General Principals

Question 1

How do I calculate interest over life of the loan?

Answer 1

Solve for the payment (end mode).
Calculate total payments.
Subtract principal.

PS GP 8-3

Question 2

How do I find the net after-tax mortgage payment for the first year?

Answer 2

• Solve for PMT
• Determine payments for first year.
• Round down to estimate interest.
• Multiply estimated interest by tax bracket to get amount deductible.
• Subtract deductible amount from total payment amount to get total after-tax payments for first year.

PS GP 8-4

Question 3

How do I find principal and interest for less than the life of the loan (but more than one year)?

Answer 3

• Solve for PMT.
• Enter starting and ending periods (e.g. 10 years, 1 INPUT 120)
• GOLD AMORT
• = (1st) Principal
• = (2nd) Interest
• = (3rd) Balance of loan

PS GP 8-5

Question 4

How do I find the after-tax mortgage payment for a year after the first year? (e.g. Yr. 10)

Answer 4

• Solve for PMT.
• Multiply PMT by 12 to get year’s worth of payments.
• Find the difference between the interest for the year in question and the prior year.
• Multiply the difference by the tax bracket.
• Subtract the after-tax interest from the year’s worth of payments to get the total after-tax mortgage payment for that year.

PS GP 8-6

Question 5

Only 1 tax advantaged source can be used to pay for the same college expense. Name the four tax advantaged college funding sources.

Answer 5

1. American Opportunity Credit (Undergrad / max $2500/ MAGI phaseout)
2. Lifetime Learning Credit (Any higher learning / $2000 Max/ MAGI phaseout
3. Coverdell Withdrawal (Use before age 30 / MAGI phaseout)
4. 529 (QTP) Distribution (No MAGI phaseout)

LR GP-10

Question 6

Which of the following fiscal and monetary policy activities expansionary or contractionary?

• Tax cuts
• Increasing bank reserves
• Expanding the money supply.
• Tax rebates
• Government spending

Answer 6

• Tax cuts - expansionary
• Increasing bank reserves - contractionary
• Expanding the money supply - expansionary
• Tax rebates - expansionary
• Government spending - expansionary

PS GP-13

Question 7

The _____ regulates the requirements for disclosure via Form ADV.

Answer 7

SEC

LR GP-14

Question 8

One bankruptcy generally does/does not cause an individual to fail to satisfy CFP Board fitness standards for candidates.

Answer 8

does not

LR GP-15

Question 9

True or False: CFP Suspensions are not automatically published.

Answer 9

FALSE. CFP Suspensions ARE automatically published.

The DEC may order suspension for a specified period of time, not to exceed five years . In the event of a suspension, CFP Board must publish the fact of the suspension together with identification of the Respondent in a press release, or in such other form of publicity as is selected by the DEC. Respondents receiving a suspension may qualify for reinstatement to use the marks as provided in Article 15.

https://www.cfp.net/ethics/enforcement/disciplinary-rules-and-procedures

Question 10

Does selling only commission based proprietary products violate the CFP Board Code of Ethics?

Answer 10

No, as long as it is disclosed along with the associated compensation arrangement.

PS GP-20

Question 11

The ___________ controls monetary policy.

Answer 11

Federal Open Market Committee

The Board of Governors of the Federal Reserve System is responsible for the discount rate and reserve requirements. The FOMC is responsible for open market operations.

https://www.federalreserve.gov/monetarypolicy/fomc.htm

Question 12

How do I find Present Value with unequal cash flows?
Example: Positive cash flows of $6,000, $7,000, and $8,000 over a three-year period. End of 3 years, sell for $115,000. 12% return required. Amount to pay for investment?

Answer 12

• 0 CFj
• 6,000 CFj
• 7,000 CFJ
• 123,000 CFj
• 12% I/YR
• gold, NPV
• $98,486.47

PS GP 4-10

Question 13

How do I find Internal Rate of Return/Dollar Weighted Return with unequal cash flows?

Example: Mkt value $100,000. Cap w/d EOY1 $4,000, Cap. w/d EOY2 $5,000, Cap. w/d EOY3 $6,000. Mkt value EOY3 $120,000.

Answer 13

• Gold, clear all
• 100,000 +- CFj
• 4,000 CFj
• 5,000 CFj
• 126,000 CFj
• Gold, IRR/YR
• 10.92%

LR GP-22

Question 14

How do I find Net Present Value with unequal cash flows?

Initial investment of $100,000. Positive cash flows of $6,000, $7,000, and $8,000 over a three-year period. End of 3 years, sell for $115,000. 12% return required. What was NPV? Does it meet the required rate of return?

Answer 14

• $100,000 +- CFj
• 6,000 CFj
• 7,000 CFJ
• 123,000 CFj
• 12% I/YR
• Gold, NPV
• -$1,513.53. Since it’s negative, it does not meet the required rate of return.

LR GP-22