List and explain four key steps in selecting a mutual fund.
> Explain regular annuity versus annuity due and give examples.
> How does household finance tie into financial planning?
> Do you believe Maria needed a financial planner? Why or why not?
> Do you think the amount of information available on the Internet regarding advice for financial planning is beneficial or detrimental to the financial planning career? Support your answer with information from the chapter.
> What is a contributing factor for the increasing demand for financial planners?
> Would a lump sum today or the comparable amount in periodic payments deposited over time provide a higher FV? Why?
> Monica asked that we meet to see if I could help to reduce the differences between them. When the time came, she started the conversation by saying that Richard wasn’t saving any money at all. They hadn’t started implementing. She said he spent a good de
> Why is knowledge of the time value of money useful?
> What is compounding, and why is it important?
> Sam went to a financial planner who proceeded to give him written recommendations in all areas of financial planning. Is that a financial plan? If not, what might be missing?
> List and discuss the parts of a financial plan.
> Explain the difference between sensitivity and scenario analyses.
> List five keys to a successful financial plan.
> Why is a behavioral review so relevant at this point in the planning process?
> Outline the steps in the financial planning process and some questions under each that are significant in completing a financial plan.
> Using Figure 19.1 list the source and uses of cash for the household. Figure 19.1: Revenues Living costs (including taxes) Special circumstances planning Educational Debt planning PFP Integration Capital expenditures (household investments) Estate
> Detail five of the concepts that underlie PFP theory.
> Richard and Monica maintained their contrasting views when it came to estate planning. Even though their assets were well under the threshold for exposure to federal estate tax, he wanted to set up a bypass trust. Monica wanted the personal assets, now m
> Chris’s current liabilities exceeded his current assets. He said not to worry; he could use his credit card if he needed extra funds. What do you think of this practice?
> List five reasons for saving.
> Name one behavioral characteristic in each part of active financial planning other than investments. Indicate how they can affect the financial planning process.
> Name three behavioral weaknesses that might apply to investment analysis and give examples of them.
> Provide five methods for helping people to save.
> What is cash flow planning?
> Discuss behavioral life cycle theory. Do you believe it is realistic?
> Indicate what a heuristic is and give four examples of it.
> Should goal planning be part of the financial planning process or should there just be a numbers-only approach?
> Indicate the mechanisms for enhancing savings practices. Are they realistic? Discuss.
> Richard and Monica estimated they would have adjusted gross income of $108,000 in the current year and would have exemptions of $7,900 and deductions of $25,000. Their average combined federal and state tax bracket was 33 percent. Required: 1. Compute t
> What is a liquidity substitute? When should it be used?
> Why do people construct a budget?
> What is happiness research? Does this research indicate that money brings happiness?
> Discuss the planning steps in a simple capital needs analysis.
> Should a comedian and a government employee receive the same financial asset allocation if they have similar tolerances for risk? Why?
> Why is overhead cost considered a liability under TPM?
> What is total portfolio management?
> Identify the advantages of Monte Carlo simulation.
> Contrast simple and risk-adjusted capital needs analysis.
> Why can it be beneficial to raise or lower the withdrawal rate in response to market fluctuations?
> Brad and Barbara also attended the meeting. They said they were too young to start saving for retirement. Retirement seemed “hundreds of years” away and they wanted to have fun today. They would have plenty of time to save for retirement when they were i
> What are the advantages of the withdrawal rate method?
> What are the weaknesses of the withdrawal rate method?
> List the steps in the retirement needs analysis.
> When should the investment rate, the blended rate, and the inflation rate be used, respectively?
> How do an open-end and a closed-end mutual fund differ?
> Distinguish between a dividend discount model and a price-earnings model.
> Compare preferred shares with common shares and with debt.
> Distinguish between a bond’s coupon yield and a current yield.
> List and give examples of the three types of bond risks.
> At the retirement planning meeting held recently, Richard and Monica were in agreement that they were well short of the money they needed for retirement at Richard’s age 65. Monica said she was thinking of handling investments herself. Richard said he wa
> What are the Sharpe ratio and the alpha coefficient used for? Contrast them.
> What is an exchange-traded fund?
> Explain the separate characteristics of three prominent types of load funds.
> List the maturity dates for classification purposes for bonds.
> Sally gave $200,000 to her daughter and said, “It’s yours as long as you agree to support me when I am older, if I should run out of my funds.” Is that a gift? Explain.
> Why are basis and a step-up in basis important?
> Shelly had just inherited money from her parents that she was considering placing in a joint account with her husband. She also was contemplating a legal separation from her husband. What advice would you give her? Why?
> Identify the alternative ways of titling and transferring assets and indicate how they differ.
> Detail the advantages and disadvantages of probate.
> Name the three major ways of receiving non–work-related funds from acquaintances and indicate how they should be valued.
> When I examined Richard and Monica’s insurance policies, I found the following: a. Medical coverage was adequate. b. Auto insurance was at the minimum level for the state of $50,000 to $100,000 per accident. c. Homeowners insurance was at a level of 50 p
> What are the strengths and weaknesses of a durable power of attorney?
> Morris didn’t understand why he should set up a bypass trust. He said that without a trust, upon his death the $6,000,000 in assets in his name could go to his wife free of estate tax. Why should he put restrictions on his wife by transferring the money
> Shane didn’t want to establish a bypass trust with her son as remainder beneficiary even though it would reduce the tax on her estate. She said her husband might need some of the money. Is that wise? Explain.
> Detail the advantages and disadvantages of setting up a trust.
> Samantha was affluent and gave $6,000 to each of 1,000 needy individuals. Someone told her that under the uniform estate and gift tax, she would have to pay a tax. Were they correct?
> Identify five reasons for having a will.
> What is clustering of expenses? Give an example of it.
> What is the difference between shifting income and transforming income?
> Which is the most appropriate tax bracket to use in making investment decisions: marginal or average tax bracket? Why?
> Why perform tax planning?
> In our meeting, it became apparent that Richard’s investment loss was not a solitary act. Richard was very indulgent and paid little attention to his health. He went out on shopping sprees that he and Monica couldn’t afford. He was overweight. He used al
> Richard called and said that he had compiled a list of assets and would send it. It came a few days later. His assets included a home worth $300,000, approximately $350,000 in securities, two cars worth $40,000 with loans of $15,000 against them, and oth
> Conrad Smith, a business executive, is an avid collector of vintage comic books. In February, he sold a 1938 Superman comic for $3,700 that he had purchased six years ago for $625. In December, Conrad sold a 1950 Donald Duck comic for $575 that he had pu
> Mr. and Mrs. Isaacs, ages 68 and 66, always claim the standard deduction on their joint return. They own a local restaurant, the Shoreline Grill, as a sole proprietorship. They are both graduates of State University and make regular donations to their al
> Mr. JR’s tax situation for the year is very complicated. He engaged in several high-dollar investment transactions involving unresolved tax issues. He has instructed his accountant to take the most aggressive position possible with respect to these trans
> Mr. Massey, who is in the 32 percent marginal tax bracket and itemizes deductions, recently inherited $30,000. He is considering three alternative uses for this windfall: He could buy shares in a mutual bond fund paying 6 percent interest a year. He coul
> The IRS recently assessed a $290,800 income tax deficiency on CMP Corporation. The deficiency is attributable to a complicated accounting issue involving CMP’s investment in a controlled foreign corporation. CMP plans to contest the deficiency in court.
> Ms. French is a successful attorney in the 37 percent marginal tax bracket. During the past several years, she provided legal services to her great-uncle, who is 78 years old and in failing health. Although the uncle offered to pay for her work, she refu
> During an IRS audit, Ms. H provided the revenue agent with a meticulous set of records substantiating every number on the return. The agent actually complimented her on the quality of her preparation. Nevertheless, Ms. H did make an error in her favor. W
> Percy Wilson is a calendar year taxpayer. What is the unextended filing date of Percy Wilson’s 2018 federal income tax return if: a. Percy Wilson Inc. is a corporation? b. Mr. Percy Wilson is an individual? Answer a. The unextended due date of a 2018 c
> Marcy Tucker received the following items this year. Determine to what extent each item is included in her AGI. a. A $25,000 cash gift from her parents. b. A $500 cash award from the local Chamber of Commerce for her Winning entry in a contest to name a
> Zucker Inc. uses a fiscal year as the taxable year for filing its Form 1120. a. If Zucker’s fiscal year ends on March 31, what is the filing date and the extended filing date for Zucker’s Form 1120 for the fiscal year ending March 31, 2018? b. If Zucker’
> Mr. Clark Besson is undergoing extensive chemotherapy treatment for cancer. His oncologist recommended that he ingest marijuana to relieve the painful side effects. However, possession or use of marijuana is illegal in Mr. Besson’s state of residence. Th
> Using an electronic tax library that contains IRS publications, determine the purpose of Publication 334, Publication 504, and Publication 907.
> Last year, both the Burton family and the Award family incurred $8,000 unreimbursed medical expenses. Mr. and Mrs. Burton deducted $6,000 of their expenses, but Mr. and Mrs. Award were unable to deduct any of their expenses. How do you explain this appar
> Mrs. NM received a letter from the IRS asking her to submit written substantiation of a $1,500 charitable contribution deduction. Discuss the probable tax consequences to Mrs. NM if: a. She sends the IRS copies of her canceled check for $1,500 made out t
> If an individual purchases property insurance on business equipment, the premiums are deductible, but if that same individual purchases property insurance on his home, the premiums are nondeductible. Can you explain this inconsistent tax treatment?
> People frequently sell used appliances, old furniture and clothing, books, toys, and other personal goods through an online service such as Craigslist or eBay. Should these people recognize the cash proceeds from such sales as gross income?
> Which has the greater chance of audit: a Form 1040 with $200,000 AGI, all of which is salary income, or a Form 1040 with $200,000 AGI, all of which is net profit from a sole proprietorship?
> During a field examination of GNT’s income tax returns for 2015 and 2016, the revenue agent discovered that the treasurer had systematically omitted substantial income items and inflated deductions to minimize the corporation’s tax. The agent suspects th
> Mr. and Mrs. Kim own a principal residence and a vacation home. Each residence is subject to a mortgage that qualifies as acquisition debt, and both mortgages were incurred before December 15, 2017. This year, the mortgage holders provided the following
> Mr. and Mrs. Udall live in a home that Mrs. Udall inherited from her parents. This year, the Udalls took out a first mortgage secured by the home. Determine their itemized deduction for interest paid on the mortgage in each of the following cases: a. The
> Mr. and Mrs. Wickham did not apply for an extension of time to file their 2017 Form 1040. Because they were vacationing outside the United States, they neglected to file their Form 1040 until July 14, 2018. Compute the Wickhams’ late filing and late paym
> Mr. and Mrs. BL filed a joint tax return reporting $24,000 AGI. During the year, Mr. BL was extremely ill and was hospitalized for four months. Mrs. BL, desperate for funds to pay her husband’s medical bills, took a night job as a bartender. She earned a
> Both NK and CS are closely held corporations. NK’s tax returns for the last five years reflect average taxable income of $90 million. CS’s tax returns for the same period reflect average taxable income of $90,000. Discuss the reasons that the IRS might c
> Refer to the preceding problem. How would your answers change if the fire that damaged the Marcums’ roof was attributable to faulty electrical wiring in their attic? Data from Problem 24: Mr. and Mrs. Marcum live in Southern California in an area devas
> Mr. and Mrs. Marcum live in Southern California in an area devastated by wildfires that President Trump designated a federally declared disaster. Because of fire damage, the Marcums had to replace the roof of their home at a cost of $55,000. Their homeow
> Mr. NG is an enrolled agent in tax practice. Last year, the IRS imposed a $1,000 preparer penalty on him, and he immediately hired an attorney to contest the penalty. Mr. NG’s legal fee was $7,900. Was he acting irrationally by spending so much money to
> Two years ago, Lodi Inc.’s shareholders voted to dissolve the corporation. Pursuant to the dissolution, Lodi sold all its assets, paid off its outstanding debts, and distributed $789,000 remaining cash to its shareholders in complete liquidation of their
