1
Q
Noncancelable
A
Premium will remain the same
2
Q
Guaranteed Renewable
A
Premiums may increase but policy will stay in force
3
Q
Disability integrated with Social Security
A
SS has a 5 month waiting period. If they have SIS rider, that amount will be reduced by SS paid in month 5
4
Q
Six ADLs (Activities of Daily Living)
A
Eating, Bathing, Dressing, toilet, transfer to bed, maintaining continence.
5
Q
Medicare - Long Term Care Benefit
A
- 20 days paid by Medicare, next 80 are co-payment, anything else is patient cost
6
Q
Dividend Options for Life Insurance
A
Cash
Reduction of Premiums
Accumulate with Interest (taxable)
Paid up Additions
One Year Term Insurance (5th dividend)
7
Q
Nonforfeiture Options for Life Insurance
A
Cash
Reduced Paid Up insurance
Extended Term / Paid up term insurance
Can’t even pay
8
Q
1035 Exchange
A
Annuity -> Life NO WAY!
9
Q
Financial Planning Process
A
- Understanding the Clients Personal and Financial Circumstance
- identifying and selecting goal
- Analyzing current and potential course of action
- Develop recommendations
- Present recommendations
- Implement recommendations
- Monitor and update
10
Q
Housing Expense Ratio (PITI)
A
< 28% gross income
11
Q
Total Monthly Debt
A
< 36% gross income
12
Q
Consumer Debt
A
< 20% net income
13
Q
Real Rate of Return
A
= (1+ after tax return / 1+ inflation rate) -1 x 100
14
Q
College Funding
A
Step 1 - cost in first year (solve for FV)
Step 2 - lump sum needed (solve for PV)
Step 3 - how much do you need to save
15
Q
UTMA vs UGMA
A
UTMA can include real estate
16
Q
Alimony
A
- cash payments if obligation (rent, tax)
- life insurance where payor is insured
17
Q
COBRA
A
- 20+ employees
- 18 months if because of you
- 36 months for family
18
Q
Compensatory vs Punitive Damages
A
- compensatory is tax free because it’s for physical injuries
- punitive is punishment so it’s taxable
(Except for wrongful death)
19
Q
Monetary Policy
A
BEST
- buy is expansionary
- sell is tighten
20
Q
Reverse Mortgage
A
- must be 62
- get funds distributed from house value
- proceeds tax free
21
Q
Investment Advisor
A
“ABC” Test
Advice
Business
Compensation
22
Q
Exceptions to Investment Advisor
A
- LATE (lawyer, accountant, teacher, engineer)
- bank
- limited to US gov securities
- family office
- only insurance companies are clients
23
Q
Contracts Elements
A
- offer and acceptance
- consideration (something of value)
- legal capacity
- lawful purpose
24
Q
Insurable Risks
A
- large number of homogeneous exposure units
- loss is definite and measurable
- loss must be accidental
- loss must not be catastrophic to insurance company
25
Parts of Insurance Contract
Declarations
Definitions
Insurance Agreements
Conditions
Exclusions
“DICE”
26
Homeowners Insurance
A - dwelling
B - other structures
C - personal property
D - loss of use
E - liability
F - medical
27
Property Loss Calculations
Replacement Cost * Coinsurance % = insurance required
(Insurance carried / required ) x loss - deductible = amt paid by insurance
28
Personal Auto Policy Parts
A - liability
B - medical
C - uninsured motorists
D - damage to your auto
29
Workers Comp
- medical benefits
- disability income
- rehab
30
Stock Redemption
- entity purchase
- no step up in basis
31
Cross Purchase
- stockholder owns
- step up in basis
32
Endorsement Method
- R = employer owns policy and pays premium
- employer retains cash value or premiums paid
- employees beneficiary gets balance of death benefit
33
Collateral Assignment Method
- employee is owner
- employee aSSigns the policy
- employer receives premiums paid
34
Annuity Taxation
Monthly payment * life expectancy in months = expected return
Investment (basis) / expected return = exclusion ratio
35
Bankers Acceptance
Finance imports and export transactions
36
Eurodollar
Deposit in any foreign bank that is denominated in dollars
37
Yankee Bonds
Dollar denominated bonds issued in the US by foreign banks and corporations
38
T-Bills
- 3,6,12 month maturities
- safest
- no coupon interest
- weekly auction
39
T-Notes
- 1-10 years
- RIP is risk
- not callable
- semiannual interest
- monthly auction
40
T-Bonds
- 10-30 years
- RIP is risk
- callable
- semiannual interest
- quarterly auctions
41
Bonds Risk
Default risk
Reinvestment risk
Interest rate risk
Purchasing power risk
“DRIP”
42
American Depositary Receipts
Buy foreign shares in the US
- dividends paid in US dollars but declared in foreign currency
43
Systematic Risk
Purchasing power risk
Reinvestment risk
Interest rate risk
Market risk
Exchange rate risk
“PRIME”
44
Unsystematic Risk
Business risk
Financial risk
45
Total risk
- standard deviation
- combo of unsystematic and systematic risk
46
Systematic risk
Known as beta
47
Covariance
Measures the extent to which 2 stocks are related to one another
48
Correlation Coefficient
Ranges from +1 to -1
+1 = perfect correlation (risky)
-1 = opposite (risk is eliminated)
49
Coefficient of Variation
Measure of relative variability used to compare investments
= standard deviation / return
Higher the coefficient variation = riskier
50
Standard Deviation
Measures variability
Non diversified portfolio
Measure of total risk
51
Beta
Measures volatility
Diversified portfolio
Measures systematic risk
52
Current Yield
= annual interest in dollars / current bond price
53
Muni Bonds vs Treasuries Taxation
Muni’s - no fed taxes, but yes to state taxes (if resident state may be no state taxes)
Treasuries - yes to fed taxes, no state taxes
54
Duration
High interest = low duration
YTM and Duration are positively correlated
55
Duration to manage bonds
UPS
- if interest rates are going UP, Shorten duration
FALLEN
- if interest rates are Falling, Lengthen duration
56
Bond Price Volatility
- small coupon, longer maturity and lower interest rate = bigger price fluctuation
57
Current Market Price formula
= earnings x P/E Ratio
58
return on equity
= EPS / common equity
59
Dividend payout ratio
= common dividends paid / EPS
60
Market Risk Premium
- from required rate of return formula
- (risk of market - risk free rate)
61
Stock Risk Premium
- from required rate of return formula
- (risk of market - risk free rate)Beta
62
Fundamental Analysis
- consider current and past company records
- F FOR FORMULAS
63
Technical Analysis
- used charts or computer programs
64
Benchmarks
Dow Jones = price weighted
SP500 = float like a butterfly, sting like a bee = Floating
Russell 2000 = small cap = cap weighted
Wilshire 5000 = Volkswagen = value
Value Line = value is equal = equal weighted
NASDAQ - capitalization bc capital letters
EAFE
65
Ex-Dividend Date for Common Stock
- must purchase stock before ex-dividend date
- watch for weekends and holidays
66
Alpha
Portfolio managers contribution
67
R^2
If > 60 then Alpha first or Treynor
If < 60 then Sharpe
68
Stock Option Collar
Selling a call and buying a put
- own the stock and want to hedge against a decline
69
Maintenance Margin Requirement
= (1 - initial margin) / (1 - maintenance margin) x purchase price of stock
70
Option Straddle
Buying a put and buying a call
- don’t know how the stock is going to move
71
Debts not cancelled by bankruptcy
- student loans
- gov loans
- child support
- taxes
- alimony
72
Assets subject to probate
- single owned assets
- property held tenancy in common
- assets where beneficiary is “estate of the insured”
- community property (50% to each spouse)
73
Gross Estate
All probate assets + non probate assets
- gift taxes paid within 3 years of death
- general powers of appointment mom
74
Fully Deductible Gifts
- to spouse
- qualified charities
- education institutions
- political parties
75
What form for gift tax return
709
76
Present interest gifts
- 2503(c)
- direct gift
- crummey
- 529
- UGMA/ UTMA
77
Crummey trust
Able to take out the lessor of $18,000 or value of gift transferred that year
78
Bypass trust (B)
- pass using $13,610,000 exemption
- assets pass to trust beneficiary
79
Marital Trust (A)
Surviving spouse has control over property
Assets pass by marital deduction
80
Marital Trust (A)
Surviving spouse has control over property
Assets pass by marital deduction
Assets pass to second spouses beneficiary
81
QTIP (C)
Current income trust
Assets pass to trust beneficiary
2nd marriage
LAME
82
QTIP (C)
Current income trust
Assets pass to trust beneficiary
2nd marriage
LAME
83
QDOT
Allows you to pass assets to non-US spouse
84
CRAT (5%)
- no additions
- fixed payments
- any charity
- 10% ending value
85
CRUT (5%)
- additions allowed
- variable payments
- any charity
- 10% ending value
86
Pooled Income
- additions allowed
- variable payments
- specific charity
87
Charitable Gift annuity
- no additions
- fixed lifetime income
- specific charity
- deduction based on gift less annuity
88
Charitable Lead Trust
- L = leaves
89
Private Foundations
- 5% distributed for charity
- individual
- study , music, award
90
Intrafamily Transfers
PIGS need income
Private annuity
Installment sale (small estates)
Grantor retained annuity trust
Self cancelling installment not (for large estates)
91
GST tax
- direct skip then transferor pays GST
- taxable termination then trustee pays GST
- taxable distribution then transferee pays GST
92
SS Taxation
MAGI
50% single = $25k MFJ = $32k
85% single = $34k MFJ = $44k
93
Keogh Contributions
15% = 12.12%
25% = 18.59%
94
Annual Report - who is it written for
Shareholders
95
Preferred Stock
Stated dividend rate
Duration is infinite
Typically purchased by corporations bc 50% dividend deduction
96
Unit Investment Trust
Unmanaged portfolio
Don’t buy new securities
97
Daily Limit for Futures Contract
Max permissible price increase or decrease
98
Futures Long vs Short
Long position = own the product = short hedge
Short position = selling the product = long hedge
99
Collectibles tax rate
28%
Rise in value during inflationary periods
100
Private Placement (Reg D)
1-2-3
$1,000,000 net worth (excluding home)
$200,000 single income
$300,000 MFJ income
101
Liquidity Defintion
Speed + stability of price
102
Marketability Definition
Speed of transaction
103
Adjustments for AGI
- IRA contribution
- Keogh or SEP
- 1/2 SE tax .07065
- alimony paid
- SE health insurance
104
Adjustments for AGI
- IRA contribution
- Keogh or SEP
- 1/2 SE tax .07065
- alimony paid
- SE health insurance
105
Investment interest deduction
- limited to taxpayers net investment income
- need income that is taxed at ordinary rates (stcg, non-qual dividends, interest)
106
Casualty Theft and Losses
Lesser of basis or FMV
subtract insurance coverage
Subtract $100
Subtract 10% of AGI
* must be federally declared
107
How many exemptions can you claim?
0
108
Kiddie Tax
- first $1,300 is standard deduction
- next $1,300 is taxed at 10%
- anything over at parents marginal
* if they have earned income standard deduction = earned income + $450
109
Self Employment Tax
Net earnings * .1413
110
Self Employment Income Examples
- net schedule C
- k-1 income
- board of directors
- part time earnings
111
FICA taxes
6.2% up to $168,000 then 1.45% on the rest
112
Dependent Care Expense Credit
- $3,000 for 1 kid
- $6,000 for 2+ kids
Use 20% of allowable expenses to determine credit amount
Until age 13
113
Child Tax Credit
$2,000 / child under age 17
Up to $1,700 is refundable
114
Section 1244
Allows $100,000 ordinary loss if business fails
115
MACRS
5 years- computer, auto, truck
7 years - office equipment
116
MACRS
5 years- computer, auto, truck
7 years - office equipment
117
179 deduction
Election to expense up to 1,220,000 of qualifying property in the year of acquisition
Cannot create a loss
Tangible personal property
118
Keys to Boot
- boot received = recognized gain
- boot paid = add to basis
- basis carry’s over from last property
119
Like Kind Exchanges
- FMV if property received
- adjusted basis of property given up
- boot
120
Renting vacation home
Personal use cannot exceed the longer of 14 days or 10% of rental use
121
Charitable donations
FMV = 3 letters = 30% of AGI
Basis = 5 letters = 50% of AGI
Ordinary income property is limited to basis
122
Roth Conversion
Assets must be held for 5 years to avoid 10% penalty
123
Withdrawal of Earnings from Roth
59 1/2 AND 5 years for no tax
124
QBI
20% deduction for pass through entities
- if service related there is a phase out
125
QBI
20% deduction for pass through entities
- if service related there is a phase out
126
Qualified Charitable Distribution
Age 70 1/2
Up to $105,000
127
Alimony Recapture
- $15k decrease from year to year
- $37,500 is constant
