Course 101

Define: "Professionalism" as it relates to the Code of Ethics and Professional Responsibility

" Act in a manner that demonstrates exemplary professional conduct" Requires behaving with dignity and courtesy to clients, fellow professionals, and others in business-related activities CFP professionals must demonstrate poise and civility to clients and other professionals (C101.U8.P107)

Define: "Fairness" as it relates to the Code of Ethics and Professional Responsibility

"Be fair and reasonable in all professional relationships" Requires impartiality, intellectual honesty, and disclosure of material conflicts of interest CFP professionals must have no prejudices when planning for their clients (C101.U8.P106)

Define: "Competence" as it relates to the Code of Ethics and Professional Responsibility

"Maintain the knowledge and skill necessary to provide professional services competently" Means attaining and maintaining an adequate level of knowledge and skill and applying that knowledge and skill in providing services to clients CFP professionals must be capable and knowledgeable in matters related to their specific circumstances. if they lack expertise in an area of planning that must be addressed by their clients, they should have the insight to refer the clients to another professional (C101.U8.P106)

Define: "Confidentiality" as it relates to the Code of Ethics and Professional Responsibility

"Protect the confidentiality of all client information" Means ensuring that information is accessible only to those authorized to have access. CFP professionals must keep all client information private (C101.U8.P106)

Define: "Diligence" as it relates to the Code of Ethics and Professional Responsibility

"Provide professional services diligently" is the provision of services in a reasonably prompt and through manner. CFP professionals are obliged to give timely and complete financial planning services. (C101.U8.P107)

Define: "Objectivity" as it relates to the Code of Ethics and Professional Responsibility

"Provide professional services objectively" Requires honesty and impartiality. CFP professionals must be truthful and unbiased, and must make decisions in the best interest of their clients independently of personal prejudices and other predisposed points of view (C101.U8.P105)

Define: "Integrity" as it relates to the Code of Ethics and Professional Responsibility

"Provide professional services with integrity" Demands honestness and candor which must not be subordinated to personal gain and advantage CFP professionals must be truthful and open with their clients, and they must put the clients interests first, ahead of their own (C101.U8.P105)

What is the basic FDIC-insured amount of a deposited?

$250,000 per legal ownership category (C101.U7.P95)

Table showing difference between a prepaid tuition plan and a college savings plan

(C101.U10.P154)

Table showing difference between the American Opportunity Tax Credit and the Lifetime Learning Credit

(C101.U10.P160)

Fact: The cashflow statement reflects the client's financial activity over a period of time

(C101.U3.P31)

Fact: Neither lease payments nor interest paid on an auto loan is tax deductible (unless the auto is substantially used for business purposes)

(C101.U4.P49)

Review Course 101 Unit 6 page 71 for how to calculate NPV and IRR on the HP 10bII+

(C101.U6.P71)

What are the Bankruptcy Act of 2005 provisions?

- Individuals who can pay their debts must file chapter 13 - Consumer use of chapter 7 is limited to the liquidation of credit card bills or loans that are not secured by a house or other asset - Debtors who want to file chapter 7 must submit to credit counseling - Lenders are required to provide information about the dangers of paying the minimum balances on credit cards (C101.U9.P141)

Define: American Opportunity Tax Credit

- Intended to help families pay for post-secondary education for their children. - The credit lasts for the first 4 years of post-secondary education - Reduces family's tax dollar-for-dollar in an amount equal to 100% of the first $2,000 of qualified expenses, and 25% of the next $2,000 - Maximum credit of $2,500 per STUDENT - Student must be enrolled in a program leading to a degree, must be at least part time student - 2015 phase out limits: S- $80K:90K MFJ- 160K:180K - Not available if student has felony drug convictions or if parents file operate returns (C101.U10.P158)

Who is excluded from the definition of an Investment Advisor?

- Lawyers, Accountants, Teachers, Engineers - who's advise is solely incidental to the practice of their profession L-A-T-E - B/D who's performance is incidental and devices no special compensation - A Bank or Bank holding company - A Newspaper or publication - A person show advice is limited to securities issued and is guaranteed by the US government (C101.U7.P89)

Define: Coverdell Education Savings Account (CESA)

- Serves as an incentive for parents, grandparents, and others to save for a child's education expenses. - Contributions must be under $2,000/child - Beneficiary must be under 18 - Earnings accumulate tax free, if used for qualified education expenses Phase out: S - 95K:110K MFJ- 190K:220K (C101.U10.P151)

List the 'life cycle phases'?

1) Asset Accumulation Phase 2) Conservation or Protection Phase 3) Distribution or Gifting Phase (C101.U1.P10)

What are the six steps in the financial planning process?

1) Establish the relationship 2) Gather information 3) Analyze information 4) Develop & Communicate recommendation 5) Implement recommendation 6) Monitor recommendation EGADIM (C101.U1.P3)

List the steps in the financial planning process (6)

1) Establish the relationship 2) Gather information 3) Analyze information 4) Develop & Communicate recommendation 5) Implement recommendation 6) Monitor recommendation EGADIM (C101.U8.P101)

What are the 8 job task domains?

1) Establishing and Defining the Client-Planner Relationship (FPP 1) 2) Gathering Information Necessary to Fulfill the Engagement (FPP 2) 3) Analyzing and Evaluating the Clients Current Financial Status (FPP 3) 4) Developing the Recommendations (FPP 4) 5) Communicating the Recommendations (FPP 4) 6) Implementing the Recommendations (FPP 5) 7) Monitoring the Recommendations (FPP 6) 8) Practicing within Professional and Regulatory Standards (FPP 1-6) (C101.U1.P3)

Components of a financial plan (6)

1) Savings, Budgeting, Emergency Funding, Education Planning 2) Risk Management (Insurance) 3) Investment Planning 4) Tax Planning 5) Retirement Savings/ Income Planning 6) Estate Planning (C101.U1.P3)

A B/D that is registered with the SEC under the Securities Exchange act of 1934 is excluded from the act if the advice given is:

1) Solely incidental to the conduct of its business and 2) it doesn't receive any special compensation (C101.U7.P90)

How does and investment advisor register with the SEC?

1) Submit application to Investment Advisor Registration Depository (IARD) 2) The advisor pays a filing fee 3) The advisor submits form ADV Part 1 (C101.U7.P90)

What are the 2 general methods of calculating any form of needs analysis?

1. Capital Utilization - funds are depleted 2. Capital Retention - interest only (C101.U6.P77)

What are the 3 components of the Cash flow statement?

1. Cash inflows 2. Cash outflows 3. Net cash flow (surplus or deficit) (C101.U3.P32)

What are the 3 asset categories?

1. Cash/Cash Equivalents 2. Investments 3. Personal Use assets (C101.U3.P29)

When should 6 months of expenses be set aside in an emergency fund?

1. Client is a single wage earner 2. The client is married, but only one spouse is employed outside of the home (C101.U4.P40)

When should 3 months of expenses be set aside in an emergency fund?

1. Client is a single wage earner and has a second source of sizable income 2. Client is married and both are employed outside the home 3. Client is married, only one spouse id working outside the home but a second source of sizable income is available (C101.U4.P40)

List the Standards of Professional Conduct (5)

1. Code of Ethics an Professional Responsibility 2. Rules of Conduct 3. Financial Planning Practice Standards 4. Disciplinary Rules and Procedures 5. Fitness Standards for Candidates and Professionals Eligible for Reinstatement (C101.U8.P105)

What the the 2 liability categories?

1. Current (short-term) 2. Long-term (C101.U3.P29)

What are the seven principles included in the Code of Ethics and Professional Responsibility?

1. Integrity 2. Objectivity 3. Competence 4. Fairness 5. Confidentiality 6. Professionalism 7. Diligence CFP CODI (C101.U8.P105)

What are the two reasons for higher yields on longer-term bonds?

1. Investors may expect a rise in interest rates, therefor if they are willing to lock in a rate now, they should be compensated 2. Longer matures mens greater risks for the investor (C101.U9.P140)

The Fed uses 3 major tools of monetary policy. What are they?

1. Lowering or increasing the amount of required reserves that must be held by banking members of the Federal Reserve System 2. Raising or lowering the Fed's discount rate ( the amount of interest that is charged by one of the 12 Federal Reserve Banks to other Banks) 3. Engaging in open market operations. Which is the buying or selling of government securities in the open market place by the Federal Reserve (C101.U9.P135)

What are the two methods the U.S. Government uses to influence the level of future economic activity?

1. Monetary Policy 2. Fiscal Policy (C101.U9.P135)

List the 3 major types of grants

1. Pell Grant 2. Supplemental Education Opportunity Grants (SEOGs) 3. Federal Work-Study Programs (C101.U10.P157)

What are the 2 types of Section 529 (QTP) plans?

1. Prepaid tuition plans 2. College savings plan (C101.U10.P153)

What are the factors that determine weather a person should buy or rent a home? (4)

1. Price of existing homes/ mortgage interest rates 2. Length of time the client expects to live in the home 3. Extent to which home prices are expected to increase or decrease 4. Income tax benefit of home ownership * Shorter time frames favor renting, longer time frame favors buying (C101.U4.P48)

List the forms of discipline for any CFP professional who violates either the Rules of Conduct or fails to comply with the Practice Standards are:

1. Private censure by letter of reproach 2. Public letter of admonition 3. Suspension of the right to use the CFP marks for a specified period of time, not to exceed 5 years 4. Permanent revocation of the rights to use the CFP marks (C101.U8.P119)

3 costs of renting a house:

1. Rent 2. Renters insurance 3. Utilities (C101.U4.P48)

What are the most common categories of ownership as it relates to FDIC insurance? (4)

1. Single 2. Joint (1/2 is covered) 3. Retirement Account 4. Revocable trust (C101.U7.P95)

What are the two reasons the consumer will buy less of a good if its price increases?

1. Substitution effect 2. Income effect (C101.U9.P131)

List the two major campus-based grants

1. Supplemental Education Opportunity Grants (SEOGs) 2. Federal Work-Study Programs (C101.U10.P157)

What are the 3 federal agencies that banks are subject to?

1. The comptroller of the Currency 2. The federal reserve board 3. Federal Deposit Insurance Corporation (FDIC) (C101.U7.P94)

What re the two tools that congress uses in exercising fiscal policy?

1. The power to tax 2. The power to spend (C101.U9.P136)

What is the maximum amount per person for the American Opportunity Tax credit?

100% of first $2,000 25% of second $2,000 Max of $2,500/ STUDENT (C101.U10.P158)

Practice Standard 100 (100-1)

100-1 Defining the scope of the engagement (C101.U8.P117)

What % should the Consumer Debt Ratio not exceed?

20% (C101.U4.P41)

What is the maximum amount per family of the Lifetime Learning Credit ?

20% of $10,000 = $2,000/ family (C101.U10.P159)

Practice Standard 200 (200-1,2)

200-1 Determining a Client's Personal and Financial Goals, Needs, and Priorities 200-2 Obtaining Quantitative Information and Documents (C101.U8.P117)

What % should the Housing Cost Ratio not exceed?

28% (C101.U4.P41)

How much money is considered adequate for an emergency fund?

3-6 months of fixed and variable expenses (C101.U4.P39)

Practice Standard 300 (300-1)

300-1 Analyzing and Evaluating the Client's Information (C101.U8.P117)

What % should the Total Debt Ratio not exceed?

36% (C101.U4.P41)

Practice Standard 400 (400-1,2,3)

400-1 Identifying and Evaluating Financial Planning Alternative(s) 400-2 Developing the Financial Planning Recommendation(s) 400-3 Presenting the Financial Planning Recommendation(s) (C101.U8.P117)

Practice Standard 500 (500-1,2)

500-1 Agreeing on Implementation Responsibilities 500-2 Selecting Products and Services for Implementation (C101.U8.P117)

Practice Standard 600 (600-1)

600-1 Defining Monitoring Responsibilities (C101.U8.P117)

Formula for the Rule of 72

72 / Annual interest Rate = # years for investment to double (C101.U5.P64)

What is a UGMA 529 or UTMA 529?

A Section 529 QTP rolled over into a UGMA or UTMA account (C101.U10.P154)

Who should have an adjustable rate mortgage?

A client who wants a lower initial monthly payments and does not anticipate remaining in the home for a long time (C101.U4.P50)

Who should have a Conventional fixed-rate mortgage?

A client with a stable cash flow, who wants to have a predictable mortgage payment each month who'll choose a conventional fixed 15 or 30 year mortgage (C101.U4.P49)

What is a significant advantage of a College Savings Plan over a Prepaid Tuition Plan?

A college Savings Plan does not restrict where the beneficiary can attend college. Also, it can be used for tuition, fees, books, or supplies (C101.U10.P154)

Define: Insurance Companies

A company primary engaged in the business of furnishing insurance protection to businesses and individuals (C101.U7.P97)

Define: Long-term loan

A loan due 1 year or more from a specified date (C101.U4.P45)

Define: Installment loan

A loan for which the client borrows a single amount of money and repays it with interest at a stated interval. Most loans are installment loans (C101.U4.P45)

Define: Unsecured (signature) Loan

A loan for which the client merely promises to repay the debt in exchange for the borrowed funds. In the event of default, lenders can take legal action but most often will attempt to settle the debt for less than the amount owed. However, this will negatively affect an individual's credit rating (C101.U4.P45)

Define: Secure Loan

A loan for which the creditor maintains a security interest in property, such as personal property, which serves as collateral for the debt. if the debtor falls behind on the second debt payments, the lender can repossess the property that secures the debt (C101.U4.P45)

What is the difference between a loan and a grant?

A loan must be repaid, a grant does not (C101.U10.P156)

Define: Short-term loan

A loan that is less than 1 year (C101.U4.P45)

Define: Single payment (bridge) loan

A loan which provides short term, temporary financing which is repaid with interest in one lump sum at the end of the term. Usually used to provide funds for a period of time between two transactions (Buying one house, which selling another) (C101.U4.P45)

Define: Variable (adjustable) rate loan

A loan who's interest rate adjusts at various intervals throughout loan terms; thus, they are riskier. The initial rate on these types of loans is typically lower than those of fixed rate loans (C101.U4.P45)

Define: Fixed rate loan

A loan with an interest rate the remains constant until paid in full. Although initial interest rates are higher than those of variable (adjustable) rate loans, fixed rate loans offer more security because the underlying interest rates will not increase considerably during the term of the loan (C101.U4.P45)

Define: Conventional fixed-rate mortgages

A mortgage that has a level interest rate for the term of the loan and a fixed payment amortization schedule. (C101.U4.P49)

Define: Veterans Administration (VA) mortgages

A mortgage that is federally backed. Are only for service members and veteran son the U.S. armed services, their spouses, and other eligible beneficiaries. In some cases, no initial down payment is required. No private mortgage insurance is required (C101.U4.P50)

Define: Federal Housing Administration (FHA) mortgages

A mortgage that is federally backed. They require a very low initial down payment, and sometimes a lower interest rate, because of the federal governments guarantee of repayment. However, private mortgage insurance may be required (C101.U4.P50)

Define: Adjustable rate mortgage (ARM)

A mortgage where the interest rate may change on a monthly or annual basis according to a specified benchmark (ex. 10 year treasury). A cap limits the amount the rate can be raised (C101.U4.P49)

Define: Interest-Only mortgages

A mortgage where the owner tried to keep the mortgage payment at a minimum while hoping that the FMV will increase so that the principle amount may be paid off by the sale proceeds. If the value of the house declines, the owner will be in a cash deficit position at time of resale Should only be used by risk-aggressive homeowners (C101.U4.P50)

Define: Mutual Fund Company

A mutual fund company pools money from shareholders and invests the funds in various types of secures, including stocks, bonds, and money market instruments according the funds prospectus (C101.U7.P97)

Define: Serial payment

A payment that increases at a constant rate so as to protect the client's future purchasing power (C101.U5.P63)

Who is a financial planning practitioner?

A person who engages in financial planning using the financial planning process when working with a client (C101.U1.P3)

Define: Closed-ended questions

A question that can be entered by "yes" or "no" (C101.U2.P22)

Define: Open-ended question

A question that forces clients to answer in their own words. Not yes/no (C101.U2.P22)

What is a Qualified Series EE bond?

A savings bond that provides special tax advantages for education (C101.U10.P151)

What is the coordination rule?

A taxpayer can claim AOTC and LLC for the taxable year and can also exclude from gross income amounts distributed from a Section 529 or Coverdell ESA if: The 529 or Coverdell are not used to pay for the same expenses the AOTC or LLC was claimed (C101.U10.P161)

Bob and Julie have annual fixed and variable expenses of $72,000. Their combined earned income is $90,000. Julie is the beneficiary of a trust fund that provides herewith only marginal and intermittent income. What minimum amount should Bob and Julie plan to keep in their emergency fund? A. $18,000 B. $24,000 C. $30,000 D. $36,000

A. $18,000 (C101.U4.P40)

If a client's statement of financial position reflects $540,000 in total assets. $40,000 in current liabilities, and $240,000 in long term liabilities, what is the client's net worth? A. $260,000 B. $300,000 C. $500,000 D. $540,000

A. $260,000 (C101.U3.P31)

Sam wants to accumulate $75,000 in 7.5 years to purchase a boat. He expects to earn an annual rate of return on invested funds of 12% compounded quarterly. How much does Sam need to invest today to meet his goal? A. $30,899 B. $31,489 C. $32,057 D. $66,000

A. $30,899 (C101.U5.P60)

Vince and Brenda have a 5-year old son, Eugene. They have plans for Eugene to attend a 4-year private university at age 18. Currently, tuition is $15,000/ year and is expected to increase at 7% per year. The couple can earn an annual compound investment return of 10%. How much do they need to start saving per year, starting today, to be able to play for Eugene's college education? Assume their last payment is made at the bringing of Eugene's first year in college. A. $5,144.86 B. $5,659.34 C. 8,886.18 D. $10,044.73

A. $5,144.86 (C101.U6.P780

A client has a net worth of $900,000 at the beginning of the calendar year. After the following transactions, what would the client's net worth be at the end of this same calendar year? - Repayment of $25,000 loan using funds from savings account - Purchase of a $40,000 automobile with a promissory note financed at $30,000 and a $10,000 down payment taken from a checking account - A $12,000 increase in the client's mutual funds account balances - A $15,000 decrease in the clients bond portfolio A. $897,000 B. $900,000 C. $902,000 D. $922,000

A. $897,000 (C101.U3.P31)

Which combination of the following statements would be the most significant contributor to the upward shift in aggregate demand? 1. Increase in demand for capital goods 2. Increase in interest rates 3. Increase in disposable income 4. Increase in savings A. 1 and 3 B. 1, 2, and 3 C. !, 3, and 4 D. 2 and 4 E. 3 and 4

A. 1 and 3 (C101.U9.P133)

Which of the following statements regarding secured and unsecured loans is (are) CORRECT? 1. The general difference between these two types of loans is that secured loans are collateralized by personal property 2. Repossession is an option in the event a borrower defaults on an unsecured loan A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2

A. 1 only (C101.U4.P45)

Which of the following uses of the CFP certification marks is CORRECT? 1. Ed Lark's new website address is www.edlarkcfp.com 2. I am friends with Katelyn Reed, a CFPr (Certified Financial PlannerTM) 3. Emma Rae, and Al Hill are Certified Financial PlannerTM certificants 4. Sid Smith, a Certified Financial Planner professional, attended the meeting A. 3 only B. 1 and 2 C. 3 and 4 D. 2, 3, and 4

A. 3 only (C101.U8.P123)

Steph, a CFP professional, is in the process of analyzing an evaluation her clients financial status. As a financial planning practitioner, she has analyzed the information to gain an understanding of the clients current financial situation. What would be the most logical next step in her analysis? A. Determine too what extent the clients goals, needs, and priorities can be met by the client's resources and current course of action B. The client should consult an attorney to draft any required legal documents C. The practitioner needs to ask for testimonials and endorsements in order to grow her business D. Determine what financial products would be appropriate in the implementation of the financial plan

A. Determine too what extent the clients goals, needs, and priorities can be met by the client's resources and current course of action (C101.U8.P119)

In which phase of the business cycle are even poorly informed investors expected to do well A. Expansion B. Contraction

A. Expansion (C101.U9.P138)

Assume that you have calculated the NPV of an investment to be zero, sing a 10% discount rate or cost capital. The purchase price of the investment is $150,000. Which of the following statements is CORRECT? A. The internal rate of return on the investment must be 10% B. The internal rate of return on the investment must less than 10% C. The net present value does not lead you to the same investment decision as internal rate of return D. there is no solution here because subsequent cash flows must be considered before making the investment

A. The internal rate of return on the investment must be 10% (C101.U6.P74)

if an individual is required to be registered as an investment advisor with the SEC, is FINRA registration also required? A. Yes, if the individual also sells securities or variable products B. No, not if the individual is also a CFP practitioner

A. Yes, if the individual also sells securities or variable products (C101.U7.P94)

The requirement to act in utmost good faith, in a manner reasonably believed to be in the best interest of the client, is known as A. fiduciary duty B. conditional responsibility C. trustee obligation D. the financial planning process

A. fiduciary duty (C101.U8.P115)

What date does the statement of financial position usually reflect the clients status?

AS OF December 31st of any calendar year (C101.U3.P28)

What do Banks do?

Accept deposits Make various types of loans Invest customer funds in securities Honor instruments drawn on accounts Issue cashiers checks Provide safe deposit boxes (C101.U7.P94)

Strengths/Weakness a planner may identify:

Adequate/ Insufficient SAVINGS Appropriate/Inadequate EMERGENCY FUND Appropriate/Low NET WORTH, given client goals Well-defined/Not-defined FINANCIAL GOALS Excellent/Poor CASH FLOW MANAGEMENT SKILLS Appropriate/Inappropriate INVESTMENTS, given client risk tolerance, time horizon, and goals Appropriate/Inadequate INSURANCE COVERAGE Valid&Current/Lack of ESTATE PLANNING DOCS Stable/Unstable EMPLOYMENT STATUS (C101.U1.P8)

What are the A-B-C relating to being an investment advisor?

Advice Business Compensation (C101.U7.P89)

Define: Conservation or Protection Phase

Age 45-60, or immediately preceding the clients retirement date Cash Flow and net worth are increasing Debt is decreasing (C101.U1.P10)

Define: Distribution or Gifting Phase

Age 60, or planed retirement date to death Distribution strategies are primary focus Net worth and cash flow are higher than previous years Debt is low (C101.U1.P10)

Fiduciary relationships include:

Agent/Broker and Principle Trustee and Beneficiary Investment advisor and Client Attorney and Client Board of Directors and Company Shareholders (C101.U8.P104)

Define: Capital Utilization

All funds are depleted over a given period (C101.U6.P77)

What is the purpose of ADV Part 2A?

Also called the advisor's brochure Spells out details of the advisory relationship and other business interests of the advisor (C101.U7.P91)

Define: 'Section 162' employee benefit

An employer may provide an unlimited amount of education assistance to an employee so ling as this assistance is job related. and employer may provide up to $5,250 in non-job-related educational assistance (C101.U10.P157)

Who is a CFP certificant?

An individual who is currently certified by the CFP Board (C101.U8.P104)

Define: Chapter 7 Bankruptcy

An individual's personal unsecured debts are generally canceled. Most popular type of bankruptcy (C101.U9.P140)

Net worth formula

Assets - Liabilities = Net Worth or Assets = Liabilities + Net Worth (C101.U3.P28)

Define: Values

Attitudes and beliefs for which a person feels strongly (C101.U2.P18)

Define: The Investment Company act of 1940

Authorized the SEC to regulate certain financial products, like open-end investment companies or mutual funds. Also gave the SEC regulatory authority over variable products (variable annuities, variable life insurance, operate accounts within products) (C101.U7.P92)

Define: Scholarships

Awarded by the educational institution, merit based, do not need to be repaid (C101.U10.P156)

Dan has $150,000 in his section 401(k) plan portfolio at work. He expects the portfolio to increase in value at a rate of 7% compounded annually for the next 5 years. How much will Dan's portfolio be worth at the end of 5 years if his expectation is CORRECT? A. $160,500 B. $210,000 C. $211,065 D. $802,500

B. $210,000 (C101.U5.P59)

Jerry Makes a contribution to his retirement account at the end of each quarter. he has $60,000 in current savings and wants to reach an account balance of $100,000 in the next 6 years. If Jerry's investments earn an annual rate of return of 7% compounded quarterly, how much does he need to contribute each quarter? A. $300.17 B. $305.43 C. $491.91 D. $555.56

B. $305.43 (C101.U5.P64)

Jeremiah secures a $400,000 mortgage with a 15-year repayment term and an annual interest rate of 5.25%. What is the balance of Jeremiah's mortgage loan at the end of 1 year (12 months)? A. $361,410.28 B. $381,984.47

B. $381,984.47 (C101.U6.P77)

Joe is considering purchasing a machine for use in his business that will cost $10,000. He anticipates selling this machine at the end of 5 years for $3,500. The machine is projected to produce the following cash flows: End of Y1: $300 End of Y2: $600 End of Y3: $1,200 End of Y4: $2,400 End of Y5: $4,800 If joe's required rate of return is 12%, what is the net present value (NPV) of purchasing the machine? A. +$1,700.00 B. -$2,164.80 C. -$2,377.59 D. +2,800.00

B. -$2,164.80 (C101.U6.P73)

Which of the following statements re guarding financial strengths and weaknesses is(are) CORRECT? 1. Inadequate retirement savings is a financial weakness 2. Very general financial goals are considered a financial strength 3. Determining financial strengths and weakness is an objective process 4. Lack of a valid will is considered a financial weakness if a will is necessary to protect the interest of heirs A. 1 only B. 1 & 4 C. 3 & 4 D. 1,2,3&4

B. 1 & 4 (C101.U1.P9)

Which of the following can help save clients money? 1. Reducing credit card debt, even if by only $1000 2. Using a debit card up to the amount in their checking accounts only 3. Decreasing auto and homeowners insurance deductibles 4. Having unlimited calling and texting features as part of their cell phone plans A. 2 only B. 1 and 2 C. 1, 2, and 4 D. 2, 3, and 4

B. 1 and 2 (C101.U4.P44)

Which of the following statements regarding CFP board of Ethics is(are) CORRECT? 1. Diligence is the provision of services in a reasonably promo and through manner 2. Confidentially means ensuring that information is accessible only to those authorized to have access 3. Competence means attaining and maintaining an adequate level of knowledge and skill in all subject matter areas 4. Certificants are placed in positions of trust by clients with no allowance for innocent error and legitimate differences in opinion A. 2 only B. 1 and 2 C. 1, 2, and 3 D. 1, 2, 3, and 4

B. 1 and 2 (C101.U8.P108)

Six months ago, a client purchased a new bedroom suite for $6,500. For purposes of preparing accurate financial statements, the purchase would appear as 1. a use asset on the clients net worth statement 2. an investment asset on the client's net worth statement 3. a variable outflow on the clients historic cash flow statement 4. a fixed outflow on the client's cash flow statement A. 1, 2, and 3 B. 1 and 3 C. 2 and 4 D. 4 only E. 1, 2, 3, and 4

B. 1 and 3 (C101.U3.P34)

Brandon, A CFP professional, is in the process of preparing a financial plan for Elizabeth, a 72-year old widow. For Brandon to properly evaluate Elizabeth's financial status, Brandon is in need of information regarding Elizabeth's IRA. Elizabeth advises Brandon that she doesn't have this information. Which of the following are actions Brandon should take? 1. With help of Elizabeth, try to obtain the information 2. Nothing, just proceed with the evaluation without the information 3. If the required information cannot be obtained, Brandon should advise Elizabeth of the inadequacy 4. Discuss with Elizabeth the IRA values and Brandon other clients in similar circumstances and come to an agreement regarding the value for evaluation purposes A. 2 only B. 1 and 3 C. 3 and 4 D. 1, 3, and 4

B. 1 and 3 (C101.U8.P115)

Benjamin expects to earn a nominal rate of return of 6% annually on his latest investment in high-yield bonds. He is in the 28% marginal income tax bracket and lives in a state that does not impose an income tax. He anticipates inflation be 3% per year over the same time period that he will own the bonds. What is Benjamin's real rate of return on the bonds? A. 2.10% B. 2.91% C. 3.00% D. 4.32%

B. 2.91% (C101.U6.P81)

Joe is considering purchasing a machine for use in his business that will cost $10,000. He anticipates selling this machine at the end of 5 years for $3,500. The machine is projected to produce the following cash flows: End of Y1: $300 End of Y2: $600 End of Y3: $1,200 End of Y4: $2,400 End of Y5: $4,800 If joe's required rate of return is 12%, what is the internal rate of return for Joe's anticipated purchase? A. 5.49% B. 5.82% C. 6.18% D. 28.00%

B. 5.82% (C101.U6.P73)

Tony, a CFP professional, has been an employee of Woodstone Financial Services for 20 years. Kerri has recently entered into a financial planning agreement with Tony. Which of the following statements regarding information about Woodstone is CORRECT? A. Tony must provide Kerri with Woodstone's contact information only B. A written agreement should include information regarding any likely conflicts of interest between Karri and Woodstone C. Information about Woodstone must be provided to Kerri only upon request D. CFP Board does not consider information regarding Woodstone material to the financial planning engagement as Tony is providing the financial planning services.

B. A written agreement should include information regarding any likely conflicts of interest between Karri and Woodstone (C101.U8.P111)

Amanda is a half-time sophomore at ABC University. Tuition payable for 2015 was $3,000. Amanda is claimed as a dependent on her parents' 2015 income tax return, and her parents have reported an AGI of $150,000 for that year. Neither Amanda nor her parents are claiming any other education benefit for 2015. Which of the following statements regarding the possible applicability of the American Opportunity Tax Credit is CORRECT? A. Amanda's parents will be able to claim $2,000 of the American Opportunity Tax Credit on their 2015 income tax return B. Amanda's parents will be able to claim $2,250 of the American Opportunity Tax Credit on their income tax return C. Amanda will be able to claim $3,000 of the American Opportunity Tax Credit on her income tax return D. Neither Amanda nor her parents are able to take advantage of the American Opportunity Tax Credit for income tax purposes

B. Amanda's parents will be able to claim $2,250 of the American Opportunity Tax Credit on their income tax return (100% * $2,000) + (25% * 1000) = $3000 (C101.U10.P161)

Which of the following items should be included on the statement of financial position? A. Auto note payment B. Auto note balance C. Original mortgage note amount D. Section 401(K) plan elective deferrals

B. Auto note balance (C101.U3.P31)

Cindy is a Series 6 licensed registered representative. Assuming she also holds the appropriate state insurance licenses, she can sell all of the following financial products EXCEPT A. Variable life insurance policies B. Exchange-traded funds C. Open-end investment companies D. variable annuities

B. Exchange-traded funds (C101.U7.P94)

Terry invested $1,000 each in 2 different growth mutual funds. She expects Fund A to earn 7% compounded annually, whereas Fund B is expected to earn 7.5% compounded annually. Which fund will double in value first? A. Fund A B. Fund B

B. Fund B (C101.U5.P64)

Paul is an experienced securities professional who has recently received his CFP certification. he has made a recommendation to Amy, a very conservative investor, to purchase a highly volatile stock, which Paul believes is poised for extraordinary growth. Has Paul proceeded properly when recommending the stock as a possible purchase to Amy? Why or why not? A. Yes, Paul is an experienced securities professional who is competent in investing B. No, Paul should have suggested that Amy purchase a stock more suitable for her low risk tolerance and conservative nature

B. No, Paul should have suggested that Amy purchase a stock more suitable for her low risk tolerance and conservative nature (C101.U8.P116)

Which of the following items is NOT generally dischargeable by a debtor in a bankruptcy filing? A. Veterans benefits B. Past Due alimony obligations C. Equity in a personal residence D. A specified amount in a personal automobile

B. Past Due alimony obligations (C101.U9.P142)

All of the following are identity theft protection measures EXCEPT A. refusing to provide your Social Security number to internet solicitations B. contacting the SEC as soon as possible after learning of the left C. inspecting credit reports and reviewing billing statements regularly D. closing any accounts you believe may have been established in error

B. contacting the SEC as soon as possible after learning of the left (C101.U9.P144)

Nick, a CFP professional, knows that he must provide a fiduciary duty of care when engaging in financial planning services for this clients. Therefore, Nick must do all of the following EXCEPT A. exercise sound judgement when making financial planning recommendations for clients B. make recommendations based on what will maximize Nick's competent C. only offer services for which he is competent D. treat prospective clients fairly

B. make recommendations based on what will maximize Nick's competent (C101.U8.P104)

A client provides a current personal balance sheet to the financial planner during the initial data gathering phase of the financial planning process. This financial statement will potentially enable the financial planner to gain an understanding of all the following EXCEPT A. the diversification of the clients assets B. the size of the clients net cash flow C. the clients liquidity position D. the client's use of debt

B. the size of the clients net cash flow (C101.U3.P35)

What is another name for Statement of Financial position? (2)

Balance sheet Net worth statement (C101.U3.P28)

What is the Psychoanalytic approach?

Based on the use of psychoanalytic theory such as Freudian or Gestalt theory. This is not widely used by planners (C101.U2.P21)

Information that may need to be gathered during the financial planning process?

Basic client information, assets &liabilities, insurance coverage, income sources, personal expenditures, goals/objectives/time horizons/risk tolerances, will&trust docs, insurance policies, , income tax returns, rates of return assumptions (3-4%), potential inheritances, prior gifts, closely held business interests, goal priorities (C101.U1.P6)

How does a 'Kinesthetic learning' client express themselves?

Body Language. Enjoy physical activities (C101.U2.P21)

What the the planner use when practicing 'physical mirroring'?

Body language (C101.U2.P23)

Define: The Maloney Act of 1938

Brought the OTC market under the regulation of the SEC (C101.U7.P92)

What are open market operations as it relates to Monetary Policy?

Buying or selling of government securities in the open market place. (C101.U9.P135)

Long term rates are higher than short term rates, how is this illustrated?

By a positive, upward sloping yield curve (C101.U9.P140) (C101.U9.P140)

Mary wants to give her daughter $200,000 to start her own business in 5 years. How much should she invest today at an annual interest rate of 9% compounded annually to have $200,000 in 5 years? A. $90,000 B. $128,922 C. $129,986 D. $307,725

C. $129,986 (C101.U5.P60)

Sarah wished to start saving for a lump-sum amount if $100,000(in todays dollars) that is needed in 4 years. She assumes an inflation rate of 3% and an investment rate of return of 7.5. If Sarah were to deposit the needed savings at the end of the 4 years, what is her deposit (PMT) in the second year using the serial payment method? A. $23,420.00 B. $24,122.60 C. $24,846.28 D. $25,591.67

C. $24,846.28 (C101.U6.P75)

Steve has been investing $5,000 at the beginning of each year for the past 20 years. How much has Steve accumulated now, assuming he has earned 11% compounded annually on his investment? A. $40,312 B. $321,014 C. $356,326 D. $806,231

C. $356,326 (C101.U5.P63)

James invested $20,000 in an account earning a 9% annual rate of interest compounded monthly. How much will his account be worth at the end of 8 years if all interest is reinvested at the 9% rate? A. $39,851 B. $39,980 C. $40,978 D. $174,400

C. $40,978 (C101.U5.P59)

Roxanne has already saved $3,000 for a down payment on a future house. If she adds $500 at the end of every 6 months into an account earning an annual rate of 5.5% compounded semiannually, how much will Roxanne have accumulated in 4 years? A. $7,406 B. $7,528 C. $8,134 D. $8,255

C. $8,134 (C101.U5.P63)

Patricia, a single taxpayer who itemizes tax deductions, bought a home several years ago for $250,000. The home is currently subject to an interest-only mortgage of $200,000. The current fair market value of the home is $290,000. If Patric has a home equity line of credit of $100,000 secured by the existing equity in her home, interest on how much of this line of credit is tax deductible? A. $0 B. $50,000 C. $90,000 D. $100,000

C. $90,000 (C101.U4.P51)

Which of the following elements of the financial planning process are addressed in the Finical Planning Practice Standards? 1. Monitoring the recommendations 2. Gathering information necessary to fulfill the engagement 3. Analyzing and evaluation the certificants financial status 4. Developing and presenting the financial planning recommendation(s) A. 2 and 3 B. 3 and 4 C. 1, 2, and 4 B. 1, 2, 3, and 4

C. 1, 2, and 4 (C101.U8.P119)

Which of the following statements regarding learning styles is(are) correct? 1. Financial planning for an auditory learning client wold be most effective if the financial planner has frequent informative discussions 2. A printed outline of the financial planning process would be most effective with the client who has a kinesthetic learning style 3. Many changes in facial expression indicate that a prospective client most likely has a visual learning style. 4. A client with a kinesthetic learning style often enjoys participating in sports A. 1 only B. 1 and 2 C. 1, 3, and 4 D. 2, 3, and 4

C. 1, 3, and 4 (C101.U2.P21)

In the data gathering process, quantitative data include: 1. Section 401(k) plan statements 2. insurance policies 3. income tax returns 4. personal goals and objectives A. 1&2 B. 1&3 C. 1,2&3 D. 1,2,3&4

C. 1,2&3 (C101.U1.P6)

Which of the following is(are) an example of an inelastic good? 1. Stereo Equipment 2. Prescription Medication 3. Fine art 4. Electricity A. 2 only B. 1 and 2 C. 2 and 4 D. 1 and 3

C. 2 and 4 (C101.U9.P133)

Mark is paid an annual salary of $80,000. From this amount, he makes elective deferrals of 10% to his company's Section 401(k) plan. His monthly mortgage payment (PITI) is $1,500. What is Mark's housing cost ratio? A. 1.8% B. 2.0% C. 22.5% D. 25.0%

C. 22.5% (C101.U4.P42)

Same is purchasing a municipal bond that has a coupon rate of 4% His federal marginal income tax rate is 35%. What is Sam's taxable equivalent yield on the bond? A. 2.45% B. 4.55% C. 6.15% D. 1.00%

C. 6.15% (C101.U6.P81)

John borrowed $800 from his father to purchase a new jets. He plans to pay $1,200 back to his father after 5 years. What is the anticipated average annual compound rate of interest that John's father will receive? A. 0% B. 6.67% C. 8.45% D. 13.33%

C. 8.45% (C101.U5.P64)

Who of the following does NOT have to register as an investment adviser with the SEC under the sole incidental exception or exclusion to the Investment Advisers Act of 1940? A. An attorney who advertises that he also gives investment advice B. A CFP professional who receives compensation for publishing investment reports C. An adviser whose only client are insurance companies D. A certified public accountant primarily providing advice and analysis on securities

C. An adviser whose only client are insurance companies (C101.U7.P91)

Which of the following statements re guarding financial strengths and weaknesses is(are) CORRECT? 1. Determining financial strengths and weaknesses is a subjective process 2. Lack of estate planning documents is considered a financial weakness A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2

C. Both 1 and 2 (C101.U1.ppt1-9)

Sidney, a CFP professional, is considering various recommendations for his client, Anna, a wealthy 75-year old widow. During their meetings, Anna Expressed an interest in establishing a testamentary trust for there children. Sidney has no trust expertise and feels as though the purchase of life insurance would be a better option for leaving an inheritance to Anna's children. Sidney also feels that Anna, like most 75-year olds, is too feeble to understand how trusts work anyway. Therefore, Sidney recommends a new life insurance policy for Anna with her children designated as beneficiaries. Which of the following statement are CORRECT? 1. Sidney has violated the Principle of Competence because he did not consult a professional knowledgable about trusts or refer Anna to someone with this expertise 2. Sidney has violated the Principle of Objectivity because of his consideration of Anna as "feeble" A. 1 only B. 2 only C. Both 1 and 3 D. Neither 1 nor 2

C. Both 1 and 3 (C101.U8.P107)

All of the following are non discretionary expenses EXCEPT A. utilities B. Credit card payments C. Club dues D. Taxes

C. Club dues (C101.U4.P40)

Which of the following is a difference between a Section 529 plan and a Coverdell ESA (CESA) A. The account balance in a section 529 plan must be distributed to the child upon reaching age 30. B. The coverdell ESA (CESA) may not be used for higher education expenses C. Contributions made to a section 529 plan are not subject to income limitations D. Contributions made to a Coverdell ESA (CESA) and not used for qualified education expenses may be reclaimed

C. Contributions made to a section 529 plan are not subject to income limitations (C101.U10.P154)

If the economy is experiencing an increase in housing starts and a decline in the unemployment rate, the economy is in which phase of the business cycle? A. Peak B. Trough C. Expansion D. Contraction

C. Expansion (C101.U9.P138)

Scott and Barbara Johnson have come to you for advice on financing their daughter's fast-approaching college undergraduate education. They have failed to save much money to finance their daughter's education but currently have an income in excess of $150,000/ year. They spend as much as they earn. If the Johnson's need to obtain education funds, what do you recommend? A. Subsidized Stafford Loan B. Pell Grant C. Parent Loan for Undergraduate Students D. Federal work-study program

C. Parent Loan for Undergraduate Students (C101.U10.P157)

Which of the following is the best reason for renting an apartment as opposed to purchasing a home? A. The client does not want to pay real property taxes B. The client does not want to do yard work C. The client expects to relocate within 1 to 3 years D. The client does not want to purchase homeowners insurance

C. The client expects to relocate within 1 to 3 years (C101.U4.P49)

CFB Board requires a written agreement by the CFP professional or his employer if a certificant provides financial planning or material elements of the financial planning process to a client. Required elements of this written agreement include all of the following EXCEPT A. the date and duration of the agreement B. The parties to the agreement C. terms under which the certificate will use other entities to meet any of the agreement's obligations D. how and on what terms each party can end the agreement

C. terms under which the certificate will use other entities to meet any of the agreement's obligations (C101.U8.P111)

Which requires the greater amount of money to be saved, Capital Utilization or Capital Retention?

Capital Retention - only interest is used to fund the need. The principle remains intact (C101.U6.P77)

What can a UGMA be funded with?

Cash Securities Mutual Funds (C101.U10.P150)

What can a UTMA account be funded with?

Cash Securities Mutual Funds Real Estate (C101.U10.P150)

Define Cash Flow statement/ personal statement of cash flows

Cash flow summarizes the items of income (salary, wages) that were actually received, and the expenditures that were actually made (outflows) during a specific period (C101.U3.P31)

What are examples of liquid assets/ liquid accounts?

Checking accounts Savings accounts Money market deposit accounts Money market mutual fund accounts Time deposits that are close to maturity (C101.U4.P40)

Define: Asset Accumulation Phase

Client is usually in this phase until age 45 or later (depending on kids) Debt is high Cash Flow and Net Worth is low (C101.U1.P10)

Define: Kinesthetic learning style

Client with kinesthetic learning styles understand concepts better using a hands on approach. For example, writing goals and objectives with bullet points as they are formulated engages clients with this type of learnings style (C101.U2.P20)

What the the planner use when practicing 'verbal mirroring'?

Client's word use, tone of voice, and communication method (C101.U2.P23)

What is the Cognitive-behavorial approach?

Clients attitudes, beliefs, and values influence their behavior. Substitute negative beliefs with positive attitudes (C101.U2.P21)

Define: Loss Aversion

Clients valuing gains and losses differently and as a result will make decisions based on perceived gains rather than perceived losses. Example, if a client was presented with two equal opportunities, one states in gains, one stated in losses. They would be more likely to pick the gains. (C101.U2.P17)

Define: Auditory learning style

Clients with auditory learning styles retain information by hearing or speaking. The financial planning process will be most effective if clients needs, priorities, and goals are discussed before being reduced to writing (C101.U2.P20)

Define: Visual learning style

Clients with visual learning styles tend to respond to visual objects, such as graphs, charts, pictures, and reading information. Including visuals in data collection software programs or presentations are beneficial for clients with visual learning styles (C101.U2.P20)

Define: Interpersonal communication

Communication one-on-one. Important to develop relationships with clients (C101.U2.P22)

What does CFP CODI stands for?

Competence Fairness Professionalism Confidentiality Objectivity Diligence Integrity (C101.U8.P105)

Define: Fiscal Policy

Conducted by Congress and also attempts to influence consumer demand but does it so through governmental policies (C101.U9.P135)

Define: Monetary Policy

Conducted by the Federal Reserve Board (the Fed) and attempts to affect economic activity by rising an lowering the short-term interest rates because they affect consumer spending, or demand (C101.U9.P135)

Monthly Consumer Debt payments / Monthly net income =

Consumer Debt Ratio (C101.U4.P41)

List the Debt Management / Liquidity Ratios (4)

Consumer Debt Ratio Housing Cost Ratio Total Debt Ratio Current Ratio (C101.U4.P41)

What is the Current Ratio Formula?

Current Assets / Current Liabilities = Current Ratio (C101.U4.P41)

Current Assets / Current Liabilities =

Current Ratio (C101.U4.P41)

Define: Cash and Cash Equivalents

Current, or short term. Have a maturity of less than 1 year (C101.U3.P29)

George and Betty wish to establish a Section 529 college savings plan for both of their grandchildren. In 2015, what is the maximum amount that they can contribute without making a taxable gift for federal gift tax purpose? A. $70,000 B. $140,000 C. $260,000 D. $280,000

D. $280,000 (C101.U10.P154)

Jeremiah secures a $400,000 mortgage with a 15-year repayment term and an annual interest rate of 5.25%. What is the monthly payment on this loan? A. $1,465.51 B. $2,222.23 C. $3,210.50 D. $3,215.51

D. $3,215.51 (C101.U6.P77)

Two spouses have individual, joint, and revocable trust accounts with a bank (each si the testamentary beneficiary of each other's trust). In 2016, what is the maximum amount of FDIC-insured accounts that the spouses can each have at this bank A. $250,000 B. $550,000 C. $600,000 D. $750,000

D. $750,000 (C101.U7.P96)

Which of the following are required elements of the financial planning agreement? 1. Terms of proprietary products, if presented 2. Compensation received by the CFP certificant 3. Any activity of other professionals consulted by the CFP certificant 4. Duties of the CFP certificant and the client during all steps of the financial planning process A. 2 and 4 B. 1, 2, and 3 C. 2, 3, and 4 D. 1, 2, 3, and 4

D. 1, 2, 3, and 4 (C101.U8.P115)

Which of the following is(are) advantages and disadvantages of boring from a Section 401(k) plan? 1. Ease of borrowing 2. Simplicity of repayment 3. Continued growth of borrowed amount 4. Could adversely affect the future retirement benefit A. 1 and 2 B. 2, 3, and 4 C. 3 and 4 D. 1, 2, and 4

D. 1, 2, and 4 (C101.U4.P47)

Which of the following statements regarding counseling theory is(are) CORRECT? 1. The cognitive-behavorial approach to financial counseling asserts that clients attitudes, beliefs, and values influence their behavior. 2. Financial counseling is a process in which the planner helps a client change poor financial behavior by making recommendations to improve financial status. 3. Planners that use economic and resource approach assume that clients are rational and will change to the most favorable behavior if given the appropriate counseling 4. In the classical economics approach to financial counseling, it is believed that improved financial outcomes can result from increased financial resources or reduced financial expenditures. A. 3 only B. 1 and 4 C. 1, 2, and 4 D. 1, 3, and 4

D. 1, 3, and 4 (C101.U2.P22)

Which of the following in information that may be needed during the client data gathering process? 1. A partnership agreement 2. Realistic interest rate assumptions 3. Copies of disability insurance policies 4. Section 401(k) plan statements A. 1&4 B. 2&3 C. 1,3&4 D. 1,2,3&4

D. 1,2,3&4 (C101.U1.P7)

Which of the following statements is(are) CORRECT? 1. Values reflect a person's opinions, values, and wants 2. Beliefs are a type of attitude because they reveal a person's understanding of some aspect of his life 3.A client's context can be affected by his cultural influences, religious preferences, and individual family circumstances 4. A planner should recognize his own attitudes, values, biases, and behaviors and be certain they do not impact recommendations made to clients A. 4 only B. 3&4 C. 1,2&3 D. 2, 3, & 4

D. 2, 3, & 4 (C101.U2.P19)

Which of the following uses of the CFP certification marks is CORRECT? 1. John Doe, CFPtm 2. John Doe, a CFP 3. John Doe, CERTIFIED FINANCIAL PLANNER 4. John Doe, CFPr A. 4 only B. 1 and 3 C. 2 and 4 D. 3 and 4

D. 3 and 4 (C101.U8.P123)

The federal funds rate will tend to move upward under which of the following conditions? A. The Federal Reserve is buying government bonds B. The Federal Reserve lowers the discount rate C. A few banks have excess reserve deficiencies, and the rest have ample excess reserves D. A few banks have excess reserves, and the rest have significant reserve deficiencies

D. A few banks have excess reserves, and the rest have significant reserve deficiencies (C101.U9.P136)

Which of the following statements concerning education tax credits and savings opportunities is CORRECT? A. The American Opportunity Tax Credit is available for the first 2 years of postsecondary eduction only B. the contribution limit for Coverdell Education Savings Accounts (CESA) is applied per family C. The Lifetime Learning Credit is equal to 100% of qualified educational expenses up to a certain limit D. A parent who claims a child as a dependent is entitled to take the American Opportunity Tax Credit for the education expenses of the child

D. A parent who claims a child as a dependent is entitled to take the American Opportunity Tax Credit for the education expenses of the child (C101.U10.P160)

George currently lives in Dallas but has plans to move to NYC in 4 years to attend the Juilliard School. He is a musician with a steady stream of income. While living in Dallas, he decides to purchase a home. What si the best financing recommendation for George's home purchase? A. VA mortgage B. 15-year fixed conventional mortgage C. 30-year fixed conventional mortgage D. Adjustable-rate Mortgage (ARM)

D. Adjustable-rate Mortgage (ARM) (C101.U4.P51)

John has a strong feeling about a particular stock's future performance. He is constantly seeking information to validate his belief that his investment will appreciate, while ignoring any contradictory information. This is an example of which of the following? A. Framingeffect B. Prospect theory C. Anchoring effect D. Confirmation bias

D. Confirmation bias (C101.U2.P17)

Which of the following statements regarding the Financial Planning Practice Standards is(are) CORRECT? 1. The Practice Standards are used by Ethics and Professional Responsibility Committee to evaluate a CFP professionals conduct 2. The rights to use the CFP mark may be suspended for up to three years if a CFP certificant fails to comply with the Practice Standards A. 1 only B. 2 only C. Both 1 and 2 D. Neither 1 nor 2

D. D. Neither 1 nor 2 (C101.U8.P120)

Which of the following practices would the Fed conduct if it wanted to contract the overall economy? A. Buy U.S. government securities in the open market B. Lower the discount rate C. Target the federal funds rate in a lower range than previously D. Increase the reserve requirements for member banks

D. Increase the reserve requirements for member banks (C101.U9.P136)

Which of the following economic indicators can best be described ad preceding or leading to a change in the business cycle? A. Unemployment rate and bond yields B. Prime rate of interest and industrial production C. Amount of corporate profits and level of personal income D. Level of housing starts and orders for durable goods

D. Level of housing starts and orders for durable goods (C101.U9.P139)

Erin's grandmother recently established a Coverdell ESA on behalf of Erin, age 5, and contributed $2,000 to the account. Now, Erin's father wants to contribute an additional $2,000 to the account in this same year. Is this permitted? A. Yes, because both the grandmother and father are family members of Erin B. No, only Erin's father is allowed to establish an ESA C. Yes, up to $2,000 per donor can be contributed on Erin's behalf D. No, $2,000 is the dollar maximum contribution per beneficiary in any single year

D. No, $2,000 is the dollar maximum contribution per beneficiary in any single year (C101.U10.P152)

Assume that an adult is currently in a low marginal tax bracket and does not anticipate major income increases in the future. He is interested in a very low-risk investment purchased in his name that may provide favorable income tax treatment when used for the higher eduction tuition expenses of his only child. he is also not interested in incurring the expense of establishing a trust when saving for his child's college education costs. Which of the following alternatives would you recommend to the client? A. An UGMA account B. A passbook savings account in the child's name C. Municipal bonds purchased in the name of the client D. Qualified EE or I savings bond

D. Qualified EE or I savings bond (C101.U10.P151)

Which one of the following acts established the SEC? A. The Securities Investor Protection Act of 1970 B. The Investment Company Act of 1940 C. The Securities Act of 1933 D. The Securities Exchange Act of 1934

D. The Securities Exchange Act of 1934 (C101.U7.P92)

When calculation the Expected Family Contribution (EFC) for federal financial aid, which of the following parental assets is excluded from consideration? A. Mutual fund ownership B. Annual contributions to a retirement plan C. Rental real estate property D. The excess of value over the amount owed on a personal residence

D. The excess of value over the amount owed on a personal residence (Home Equity) (C101.U10.P155)

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 statement about Robert's cash flow statement is TRUE? A. The value of the home would be an income source since there is no mortgage B. The value of the home would be an asset C. The taxes on his salary would be a liability D. The taxes on his salary would be an expense

D. The taxes on his salary would be an expense (C101.U3.P34)

13. Which one of the following statements regarding the Financial Planning Practice standards is NOT correct? A. They are authoritative B. They are statements regarding the elements of the financial planning process C. They are used to evaluate a CFP professionals conduct and determine is the Rules of Conduct have been violated D. They set forth the level of professional practice that is expected of CFP professionals and clients engaged in financial planning

D. They set forth the level of professional practice that is expected of CFP professionals and clients engaged in financial planning (C101.U8.P119)

Judy currently has a checking account balance of $2,500, a savings account of $5,000, and a money market mutual fund of $3,500. She also has investments of $125,000. She has a personal balloon note liability of $25,000 coming due within the next year. Does Judy's current ratio represent a potential problem with respect to her financial situation? A. No, her current ratio is 1.44, which is very favorable B. Yes, her current ratio is negative C. No, her current investments are adequate to cover her current liabilities D. Yes, her current ratio is only .44

D. Yes, her current ratio is only .44 (C101.U4.P42)

An investment adviser must do all of the following when registering with the SEC EXCEPT: A. pay a filing fee B. file Form ADV Part 1 C. not use the initials RIA on a business card or other advertising literature D. notify the broker/dealer with whom the advisor processes trades

D. notify the broker/dealer with whom the advisor processes trades (C101.U7.P91)

Define: Qualitative Data

Data that is concerned with the quality of a clients life. A clients feelings, opinions, attitudes. (Ex. Clients goals/objectives, health status, risk tolerance) (C101.U1.P6)

Define: Quantitative Data

Data that is measurable or expressed as a number (Ex. financial status (assets/liabilities)) (C101.U1.P6)

Define: Deflation

Decline in the general price level, often caused by a reduction in the money supply and consumer demand (C101.U9.P139)

Define: letter of engagement?

Defines the legal relationship between the financial planner and the client (C101.U1.P5)

Define: Elastic good

Demand responds more to price changes Examples: Boat, Luxury items (C101.U9.P132)

Define: Inelastic good

Demand responds relatively little to price changes Examples: Food, Gasoline, Insulin (C101.U9.P132)

Define: Internal Rate of Return (IRR)

Discount rate that, that when applied to the cash flows of an investment, equates the net cash inflows to the net cash outflows. (C101.U6.P71)

What are advantages of borrowing from a retirement plan? (4)

Ease of borrowing Lower interest rates Simplicity of repayment No effect on credit rating (C101.U4.P47)

List the approaches to financial counseling (5)

Economic and resource approach Classical economics approach Strategic management approach Cognitive-behavorial approach Psychoanalytic approach (C101.U2.P21)

Define: Credit Card Accountability Responsibility and Disclose Act of 2009

Enacted to establish fair practices and to enable consumers to better understand their credit transactions (C101.U9.P143)

Define: Home equity loans and lines of credit

Essentially second mortgages that use the current equity in the homeowners primary residence to provide money for home improvements and other purposes. (C101.U4.P51)

Define: Financial Planning Practice Standards

Establish the level of professional practice required of certificants engaged in financial planning (C101.U8.P105)

Define: Privacy Act of 1974

Established a code of fair information practices that regulates the type of personal information the federal government can collect and how the information can be used (C101.U9.P143)

Define: The Securities Investor Protection Act of 1970

Established the Securities Investor Protection Corporation (SIPC) to insure investors against losses arising from the failure of any brokerage firm. (C101.U7.P92)

Define: The Securities Exchange act of 1934 (People Act) (Exchange Act, 34 Act)

Extended the regulation of securities to the secondary market or exchanges. Also established the SEC as the primary regulatory body overseeing the sale and purchase of securities (C101.U7.P92)

How are ASSETS presented on the statement of financial position?

FMV (fair market value) (C101.U3.P28)

How does a 'Visual learning' client express themselves?

Facial expressions. Enjoy movies and spectator sports (C101.U2.P20)

Fact: A planner who wishes to sell variable contracts, such as variable life insurance or variable annuities, must hold a FINRA Series 6 or 7 registration (and, in most states a Series 63 or Series 66 registration) as well as the particular state's variable insurance license

Fact: A planner who wishes to sell variable contracts, such as variable life insurance or variable annuities, must hold a FINRA Series 6 or 7 registration (and, in most states a Series 63 or Series 66 registration) as well as the particular state's variable insurance license (C101.U7.P94)

Fact: CFP professionals are required to enter into a written agreement with clients for any financial planning services or services that include the material elements of the financial planning process

Fact: CFP professionals are required to enter into a written agreement with clients for any financial planning services or services that include the material elements of the financial planning process (C101.U8.P111)

Fact: The AOTC and LLC may not both be claimed in the same year for the same student

Fact: The AOTC and LLC may not both be claimed in the same year for the same student (C101.U10.P161)

Fact: The Lifetime Learning Credit is per family. The American Opportunity Tax Credit is per student

Fact: The Lifetime Learning Credit is per family. The American Opportunity Tax Credit is per student (C101.U10.P159)

What type of mortgage requires private mortgage insurance?

Federal Housing Administration (FHA) mortgage (C101.U4.P50)

Define: Supplemental Education Opportunity Grants (SEOGs)

Federal grant given to students, with priority given to students who also received Pell grant (C101.U10.P157)

Define: Perkins Loan

Federal loan the the educational institution determines weather the student needs the loan (C101.U10.P156)

To calculate mortgage and amortization schedules

First calculate the amount of the monthly mortgage payment, then without clearing the calculator, enter: 1, input, # of periods; shift AMORT, then use the = key to toggle between the amortization totals for period 1 through #of periods (C101.U6.P76)

What are the 2 types of cash outflows?

Fixed Variable (C101.U3.P32)

Examples of Variable outflows

Food expenses Clothing expenses Utilities expenses Travel and Entertainment expenses (C101.U3.P32)

Define: Real GDP

GDP that accounts for inflation (C101.U9.P134)

Define: Inflation

General increase in prices (C101.U9.P139)

Define: Code of Ethics an Professional Responsibility

General statements expressing the ethical and professional ideals certificants are expected to display in their professional activities (C101.U8.P105)

Define: Fair and Accurate Credit Transaction Act of 2003 (FACTA)

Gives consumers greater protection against the growing crime of identity theft. Consumers can receive a free credit report every 12 months (C101.U9.P143)

Define: Net Income

Gross income less taxes Gross Income - Taxes = Net Income (C101.U4.P41)

Define: Advisory Opinions

Guidance to CFP professionals. Issued periodically by the CFP Boards Disciplinary and Ethics Commission to address topics of common interest that arise from an enforcement of wither the Rules of Conduct or the Practice Standards and how they would likely rule on a particular issue. (C101.U8.P120)

What do leading responses do as it relates to interpersonal communication?

Guide the client to give more detail (C101.U2.P23)

Define: Negative amortization

Happens when an ARM doesn't have a cap. When negative amortization occurs, the mortgage balance may become greater than the value of the home. (C101.U4.P50)

What types of education are allowed in a Coverdell?

Higher education Private elementary and private secondary is allowed Tuition, expenses, and room and board are allowed (C101.U10.P151)

Monthly Housing costs / Monthly gross income =

Housing Cost Ratio (C101.U4.P41)

What are examples of leading indicators, as it relates to economic indicators

Housing starts New claims for unemployment Bond yields Orders for durable goods Changes in investor sentiment (C101.U9.P138)

What does Total Debt Ratio measure?

Include monthly housing costs and consumer debt payments. Used to indicate clients financial stability (C101.U4.P41)

What is the Classical economics approach?

Increasing financial resources or reducing financial expenditures results in improved financial outcomes (C101.U2.P21)

Define: Disinflation

Indicates a decline in the rate of inflation (C101.U9.P139)

Define: Anchoring

Individuals making irrational decisions based on information that should have no influence on the decision at hand. (C101.U2.P16)

What are examples of coincident indicators, as it relates to economic indicators

Industrial Production Level of personal income Amount of corporate profits (C101.U9.P138)

Define: The McCarran Ferguson Act of 1945

Insurance is to be regulated at the sate level, as long as the states implemented and executed this regulation (C101.U7.P92)

Define: Brokerage Companies

Intermediary that facilitates transactions involving sales of investments or real estate. They earn commissions when a transaction is completed. (C101.U7.P96)

Define: Prospect theory

Investors generally fear losses much more than they value gains. Most will choose the smaller of two potential gains if it avoids a sure loss. (C101.U2.P16)

Define: Overconfidence

Investors that believe they can control random events by merely acquiring more knowledge, and consider their abilities to be much better than they actually are. They take credit for any financial decisions that have positive results, and blame external influences for negative outcomes. (C101.U2.P16)

What is body language?

Involves facial expressions, eye contact, gestures, and body posture. This impacts how clients receive messages. (C101.U2.P23)

Define: Chapter 13 Bankruptcy

Involves the adjustment of debts of an individual with regular income. Payment due are restructured or reduced to become more manageable. Debtor doesn't have to give up any assets (C101.U9.P140)

As it relates to Open Market Operations, what would the Fed do if it wanted to EXPAND economic activity?

It will BUY additional government securities, thereby increasing the money supply and driving down overall interest rates (C101.U9.P135)

As it relates to Open Market Operations, what would the Fed do if it wanted to CONTRACT economic activity?

It will SELL government securities from existing inventory, thereby decreasing the money supply and driving up overall interest rates, and resulting in a reduction of prices (C101.U9.P135)

Correct usages of the CFP Mark

Jane Doe, CFP(R) Jane Doe, is a CFP(R) certificant Must be associated with an individual All capital letters, no periods Appear with the subscript R, or (R) Must be followed by 1 of 6 approved nouns, unless following name (professional, practitioner, certificant, certification, mark, exam) Cant be used as a possessive Cant be in an email or website name (C101.U8.P120)

Correct usages of the CERTIFIED FINANCIAL PLANNER (TM) mark

John Doe, CERTIFIED FINANCIAL PLANNER (TM) John Doe, obtained his CERTIFIED FINANCIAL PLANNER (TM) certification Must be associated with an individual Must appear in all capital letters, or small cap font Must always paper with a TM symbol Must be followed by 1 of 6 approved nouns, unless following name (professional, practitioner, certificant, certification, mark, exam)Cant be used as a possessive Cant be in an email or website name (C101.U8.P121)

List the 3 types of economic indicators

Leading, Coincident, Lagging (C101.U9.P138)

Define: Prospectus

Legal document created as part of the security registration process per the Securities Act of 1933. It discloses material information regarding the particular security and is required to be updated on a regular basis (C101.U7.P92)

Define: Long-Term liabilities

Liabilities due 1 year or more from the statement date (mortgages, HELOC) (C101.U3.P29)

Define: Short-Term (current) liabilities

Liabilities due less than 1 year from the statement date, such as a promissory note (C101.U3.P29)

Define: 'Investments' asset class

Longer term in nature. 1+ year (C101.U3.P29)

How does a client receive the funds from a Home Equity Loan?

Lump sum (C101.U4.P51)

Define: Judgement

Making conclusions on what has been preceived (C101.U2.P19)

What are the limits for a deduction of student loan interest?

Maximum of $2,500 (above the line) Phaseout: S- 65k:80k MAGI MFJ- 130k:160k MAGI (C101.U10.P160)

Define: Lifetime Learning Credit

May be claimed for an unlimited number of years while student is pursuing education - Do not need to be enrolled in a degree program - Do not need to be part time - 20% of the first 10K qualified tuition expenses - Max of $2,000 per FAMILY - Phaseout: S- 55k:65k MFJ- 110k:130k (C101.U10.P159)

Define: College savings plan

May be offered only by states, state sponsored organizations, and eligible educational institutions. Tuition is not being paid, but a tax deferred savings account is established to pay for qualified education expenses (C101.U10.P154)

Define: Budget

Monitoring of income, expenses, and spending patterns (C101.U4.P39)

What is the Consumer Debt Ratio Formula?

Monthly Consumer Debt payments / Monthly net income = Consumer Debt Ratio (C101.U4.P41)

What is the Housing Cost Ratio Formula?

Monthly Housing costs / Monthly gross income = Housing Cost Ratio (C101.U4.P41)

Examples of Fixed outflows

Mortgage Auto note Insurance premiums Property taxes (C101.U3.P32)

What are the rules behind a Series EE bond?

Must be issued after 1989 Must be issued to an individual age 24+ Bond must be in the name of the parents, child cannot be co-owner Education expenses include: tuition and fees (not room and board) Phaseout limites are: S: 77K:92K MFJ: 115K-145K (C101.U10.P151)

What are the two calculation that will tell the investor if the proposed investment should be made? (2)

NPV IRR (C101.U6.P71)

Define: Subsidized Stafford Loan

Need based loan. U.S. Department of Education pays interest while the student is in school (C101.U10.P156)

If the IRR is less than the investors required rate of return, should he make the investment?

No (C101.U6.P71)

What are the disadvantages of borrowing from a retirement plan? (4)

No growth of borrowed amount Adverse tax treatment Possible adverse effect on retirement savings Tax issues at separation from service (C101.U4.P47)

Define: Unsubsidized Stafford Loan

Non-Need-based loan. Interest beings to accrue as soon as funds are disbursed. The interest my be capitalized while the student is in school (C101.U10.P156)

Define: Parent Loan for Undergraduate Students (PLUS)

Non-need-based loan available to parents of depended undergraduate students. Only federal aid for high income parents (C101.U10.P156)

Define: Stagflation

Occurs when inflation and unemployment rise and the general growth of the economy is slow as business outputs falls (C101.U9.P139)

Define: Depression

Occurs when the GDP has experienced a decrease in real terms for 6 consecutive quarters or a minimum of 18 months from a baseline of 0 (C101.U9.P138)

Define: Recession

Occurs when the GDP has experiences a decrease in real terms for 2 consecutive quarters or a minimum of 6 months from a baseline of 0 (C101.U9.P138)

What type of questions should a financial planner ask? Why?

Open-ended questions. This requires to have the client answer the question in their own words. Ex. What level and type of education would you like for your children? (C101.U1.P7)

Define: Credit Union

Owned by its members, it is a financial institution that accepts deposits and makes loans at reduced interest rates (C101.U7.P96)

What are the 4 separate calculations made to determine the Expected Family Contribution (EFC)?

Parental Income Parental Assets Student Income Student Assets (C101.U10.P155)

Define: Capital Retention

Payments made to the individual are comprised of interest only. The principle remains intact (C101.U6.P77)

Define: Fixed/Equal payments

Payments that are unchanging over the entire period (C101.U5.P63)

What are the Business Cycle stages?

Peak, Contraction, Trough, Expansion, Peak (C101.U9.P137)

Define: Framing effect

People are given a frame of reference, a set of beliefs or values, which they use to interpret facts or conditions as they make decisions. Under this theory, people will generally choose what they perceive is positive vs. negative (C101.U2.P16)

Define: Confirmation bias

People tend to pay more attention to information that supports their preconceived opinions and poorly made decisions, while disregarding accurate, unsupportive information (C101.U2.P16)

Define: Attitudes

People's opinions, values, and wants (C101.U2.P18)

Define: Prepaid College Tuition Plan

Permits contributors to prepay future tuition at today's tuition rates or purchase tuition credits to apply to future tuition costs (C101.U10.P154)

Define: Context

Persons past history or current conditions that influence them (C101.U2.P18)

Define: Custodial accounts

Popular way of income shifting and saving for college in a child's name (C101.U10.P149)

Define: Phishing

Posing as a financial institution or company and sending spam over the Internet to entice an individual to provide personal information (C101.U9.P144)

Define: FMV (fair market value)

Price that property will sell for when offered for sale by a willing seller to a willing buyer, with neither being obliged to buy or sell (C101.U3.P28)

List non-price related factors that may shift demand

Prices of related goods, increases or decreases in income, customer preference, increases or decreases in potential buyers (C101.U9.P132)

Define: Pell Grant

Primary type of grand dispersed directly to student. Available to undergraduates only. Only given if the family's EFC does not exceed a specific amount (C101.U10.P157)

What are examples of lagging indicators, as it relates to economic indicators

Prime interest rate Change in consumer price index (CPI) Amount of business and consumer loans outstanding Average duration of unemployment (C101.U9.P139)

How are LIABILITIES presented on the statement of financial position?

Principle value without regard to and interest obligation (C101.U3.P28)

Financial Planning (Definition)

Process of determining whether and how an individual can meet life goals through the proper management of financial resources (C101.U1.P1)

Define: Financial Counseling

Process that helps clients change their poor financial behavior though education and guidance (C101.U2.P21)

Define: Federal Work-Study Programs

Program that provides students with part-time jobs while attending college. In turn, the institution disburses the earned funds to the student (C101.U10.P157)

Define: Fair Debt Collection Practices Act

Prohibits debt collected from engaging in certain practices like contacting a debtor at their place of employment, harassing or intimidating the debtor, or using false or misleading practices (C101.U9.P143)

Define: Equal Credit Opportunity Act

Prohibits discrimination on the basis of: - Race, gener, marital status, or age - if all or part of the applicants income comes from public assistance - the applicant has exercised any right under the Consumer Credit Protection Act (C101.U9.P143)

Define: Statement of Financial position/ balance sheet/ net worth statement

Provides a SNAPSHOT of your clients net worth on a given date, usually at the end of the calendar year (C101.U3.P28)

Define: Rate of inflation

Rate of change in the general price level (C101.U9.P139)

Another name for the inflation-adjusted rate of return is?

Real rate of return (RRR) (C101.U6.P80)

Define: Discretionary Expense

Recurring or non recurring expense for an item or service that is either nonessential or more expensive than necessary Examples include: vacation, club dues, gifts (C101.U4.P39)

Define: Non-Discretionary Expense

Recurring or non recurring expense that is essential for an individual to maintain his lifestyle. Examples include: rent/mortgage, loan repayments, food, utilities, taxes (C101.U4.P39)

Define: Business Cycle

Reflects movements in economic activity and illustrates the concepts of supply and demand. (C101.U9.P136)

What does Housing Cost Ratio measure?

Rent, monthly mortgage payments, including principle and interest, homeowners taxes, homeowners insurance. {PITI} Used to indicate clients financial stability (C101.U4.P41)

Define: The Federal Bankruptcy Act of 1938

Requires a court-appointed trustee to oversee the affairs of a firm for which bankruptcy charges have been filed. Provides for liquidation of hopeless firms and restructuring for troubled firms that can survive (C101.U7.P92)

Define: Fair Credit Billing Act

Requires consumers to notify the creditor in writing of any billing errors within 60 days of the date they receive the statement. Credits have 30 days to respond, 90 days to resolve the complaint (C101.U9.P142)

Define: Consumer Credit Reporting Reform Act (ConsumerCredit Reporting Act)

Requires credit bureau reports to include accurate, relevant, and recent information about the financial situation of credit applicants (C101.U9.P142)

Define: Consumer Credit Protection Act (Truth in Lending Act)

Requires lenders, before extending cried, to disclose both the dollar amount of finance charges and the APR, as well as other loan terms and conditions (C101.U9.P142)

Define: Price elasticity

Responsiveness of the quantity of a good demanded to changes in the good's price, all other economic factors remaining constant (C101.U9.P132)

Who should use Interest Only mortgages?

Rick-Aggressive homeowners (C101.U4.P50)

Common abbreviations for property ownership and titling on statement of financial position

S1 - individual ownership of the named spouse S2 - individual ownership of the other named spouse JT - held JTWROS CP - Community property of the spouses TC - Tenants in common TE - Tenants by the entirety (C101.U3.P29)

Examples of cash inflows

Salary Wages Rental income Capital Gains Intrest and Dividend Income Alimony Received Child support received Trust income Inheritance Gifts (C101.U3.P32)

What is Financial Industry Regulatory Authority (FINRA)?

Self-regulatory organization (SRO). Any planner or B/D who wishes to sell securities must register with FINRA (C101.U7.P93)

Who would be the best for a reverse mortgage?

Seniors with limited income are most likely to be interested in reverse mortgages as a way to afford to stay in their homes (C101.U4.P50)

Define: Annuity Due

Series of payments (C101.U5.P61)

Define: 'Annuity' as it relates to time value of money

Series of savings deposits or payments that are equal and regular (C101.U5.P61)

How does a client receive the funds from a Home Equity Line of Credit? (HELOC)

Set amount of credit that can be drawn upon (C101.U4.P51)

Define: Current Ratio

Shows clients ability to pay off short term debts (C101.U4.P41)

What are the AUM limits for Small, Medium, and Large advisors

Small = 25M Medium = 25-100M Large = +100M (C101.U7.P89)

Define: Fiduciary

Someone who acts in utmost good faith, in a manner he or she believes to be in the best interest of the client (C101.U8.P104)

Define: Insider Trading and Securities Fraud Enforcement Act of 1988

Specified what constitutes the insider trading of securities and stiffened the penalties for engaging in such trading. Under the Act, there must be an action taken related to material, non-public information (C101.U7.P92)

Define: Skimming

Stealing of credit or debit card information by using a special storage device when processing these types of cards (C101.U9.P144)

What debts and obligations are not generally dischargeable regarding Chapter 7 Bankruptcy? (5)

Student Loans Government loans Child Support payments Alimony payments Recent federal income taxes due (C101.U9.P141)

What are assigned a higher weighting in the EFC calculation?

Student assets and income. Be careful when tilting assets - custodial accounts are considered assets of the child. 529 accounts are considers the parents (C101.U10.P155)

Is the identification of a clients financial strengths and weaknesses is primarily a subjective or objective judgement?

Subjective. The planner may rely on certain benchmarks or ratios to assist in making this determination (C101.U1.P8)

List the major types of Federal Loans (4)

Subsidized Stafford Loan Unsubsidized Stafford Loan Parent Loan for Undergraduate Students (PLUS) Perkins Loan (C101.U10.P156)

Define: Section 529 Plan / Qualified Tuition Program (QTP)

Tax advantaged program that helps families save money for college expenses. Beneficiaries do not gain control of the account at the age of majority (C101.U10.P153)

Taxable Equivalent Yield (TEY) formula

Tax-exempt nominal yield / (1- FTR) FTR is the federal marginal income tax rate of the investor (C101.U6.P80)

Taxable Equivalent Yield (TEY) formula for a security that is exempt from both federal and state income taxes

Tax-exempt nominal yield / [(1- (FTR + STR)] FTR is the federal marginal income tax rate of the investor STR is the state marginal income tax rate of the investor (C101.U6.P81)

List non-price related factors that may shift supply

Technological advances, suppliers leaving the industry, changes in the cost of the resource used to produce a good (C101.U9.P131)

Define: Herd Mentality

Tendency of individuals to follow the actions of a larger group, whether rational or not (C101.U2.P15)

Define: Mental accounting

Tendency of people to put their money into separate accounts based on the function of these accounts (C101.U2.P16)

Test tip: When answering exam questions regarding the coordination rules, do not use any combination of a American Tax Credit or Lifetime Learnings Credit with a Coverdell ESA or Section 529 plan tax-free withdrawal in a payment of the same expenses

Test tip: When answering exam questions regarding the coordination rules, do not use any combination of a American Tax Credit or Lifetime Learnings Credit with a Coverdell ESA or Section 529 plan tax-free withdrawal in a payment of the same expenses (C101.U10)

The Fed only directly controls which interest rate?

The DISCOUNT RATE (C101.U9.P135)

Define: Emotional intelligence

The ability to recognize the emotional expressions in oneself and the client (C101.U2.P23)

Define: Future value of an annuity

The accumulation of funds to meet a future financial goal (C101.U5.P61)

Define: Net Present Value (NPV)

The amount determined by discounting a potential investments projected cash inflows at the rate of return required by the investor and subtracting the original investment or initial cash outflow. (C101.U6.P71)

Define: Supply

The amount of a good or service available for purchase by suppliers at a given price (C101.U9.P130)

Define: Expected Family Contribution (EFC)

The amount of money that a family is expected to contribute toward the cost of a student's college education (C101.U10.P155)

Define: Risk Perception

The clients assessment of the magnitude of the risks being traded off (C101.U2.P17)

Define: Chapter 11 Bankruptcy (reorganization)

The debtor remains in control of assets and debts are reorganized Any individual, business, or corporate debtor who is eligible for Chapter 7 is eligible for 11 (C101.U9.P141)

Define: Risk Capacity

The degree to which a client's financial resources can cushion risks (C101.U2.P17)

What is "mirroring" as it relates to interpersonal communication?

The financial planner imitates clients gestures and physical positions by using a similar verbal style (C101.U2.P23)

What is 'EGADIM'

The financial planning process 1) Establish the relationship 2) Gather information 3) Analyze information 4) Develop & Communicate recommendation 5) Implement recommendation 6) Monitor recommendation (C101.U1.ppt1-3)

Define: Rule of 72

The formula used to determine the number of years it will take for a single amount to double in value (C101.U5.P64)

Define: Prime Rate

The interest rate charged by commercial banks to its best business and personal customers. This rate is set directly by the commercial bank, and it about 3% higher than the Fed Funds Rate (C101.U9.P135)

Define: Federal Funds Rate

The interest rate charged on short-term borrowing between banks. The fed targets, but does not directly control the Fed Funds rate (C101.U9.P135)

Define: 'Equilibrium' as it relates to supply and demand

The intersection of the supply and demand curves. Determines the price of a good or service and how much will be produced. prices should move toward equilibrium unless restricted by outside sources (govt. regulation or collusion between manufactures) (C101.U9.P134)

Define: Investment Advisor

The investment advisor act of 1940 provides 3 criteria, all of which must be bet: Provide Advice regarding securities Being in the Business of providing such services Being Compensated for such services A-B-C (C101.U7.P89)

What does a positive NPV mean?

The investor will earn a rate of return greater than the required rate of return. The investor should make the investment (C101.U6.P71)

What does a negative NPV mean?

The investor will earn a rate of return less than the required rate of return. The investor should not make the investment (C101.U6.P71)

Define: Reverse Mortgage

The lender pays the homeowner a stream of income secured by the home. Available to borrowers that are age 62 or older (C101.U4.P50)

Define: Savings and Loan Associations (Thrift Institutions)

The main purpose is to accept savings and provide home loans. They are not allowed to provide checking accounts/demand deposits (C101.U7.P97)

Define: Amortization

The monthly mortgage payments being allocated between repayment of principle and the interest payable on the unpaid principle balance (C101.U6.P76)

If two or more children in the same household incur qualified expenses in the same year:

The parents may claim a Lifetime learnings credit for the family; An American Opportunity Tax Credit may be claimed for each eligible child; or A lifetime learnings Credit many be claimed for one child and an American Opportunity Tax Credit may be claimed for each of the other eligible children (C101.U10.P160)

Define: Compounding

The process of interest being earned on increasing sums of principle and interest over time (C101.U5.P58)

Define: Demand

The quantity of goods and services consumers want to purchase at a given price (C101.U9.P131)

Define: Discount Rate

The rate at which banks can borrow from any of the Federal Reserve Banks. This is the only interest rate the Fed controls (C101.U9.P135)

Define: Yield Curve

The relationship between the yields on short term and long term bonds of the same investment grade are shown on this (C101.U9.P140)

Define: Gross Domestic Product (GDP)

The total monetary value of all goods and services produced within the domestic U.S. over the course of a given year, including income generated domestically by a foreign firm (Toyota). (C101.U9.P134)

Define: Perception

The ways people become aware of things, people, events, or ideas (C101.U2.P19)

Define: Fitness Standards for Candidates and Professionals Eligible for Reinstatement

There apply to candidates for certification and professionals eligible for reinstatement (PERs). (C101.U8.P105)

Define: Disciplinary Rules and Procedures

There are the rules and procedures CFP Board follows when enforcing the Rules of Conduct and Practice Standards (C101.U8.P105)

What % should the Current Ratio not exceed?

There is no accepted standard for what should be the current ratio maintained by a client, however, the higher the better. Greater than 1.0 means the client can pay off existing, short term liabilities with readily available assets. (C101.U4.P41)

Define: Rules of Conduct

These establish high standards expected of certificants. They are binding on all certificates, regardless of their title, position, type of employment, or method of compensation, and they govern anyone who has the right to use the CFP marks, whether or not those marks are actually used (C101.U8.P105)

How do investment advisors terminate registration with the SEC?

They must file form ADV-W as soon as possible after ceasing to practice (C101.U7.P90)

Define: Trust Company

They specialize in managing estates and serving as trustee for various types of trusts Typically owned by 1 of 3 entities: 1. An independent partnership 2. A bank 3. a law form (C101.U7.P97)

Define: The Securities Act of 1933 (Paper Act)

This act requires the registration of new issues of securities or issues in the primary securities market and provides applicable procedures for initial public offering (IPO) of securities while also specifying which securities are exempt from registration requirements (C101.U7.P91)

What is the Economic and resource approach?

This approach focuses on obtaining and analyzing quantitative data, such as cash flow, assets, and debts. (C101.U2.P21)

What is the Series 65?

This entitles the holder to provide investment advice to clients within the holder's primary state of residence. (C101.U7.P93)

What is the Series 6?

This entitles the hole to sell all open-end investment companies (mutual funds), variable annuities, variable life insurance, and initially offered unit investment trusts (C101.U7.P93)

What is the Series 66?

This is the Uniform Combined State Law Examination, which combines the Series 63 license requirements with the Series 65 license requirements. An individual who holds this license may provide investment advice and sell securities to any client in any state (C101.U7.P94)

What is the Series 63 ?

This is the Uniform Securities Agent State Law Examination. State securities laws require individuals to pass a qualification exam to sell secures within their states. Almost all states require individuals to pass the Series 63 exam as a condition of state registration (C101.U7.P93)

What is the Series 7 ?

This is the broadest license and entitles the holder to sell any security, including individual stocks and exchange traded funds (C101.U7.P93)

Define: Consumer Debt Ratio

This is the ratio of monthly consumer debt payments to monthly net income. Usually debt other than mortgage indebtedness. usually debt with automobile and credit card payment (C101.U4.P41)

What is the purpose of the CFP Board's Standards of Professional Conduct?

To define the expected level of professional conduct and practice for CFP(R) professionals, including certificants (C101.U8.P104)

Total Monthly Debt / Monthly gross income =

Total Debt Ratio (C101.U4.P41)

What is the Total Debt Ratio Formula?

Total Monthly Debt / Monthly gross income = Total Debt Ratio (C101.U4.P41)

Define: Gross National Product (GNP)

Total market value of all goods and services produced by U.S. residents' labor and property. GNP measures production based on ownership (C101.U9.P134)

Define: Risk Tolerance

Trade offs that clients are willing to make between potential risks and rewards (C101.U2.P17)

Define: Beliefs

Type of attitude, reveal the understanding of some aspect of a person's life (C101.U2.P18)

List the two different types of custodial accounts.

Uniform Gifts to Minors Act - UGMA Uniform Transfer to Minors Act - UTMA (C101.U10.P149)

What is the Strategic management approach?

Use the clients goals and values to drive the relationship. Conduct a SWOT analysis (C101.U2.P21)

Define: taxable equivalent yield (TEY)

Use this formula to compare the federal tax-free return of a security (muni-bond) with its taxable return equivalent to make an investment decision (C101.U6.P80)

What are the 3 major types of learning styles?

Visual, Auditory, Kinesthetic (C101.U2.P20)

When does a financial planning engagement exist?

When a CFP(R) certificant performs any type of mutual agreed-upon financial planning services for a client (C101.U1.P3)

Define: Active listening

When a planner is paying full attention to what the client is saying and responding by paraphrasing the clients comments (C101.U2.P23)

Define: Ordinary Annuity

When each payment is made at the end of each period (C101.U5.P61)

When will the Fed increase the Discount Rate?

When the Fed wants to increase the cost of borrowing and discourage member banks from borrowing funds, which results in a contraction of the money supply (C101.U9.P135)

When will the Fed decrease the Discount Rate?

When the Fed wants to increase the money supply. When banks are able to borrow funds at lower rates and lend more money, they increase the supply of money in circulation and this stimulates demand (C101.U9.P135)

What is a disadvantage of the UTMA/UGMA accounts?

When the child attics the age of 18 or 21, depending on state law, the child gains access to the funds in the account (C101.U10.P149)

Define: Substitution Effect

When the price of a good rises, consumers substitute other similar lower-prices goods (C101.U9.P131)

Define: income effect

When the price of a good rises, consumers will discontinue or significantly reduce their use, unless their incomes are also rising at a comparable pace (C101.U9.P131)

What does Behavioral Finance study?

Why people often act irrationally during a financial decision making process (C101.U2.P15)

How does a 'Auditory learning' client express themselves?

Words. Enjoy music and conversation (C101.U2.P21)

If the IRR is greater than or equal to the investors required rate of return, should he make the investment?

Yes (C101.U6.P71)

Define: Personal use assets

asset owned by client for lifestyle reasons and use, not primary for investment (home, or primary residence) (C101.U3.P29)

Cash Flow formula

inflows - outflows (fixed, variable, and taxes) = net cash flow (C101.U3.P31)

Fact: When doing TVM calculations be sure to determine whether the payment is at the beginning or the end of each period

usually the questions will say 'beginning' but questions that relate to retirement or education needs will need to be in BEG mode (C101.U5.P61)

What is the inflation adjusted rate of return formula?

{[(1+r) / (1+i)] - 1} x 100 Ex. inflation rate of 4% / investment rate of return of 8% {[(1+.08 / 1+.04) - 1]} x 100 {[1.08/1.04] - 1} x 100 {1.0385 - 1} x 100 .0385 x 100 = 3.85% (C101.U6.P74)