risk. 3. Rational investors will form portfoli

> While deciding whether to equalize the estates at the death of the first spouse or to defer estate taxes until the death of the surviving spouse, it is important to consider 1. the age and health of the surviving spouse. 2. whether the combined estates e

> Which of the following circumstances would definitely cause the date-of-death value of the gifted property to be included in the donor’s gross estate? 1. Donor retains a life estate in the gift property. 2. Donor retains the power to revoke or amend the

> Item A has an NPV of $300 and an original cost of $500. Item B has an NPV of $350 and an original cost of $700. What is the profitability index (PI) of items A and B, and which is a more attractive investment?

> Mr. and Mrs. Jones own 640 acres of farmland deeded as “joint tenants, not as tenants in common.” Currently, the land is appraised at $3,000 per acre and continues to escalate annually in value. In addition, Mr. Jones holds a $250,000 CD in his name only

> Bruce, age 55, is the beneficiary of his mother’s $200,000 life insurance policy. The insurer has requested that he select a settlement option for payment of the proceeds. What factors should he consider before making the election? 1. His current income

> 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.