1
Q
Producer Price Index (PPI)
A
- leading indicator of inflation
- does not include services
2
Q
Durable Goods
A
- dishwasher
- car, etc.
3
Q
Nondurable Goods
A
- paper towels
- toilet paper, etc.
4
Q
Leading and Coincidental Indicators Going Up, Not the Lagging
A
- recovery to expansion
5
Q
All Leading, Coincidental, and Lagging Indicators Going Up
A
- expansion to peak
6
Q
Variable Outflows
A
- where everything goes with children
- if client does not know, ask how much they make and how much is left at the end of the month, and solve for the difference
7
Q
Capitalized Value Formula
A
- capitalized value = annual income / capitalization rate
8
Q
Pro Forma Statement
A
- budget, revisit every year, project out for 12 months
9
Q
Emergency Funds (When to Use)
A
- second source of income = 3 months
- one source of income = 6 months
- if working at same company = 6 months
- if pregnant/expecting to have children = 6 months
NOTE: if checking account is included in emergency savings, subtract out current month expenses, cannot go below 0
10
Q
Insurable Deposits (FDIC)
A
- checking account
- savings account
- money market deposit accounts
- CDs
NOTE: trusts have $250k coverage PER beneficiary
11
Q
Not Insurable Deposits (FDIC)
A
- stock investments
- bond investments
- mutual funds (including money market)
- u.s. treasury bills, bonds, and notes
12
Q
Qualified Tuition Programs (529s)
A
- allowed to change once a year
- limited investment choices
13
Q
College Savings 529
A
- market based
- risk tolerant
- open enrollment
- includes graduate school
- no restrictions on tuition and fees
- includes room and board
- available for out of state
- no guarantee
- choice of school doesn’t matter
- refunds subject to 10% penalty
14
Q
Prepaid Tuition 529
A
- tracks tuition inflation
- risk adverse
- specified enrollment
- may be limited to undergraduate
- restricted to tuition and fees (no room and board)
- may restrict out of state costs
- choice of school impacts investments
- refunds are investments + low rate of interest
15
Q
529 Rollover
A
- if the benefit is for same beneficiary the rollover is not considered a distribution
16
Q
529 Advantages over UTMA/UGMA
A
- parent asset
- beneficiaries do not control at age of maturity
17
Q
Coverdell ESAs
A
- would never want to use
- eligible for k-12 expenses and college
- assets not used for education cannot be reclaimed
- $2,000 per year total (not per donor)
- contributions cannot be made after 18
- account must be distributed by 30
- student loan repayments not allowed
18
Q
Job Change or Loss
A
- revise budget
- refinance mortgage
- use retirement funds for current needs
- health insurance considerations
19
Q
Monetary Windfalls
A
- structured settlement = tax-free
- compensatory damages = principal tax-free, interest taxable
- punitive damages = taxable
NOTE: c = free, p = pay
20
Q
Prizes and Awards Taxation
A
- taxed at what you get in a given year
21
Q
Basic Economics
A
- supply = willing to sell
- demand = willing to buy
- fiscal policy = taxes and spending to achieve full employment, price sustainability, and growth in economy
- monetary policy = federal reserve, to influence growth of money supply
22
Q
Easy Money/Loose/Expansionary
A
- reduce reserve requirements
- lower the discount rate (not prime)
- repo/buy bond securities
- decrease margin percentage required
23
Q
Tight Money/Contractionary Policy
A
- increase reserve requirements
- raise discount rate
- reverse repo/sell bond securities
- increase margin requirements
24
Q
Leading Economic Indicators
A
- initial claims for unemployment
- new manufacturing orders
- new private housing units
- stock prices, s&p 500
- index of consumer expectations
25
Coincidental Indicators
- industrial production
26
Deflation
- reverse of inflation
- decline in prices or goods
27
Stagflation
- slow economic growth and high unemployment
- rising prices
28
Disinflation
- slow down of price increases
29
Yield Curve
- inverted is when short-term rates are better than long-term rates
- relate time to maturity and yield to maturity, so same tax status and quality
30
Long-Term Debt Examples
- home equity line of credit
- 30-year home mortgage
31
Balloon Payments (Mortgage)
- have to pay off every 5-7 years
- unpaid balances must be paid off or refinanced
32
Calculating Interest Paid Over Life of the Loan
- step 1 = calculate payments using time value of money
- step 2 = take payments and multiply by months during loan
- step 3 = subtract out principle from step 2
33
Principal and Interest for less than Life of the Loan
- step 1 = calculate payment using TVM
- step 2 = enter mortgage amount as PV (+), enter annual interest/12 as i, enter payment from step 1 as pmt (-)
- step 3 = multiply years by 12 and click f AMORT (amount of interest)
- step 4 = click x<>y (amount of principal
- step 5 = click RCL PV (loan balance remaining)
34
Mortgage Net After Tax Payment Shortcut
- step 1 = solve for payment
- step 2 = multiply payment by 12
- step 3 = take annual interest multiplied by original loan and multiply by tax rate
- step 4 = subtract step 3 from step 2
- step 5 = choose next higher
35
Statement of Financial Position Mortgage Reporting
- paying down mortgage increases net worth
36
Key Issues when Evaluating if a Client should Refinance
- length of time expected to stay in home
- cash flow capacity
Reasons to Refinance:
- obtain lower interest rate
- consolidate debt
- change term of loan
- raise extra cash
37
Reverse Mortgage
- only available if 62+ and in condo/single family home
- no income qualifications
- borrowers retain title
- no monthly mortgage payments during life of the loan
- tax-free and can be used for any purpose
- not repaid until borrower moves out
- doesn’t have to be owned outright
-if home is sold to satisfy reverse mortgage, remaining cash is not protected and can cause loss in Medicaid
38
Definition of Investment Advisor
- must meet all 3; advice, business, compensation
- SEC defines compensation as “receipt of economic benefit”
39
Form ADV
- part 1 = general information
- part 2 = brochures; fees, services, conflicts of interest, etc.
- must update brochures if materially changed within 120 days of end of fiscal year
- if item is not relevant must be specifically stated
NOTE: ADV-W ceases operations
40
Form CRS
- discloses succinct and relevant information to retail investors
41
Sell of Variable Contracts
- must hold BOTH series 6/7 and variable state life insurance
42
Contracts
- must have offer and acceptance
- value must be exchanged
- principal must have legal capacity (minors only for necessities, incompetent or intoxicated have none)
- must be a lawful purpose
43
Law of Agency
- agent = loyal to company
- broker = loyal to client
- express authority = written direction from principal to agent
- implied authority = public believes
- apparent authority = arises of negligence
44
Conditional Receipt
- if applicant were to die before policy is issued, company must pay death benefit as if it has been
45
Bankruptcy
- chapter 11 - individuals who do not qualify for chapter 13 because they exceed debt limitations
- chapter 13 - unlucky, have to pay some debts
- chapter 7 - lucky, pays no debt except student and government loans, wage withholdings and income taxes, child support and alimony
46
Fair Credit Reporting Act
- one free credit report a year, can review at any time
- if denied credit, has right to see report
- information retained for 7 years
- only interested parties can access the file
47
Consumer Credit Protection Act
- interest must be reported as annual percentage rate (APR)
- credit terms must be disclosed
- lost or stolen credit cards have limited liability of $50 per card
48
Commingling of Funds
- cannot be commingled with personal funds
- can be commingled in a common client investment account
49
Financial Planning vs Advice
- financial planning is broader and more in-depth than advice. Both require fiduciary manner and disclosures.
50
Buy vs Leasing a Home
- concept: think time and taxes to make recommendation
51
College Savings Investments
- 12 and under = equity (high growth)
- 13-17 = fixed income (less risky)
- 18-19 = CDs of money market (very conservative)
52
Fiscal Policy
- government
- raises and lowers taxes, spends money
- seeks full employment, price stability, and sustained growth
53
Federal Open Market Committee (FOMC)
- reviews financial conditions and determines appropriate stance on monetary policy
54
Monetary Policy
- action taken by federal reverse to influence the growth of the money supply
55
Discount Rate
- fed sets level of money reserve that member banks must maintain
- rate the federal reserve charges member banks to borrow to satisfy reserve
- raising rate is tightening
- lowering rate is easing
56
Open Market Operations
- repo = repurchase
- expansionary = fed gives cash in return for temporary pledge of government securities
- contractionary = fed gives dealer temporary pledge of government securities in return for cash
- buying increases money supply
- increasing bank reserves is contractionary
57
Fair Credit Reporting Act
- one free report per year
- if denied right to receive
- info retained up to 7 years
- only interested persons can access
58
Consumer Credit Protection (Truth in Lending)
- interest is represented in APR
- credit terms must be disclosed
- lost of stolen credit cards have limited liability of $50/ card
KB CFP March 2024
flashcards
Decks in class (8)
# Cards
