AGLS 435 Exam 2 Study Materialt
Steven, age 43, earns $80,000 annually; and his wage replacement ratio has been determined to be 80%. He expects inflation will average 3% for his entire life expectancy. He expects to work until 68, and live until 90. He anticipates an 8% return on his investments. Additionally, Social Security Administration has notified him that his annual retirement benefit, in today's dollars will be $26,000. Using the purchasing power preservation model, calculate how much capital Steven needs, in order toretire at 68. Group of answer choices
$1,061,342.08.
Stephanie wanted to save for her daughter's education. Tuition costs $10,000 per year in today's dollars. Her daughter was born today and will go to school starting at age 18. She will go to school for 4 years. Stephanie can earn 12% on her investments and tuition inflation is 6%. How much must Stephanie save at the beginning of each year if she wants to make her last savings payment at the beginning of her daughter's first year of college? $1,889. $2,104. $2,389. $1,687.
$1,687.
Your client, Tom, has come to you inquiring about retirement. He wants to know how much he needs to be saving at the end of each month to meet his goal. He is currently 45 and wants to work until age 64, and his estimated return on investment is 9%. He also has $250,000 in retirement savings already. You have calculated that he will need to have $2,413,545 saved by retirement to meet his goals. How much does Tom need to save at the end of each month to make this happen? $1,736 $2,112 $1,433 $1,512
$1,736 Given the information above we must first calculate working life expectancy (WLE) in months. WLE: 64 - 45 = 19: 19 * 12 = 228 (WLE) Next we need to calculate Tom's monthly return on investment. 9%/12 = 0.75% Given the above information, we can calculate the following: FV = 2,413,544 n = 228 i = 0.75% PV = -250,000 (Retirement savings already accumulated) PMT = -1,736 (This is what Tom will need to save at the end of each month to reach his goal).
Byron and Mandy are married and have a net worth of $20,000 and total assets of $150,000. If their revolving credit and unpaid bills total $8,000, how much are their total liabilities? $122,000. $130,000. $138,000. $150,000.
$130,000 Assets - Liabilities = Net Worth ÷ ($150,000 - $20,000 = $130,000)
Christian filed his individual federal tax return for the year ending December 31, 2018 on April 15, 2019 and he owed $18,000. As of December 15, 2019, he still has not paid any of this tax libility. How much does Christian owe as of December 15, 2019? $23,310. $18,720. $22,500. $18,810.
$18,810. [(18,000 x 0.005) x 9 + 18,000] Christian did not fail to file - he failed to pay. Therefore, he owes the 0.5% per month or part of a month failure to pay penalty plus the outstanding tax amount of $18,000.
Your client, Tom, age 45, is currently making $145,000. You have determined that his wage replacement ratio is 80%. You expect inflation to average around 3% for Tom's entire life expectancy. Tom expects a 9% return on his investments and plans to retire at age 64, possibly living to age 90. He expects he will receive about $12,000 per year from Social Security in retirement. Calculate Tom's first year retirement needs at age 64.
$182,365
Rod is 40 years old and plans on retiring at age 62 and living until age 90. Assume that he currently earns $110,000 and his wage replacement ratio is 72 percent. Social Security will provide $20,000 (in today's dollars) in retirement benefits per year. Inflation is expected to be 3 percent and Rod can earn 6 percent return on his investments. Find the amount Rod will need to have saved by day one of retirement. $1,993,230 $2,455,219 $2,004,516 $2,214,056
$2,214,056 We start by calculating income needed per year (during retirement) in today's dollars. 110,000(0.72) - 20,000 = 59,200 Next we need to inflate this out to future dollars. PV = -59,200 n = 62 - 40 = 22 i = 3% solve for FV = 113,433.32 The next step determines the balance he needs in his investment accounts at retirement. PMT = 113,433.32 n = 90 - 62 = 28 i = {[(1.06)/(1.03)]-1}*100 = 2.9126 Solve for PV = -2,214,056
Your client, Tom, has come to you inquiring about retirement. He wants to know approximately how much (in future dollars) he will need to have saved by retirement. You have calculated that he will need about $182,365 a year to maintain his current life style. He expects to retire at age 64 and live to around 90, and his return on investment averages at 9%. Estimated average inflation is 3%. How much does Tom need to have on day 1 of retirement to meet this goal? $1,987,422 $2,127,937 $2,662,389 $2,552,815
$2,552,815 Given the information above, we need to first calculate working life expectancy or WLE. WLE = 90 - 64 = 26 Then we must calculate our inflation adjusted discount rate. i = {[(1+0.09)/(1+0.03)]-1}*100 = 5.82% Now we can determine the following n = 24 i = 5.82% FV = 0 PMT = -182,365 Set Calculator to begin mode So we calculate PV = 2,552,815
Your client, Jim, age 40, earns $78,000 annually. His spouse, Pam, age 38, used to work at the office with Jim, but is now a homemaker. They have one child who just turned age 14. Jim's personal cosumption during the year was equal to $19,456 and he paid $8,550 in taxes. Assume the inflation rate is 3% and the yield on U.S. Treasury Bonds is 5%. Calculate Jim and Pam's Life insurance need using the Capitalization of Earnings Method. $1,252,640 $2,574,690 $2,105,455 $1,883,489
$2,574,690 The capitalization of earnings method uses a fraction to determine life insurance needs. The numerator is the client's gross income, subtracting out taxes and consumption. The denominator is the riskless rate of return (typically the yield on U.S. Treasury Bonks) adjusted for inflation. Therefore 2,574,690 = (78,000-19456-8550)/[(1.05/1.03)-1]
Samantha has the following transactions: o She purchases $5,000 worth of a mutual fund with cash from her savings account. o She spends $6,000 on a vacation with cash from her money market account o She spends $10,000 on new furniture, and uses her credit card to make the purchase. $21,000 decrease. $6,000 decrease. $15,000 increase. $6,000 increase.
$6,000 decrease Transactions 1 and 3 were net washes (she was simply changing the nature of the assets). Samantha traded savings for a mutual fund, and obtained furniture by incurring a liability. Transaction 2 reduced her net worth, and there was no corresponding financial gain.
Contributing $2,300 to her retirement fund at the end of each year beginning at age 18 through age 52, with an average annual return of 11%, how much does Shelly have in her retirement account at this time to use toward a possible early retirement? $688,312 $705,726 $736,122 $809,326
$705,726 The correct answer is $705,726. n = 52 - 18 = 34 i = 11 PV = 0 PMT = -2,300 FV = 705,726
what assumptions must be made in capital needs analysis
- making assumptions about variables that cannot be known ex.. future rates of return and life expectancy
wage replacement ratio
-estimate of the amount of money needed in retirement, stated as a percentage of income earned prior to retirement ex... if a client in the last year of work (prior to retirement) makes $100,000 and that client needs $80,000 in the first retirement year to maintain the same pre-retirement lifestyle, the wage replacement ratio (WRR) is 80% ($80,000 / $100,000)
what is the capital needs analysis why is it important in retirement planning
-is the process of determining how much money a person needs to accumulate to be financially independent during retirement - allows for a pre retirement lifestyle during retirement and to manage the adverse affects of inflation
planning for retirement pre-tax or after-tax
-most financial planners who are not certified public accountants (CPA'S) plan in pre-tax dollars believing that a pre-tax approach is what their client best understand -planning can be effective either way as long as the client and the planner understand the planning choice
sources of retirement income
-social security - private pension and company sponsored retirement plans -personal assets and savings
savings and investment issues
-the savings amount -if individuals do not begin saving at an early age then they must save a greater amount of their gross earnings to compensate for the missed years of contributions and compounding of investment returns
true or false as the RLE increases because of early retirement, there is generally both an increased need of funds to finance the RLE and a shortened WLE in which to save and accumulate assets.
-true
what are the four most common methods for analyzing capital needs
-wage replacement ratio (WRR) - LIFE EXPECTANCY -earnings rate and inflation -accurate assumptions
Jade is looking for an insurance policy for her home. Her friend, Shamus, who is an attorney, just told her that the policy is a contract and has some unique characteristics. Which of the following terms applies to the insurance contract? 1. Indemnity. 2. Res ipsa loquitur. 3. Adhesive. 1 and 3. 2 only. 2 and 3. 1, 2 and 3.
1 and 3.
which of the following are qualitative factors associated with retirement 1 emotional and psychological factors 2. reduced ability to work 3. the decision to relocate 4. involuntary vs voluntary retirement
1 emotional and psychological factors 3. the decision to relocate 4. involuntary vs voluntary retirement
Which of the following statements is/are correct? 1. The principal but not the interest to be paid this year on a 30-year mortgage is properly classified on the Statement of Financial Position as a current liability. 2. A CD with a maturity of 9-months is classified as an investment asset on the Statement of Financial Position. 1 only 2 only Both 1 and 2 Neither 1 nor 2
1 only The current portion of long-term debt (principal only) is classified as a current liability. A CD due in 12 months or less is classified as cash and cash equivalents not an investment asset.
Which, if any, of the following statements is (are) correct? 1. Financial risk has to do with the amount of leveraging or the use of borrowed funds that a firm utilizes to structure its investment and finance its asset. 2. Debenture bonds are backed by the income from a specific project. 1 only. 2 only. Both 1 and 2. Neither 1 nor 2.
1 only.
Which of the following statements is / are correct? 1. A power of attorney is a power to act by an agent for the benefit of a principal. 2. A power of appointment is the power to appoint someone to act for the principal. 1 only. 2 only. Both 1 and 2. Neither 1 nor 2.
1 only. A power of appointment is the power to appoint assets of the principal. A power of attorney is the power to act.
Which of the following are true statements about the Capital Asset Pricing Model (CAPM)? 1. The Capital Market Line (CML) by itself does NOT determine the optimal portfolio for an investor. 2. Beta is used as a measure of risk on the Security Market Line (SML). 3. The required return is beta times the market return. 4. As investors substitute risky securities for risk-free assets, both risk and return increase. 1 and 3. 2 and 4. 1,2, and 4. 2, 3, and 4.
1,2, and 4.
our client, Samantha, died testate last week. At her death she had the following property interests: a. 1/2 of the home that she owns with her husband as community property. b. 1/3 of the vacation home that she owns with her two sisters as tenants in common. c. An empty lot that she alone owns. d. 1/3 of her late parents' home, which she owns with her two sisters as joint tenants with right of survivorship. Which property interest will not pass through her probate estate? 1/2 of the home that she owns with her husband as community property. 1/3 of the vacation home that she owns with her two sisters as tenants in common. An empty lot that she alone owns. 1/3 of her late parents' home, which she owns with her two sisters as joint tenants with right of survivorship.
1/3 of her late parents' home, which she owns with her two sisters as joint tenants with right of survivorship. Property owned in joint tenancy, unlike property owned in fee, (option c), as community (option a), or as tenancy in common (option b), is not included in one's probate estate.
Which of the following is a good benchmark for savings for retirement as a percent of gross income for someone who is between age 25 and 30? 5% to 10%. 10% to 15%. 15% to 20%. 20% to 25%.
10% to 15%.
Mike Smith has the following financial data. Investment Assets at Year End $475,000 Investment Assets at Beginning of the Year $392,000 Savings Made During the Year by Mike $27,000 Employer Match to Mike's 401(k) Plan $5,000 Total Assets on Ending Statement of Financial Position $700,000 Gross Income on Income Statement $100,000 Total Assets on Beginning Statement of Financial Position $600,000 Total Liabilities at Beginning of the Year $200,000 Total Liabilities at Year End $180,000 11.33. 13.00. 14.84. 16.67.
11.33
What is the IRS penalty for fraud-related filing issues? 5% per month or part thereof to 25% maximum. 0.5% per month or part thereof to 25% maximum. 20% of underpayment to 30%. 15% per month up to 75% of underpayment.
15% per month up to 75% of underpayment. 15% per month up to 75% of underpayment is the penalty for fraud-related filings. Option A is Failure to File, option B is Failure to Pay, and option C is accuracy related filing penalties.
Which of the following methods of joint ownership permits the right to partition the asset without the consent of the joint owner? 1. Community property. 2. Joint tenancy with the right of survivorship. 3. Tenants by the entirety. 4. Tenants in common. 4 only. 2 and 4. 2, 3, and 4. 1, 2, 3, and 4.
2 and 4. Community property and tenants by the entirety are ownership regimes that are restricted to married couples and therefore require the consent of the other spouse to partition the property. The other two titling methods permit partition without the consent of the joint owner(s).
John and Mary, both 44 years old, are married and have one child, age 10. They plan to pay for his college at an in-state university from age 18 to 23 and they would like to retire at age 62. They have provided the following financial data. Joint employment income $200,000John's 401(k) plan contributions $16,500 Mary's IRA contributions $3,000 John's 401(k) plan employer match $5,000 Annual gifts from John's parents $10,000 Total Investment Assets $380,000 Total Cash and Cash Equivalents $100,000 From the goals and data given, which of the following statements is/are correct? (Do not make assumptions that are not stated) 1. John and Mary's investment assets to gross pay ratio is adequate for their age. 2. John and Mary's savings rate is appropriate for their goals. 1 only. 2 only. Both 1 and 2. Neither 1 nor 2.
2 only. The investment assets to gross pay ratio is $480,000 ÷ $200,000 = 2.4 times which is not adequate for persons age 45. Their savings rate is $24,500 ÷ $200,000 = 12.25% and appears adequate for both the retirement and the education goals.
Lori, a self-employed pediatrician, currently earns $200,000 annually. Lori has been able to save 15% of her annual Schedule C net income. Assume that Lori paid $19,000 in social security taxes, and that she plans to pay off her mortgage at retirement, thereby relieving her of her only debt. Lori presently pays $4,333.33 per month toward the mortgage. Based on the information provided herein, what do you expect Lori's wage replacement ratio to be at retirement? 41.0%. 49.5%. 59.0%. 67.0%.
49.5%. Dollar Value Percentage Salary 200,000 100% Social Security 19,000 (9.5%) Savings 30,000 (15%) Mortgage 52,000 (26%) 99,000 49.5%
Your client, Jim, is currently 45 years old and earns $90,000 a year, pays 7.65% of his gross pay in Social Security payroll taxes, and saves 14% of his gross income. Jim wants to maintain his current lifestyle during retirement, and any work-related savings from retirement are expected to be completely offset by additional spending adjustments during retirement. Using the top down approach, find Jim's Wage Replacement Ratio as a percentage. 82.35% 79.35% 78.35% 77.35%
78.35% The correct answer is 78.35%, calculated as follows: $90,000 = 100.00% of salary in % terms ($12,600) = (14.00%) less: current savings in % terms (3,825) = (7.65%) less: payroll taxes in % terms= $41,175 = 78.35% wage replacement ratio in % terms
What is one of the primary differences between a Coverdell Education Savings Account and 529 Savings Plan? A Coverdell can be used for private elementary, middle or high school. A Coverdell does not have a phase-out limit for participation. A 529 plan has a phase-out limit for participation. A Coverdell allows a 5-year proration of contributions.
A Coverdell can be used for private elementary, middle or high school. A Coverdell may be used for private elementary, middle or high school. A Coverdell does have phase-out limits, whereas a 529 Savings Plan does not. A 529 Savings Plan permits a 5-year proration of contributions, not a Coverdell.
which of the following statements is true A. To be more conservative in planning for an individual's retirement, decrease the individuals life expectancy. B. You Answered A sensitivity analysis helps the advisor determine the single most effective factor in a retirement plan. C. Monte Carlo Analysis uses a random number generator to provide the advisor with an array of possible outcomes utilizing the same fact patter. D. The capital preservation model assumes that at retirement the client will have exactly the same account balance as he did at his ideal working age.
A Monte Carlo Analysis uses a random number generator to provide the advisor with an array of possible outcomes utilizing the same fact patter.
All of the following statements concerning educational funding is correct EXCEPT: A student must submit a FAFSA (Free Application for Federal Student Aid) form to become eligible for federal financial aid. The EFC (Expected Family Contribution) is a formula that indicates how much of a student's family's resources ought to be available to assist in paying for the student's college education. Factors used in calculating the EFC include taxable and nontaxable income, assets, retirement funds, and benefits, such as unemployment and Social Security. A common method of reducing a family's EFC is creating a trust for the parents and increasing the family's estate.
A common method of reducing a family's EFC is creating a trust for the parents and increasing the family's estate.
Janice is a nurse in the critical care department. She has property insurance, but does not have disability insurance through the hospital. She does not know that much about disability, except that a friend of hers told her that she needed to acquire it. Which of the following statements is correct? Any occupation is the better choice for coverage than own occupation. The elimination period is the period after the policy stops paying benefits. A guaranteed renewable feature of a policy obligates the insurer to continue coverage as long as premiums are paid on the policy. All of the above.
A guaranteed renewable feature of a policy obligates the insurer to continue coverage as long as premiums are paid on the policy.
Which of the following is an element that must exist before a risk is considered insurable? Insured losses can only be intentional if the insured was not a part of the party inflicting the harm The loss must not pose a catastrophic risk for the insured A large number of similar exposure units must exist to help develop statistics for forecasting losses All of the above
A large number of similar exposure units must exist to help develop statistics for forecasting losses Insured losses must be accidental from the insured's standpoint. The loss must not pose a catastrophic risk for the insurer, not the insured.
All of the following are essential legal documents used in estate planning except: A durable power of attorney for health care. An advance medical directive. A side instruction letter. A will.
A side instruction letter.
which of the following statements regarding retirement trends is correct A. The savings rate in the United States has consistently been decreasing over the last 30 years B. The spending pattern of most elderly retirees shows an average decline in outflow during the atter part of retirement. C. Analysis of Social Security shows that only a small percentage of retirees in the United States rely on Social Security benefits as a major part of their retirement sources of income. D. Historically, the retirement age for citizens of the United States has been increasing as workers life expectancy has been increasing. However, that trend has been reversing over the last several years.
A. the spending pattern of most elderly retirees shows an average decline in outflow during later part of retirement Option A is incorrect because savings rates have actually increased over the last several years after consistently decreasing. Option b is correct. Option c is incorrect as Social Security is the major source of income for most retirees. Option d is incorrect as the retirement age has been decreasing consistently until recently.
All of the following are excluded from gross income EXCEPT: Child support payments received from a former spouse. Scholarship or fellowship for a degree seeking student. Alimony received (divorce prior to 2019). Life insurance proceeds received due to the death of the insured.
Alimony received (divorce prior to 2019).
Georgia just died from a terrible bus accident. She was only 34 years old and had two children under six. Under which of the following circumstances would she be considered to have died intestate? She handwrote a will, but did not sign or date it. She was not of "sound mind" when she signed her statutory will. She failed to prepare a last will and testament. All of the above.
All of the above.
Which of the following statements is / are correct? 1. Some tax credits are refundable. 2. Some tax credits are nonrefundable. 1 only. 2 only. Both 1 and 2. Neither 1 nor 2.
Both 1 and 2.
Which, if any, of the following statements is (are) correct? 1. The value of a gift for estate and gift tax purposes is equal to the fair market value of the gifted property on the date of the gift or date of death. 2. The value of a publicly traded security for estates and gift tax purposes is equal to the average of the high and low trading price on the date of the gift or date of death. 1 only. 2 only. Both 1 and 2. Neither 1 nor 2.
Both 1 and 2.
Which of the following statements is/are correct? 1. The emergency fund ratio metric should be 3 to 6 months of non-discretionary cash flows. 2. When calculating the savings rate for a family, any contributions to retirement made by the employer should be included. 1 only. 2 only. Both 1 and 2. Neither 1 nor 2.
Both 1 and 2. Both statements are true. For an adequate emergency fund there needs to be cash and cash equivalents of 3 to 6 months of non-discretionary cash flows as to mitigate against the risk of job loss or temporary injury. The overall savings rate includes any employer contributions.
For valuation purposes, balance sheet liabilities should be recorded at their: Current outstanding balance. Fair market value. Discounted value. Total amounts of payments to be made.
Current outstanding balance. A balance sheet provides a snapshot of a client's assets, liabilities, and net worth, as of a stated date; therefore, liabilities must be recorded at their current outstanding balance as of the stated date, in order to have an accurate snapshot.
Jennifer Jones wants to accumulate wealth, but she has told you, her new financial planner, that she is risk averse. What should you do with her money? Invest in products that bring the highest return regardless of risk. Invest in products that produce high income because fixed income products are generally low risk. Put Jennifer's assets in 100% cash equivalents because she is risk averse. Determine Jennifer's true risk tolerance.
Determine Jennifer's true risk tolerance.
All of the following are needed to calculate the client's human life value except: Average annual earnings to the age of retirement. Estimated annual Social Security benefits at retirement. Annual self-maintenance costs. Number of years from present age to the contemplated age of retirement for client.
Estimated annual Social Security benefits at retirement. The human life value is determined by finding the present value of the future cash flows (the client's annual salary). Options a, c, and d are all needed in this calculation. Social Security benefits are not earned; they are an entitlement. Therefore, benefits from Social Security are not needed in this calculation.
A limited power of appointment subject to an ascertainable standard results in inclusion of the assets subject to the power in the agent's gross estate. True False
False
The three separate and distinct federal tax systems that are relevant to financial planning are the income tax system, the estate and gift tax system and the property tax system. True False
False The third one is the GST tax system.
The three types of income in the US income tax system are ordinary income, portfolio income and capital income. True False
False The third should be passive instead of capital.
Conditions that increase either the frequency or severity of loss are called: Circumstances. Risks. Hazards. Perils.
Hazards
Although he has amassed a vast fortune, Rudolf has decided not to prepare an estate plan because he believes that his surviving family members will divide up his assets appropriately. Which of the following is not a risk associated with failing to plan an estate? His estate will incur excessive transfer taxes. His favorite Porsche will not be transferred to his ex-wife, Rita. His insurance policy on his own life will not be paid out to the named beneficiary. His current wife, Gina, will not provide for his children from a previous marriage.
His insurance policy on his own life will not be paid out to the named beneficiary.
Which of the following is not an example of unsystematic risk? Country Risk Government / Regulation Risk Housing Risk Business Risk
Housing Risk
Mutual funds that take the approach that "if you can't beat 'em, join 'em," are tax efficient, have low expense ratios and attempt to match the performance of a market are: Global Funds. Bond Funds. Sector Funds. Index Funds.
Index Funds.
A spendthrift clause in a trust does which of the following? It requires the trustee to make small annual distributions. It protects the trust assets from most creditors. It requires the trustee to act as a fiduciary. It protects the trust assets, and allows wealth to grow within the trust income tax free.
It protects the trust assets from most creditors.
Ralf, the insured, owns a home with a fireplace and a generator. He has stacks of wood and several 55-gallon drums of camping oil in his garage. He likes to go camping and leaves his home for several days at a time, often with a fire burning in his fireplace. In addition, he leaves his home unlocked. Which of the following hazards apply? Physical hazard and moral hazard. Morale hazard only. Morale hazard and physical hazard. Physical hazard only.
Morale hazard and physical hazard.
Which of the following statements is correct regarding Social Security? Retirement benefits under Social Security are intended to provide at least a 50% wage replacement ratio for everyone except for the very highest earners. Non-working spouses of retirees receiving Social Security benefits are entitled to a 50% benefit regardless of the non-working spouse's age. More than 20 percent of retirees rely on Social Security for more than 90% of their retirement income. All employees in the United States are covered by Social Security and are required to contribute FICA taxes.
More than 20 percent of retirees rely on Social Security for more than 90% of their retirement income.
All of the following statements concerning educational funding are correct EXCEPT: QTPs allow individuals to participate in prepaid tuition plans whereby tuition credits are purchased for a designated beneficiary for payment or waiver of higher education expenses, or participate in savings plans whereby contributions of money are made to an account toeventually pay for higher education expenses of a designated beneficiary. Prepaid Tuition Plans are plans where prepayment of college tuition is allowed at current prices plus a small premium for enrollment in the future. A Savings Plan is a type of QTP where the owner of the account contributes cash to the account so that the contributions can grow tax deferred. One of the disadvantages of QTPs is that the owner/contributor shares control of the account with the student/beneficiary.
One of the disadvantages of QTPs is that the owner/contributor shares control of the account with the student/beneficiary.
Your client, Terry, was working at a chemical plant when it suddenly caught fire and he was severely injured. Terry is no longer able to do his duties at the plant, however he landed a job teaching chemistry online at a local college. If he is currently receiving disability insurance, what type of disability would an insurance company define this as? Any Occupation Hybrid Partial Period Own Occupation
Own Occupation Own occupation coverage is determined by whether or not the insured can carry out each and every one of the duties of his employment. Any occupation coverage is defines when the insured is considered unable to work any occupation.
Which one of the following statements is wrong? A student must submit a FAFSA (Free Application for Federal Student Aid) form to be eligible to receive federal financial aid. The four repayment plans for a Stafford loan are: standard repayment, extended repayment, graduated repayment, and income based repayment. Factors used in calculation the EFC include taxable and nontaxable income, assets, retirement funds, and benefits, such as unemployment and Social Security. PLUS (Parent Loan for Undergraduate Students) loans are for parents to borrow to help pay for a dependent's undergraduate education expenses, and are based on financial need.
PLUS (Parent Loan for Undergraduate Students) loans are for parents to borrow to help pay for a dependent's undergraduate education expenses, and are based on financial need.
Which of the following types of aid is not need based? Pell Grant. Plus Loan. Perkins Loan. Subsidized Stafford Loan.
PLUS Loan
Mrs. Escovido has come to you for advice on financing her son's college education at a state university. Even though her income exceeds $200,000, she has not saved enough for his college expenses. You advise her that her best opportunity to acquire education funds would be through: Pell grants. Subsidized Stafford Student Loans. Supplemental education opportunity grants. Parent loans for undergraduate students (PLUS).
Parent loans for undergraduate students (PLUS).
Loss severity is the: Probability that a liability judgment may exceed an individual's net worth. Probable size of a loss that may occur. Probable number of losses that may occur. Probability that a particular property could be totally lost.
Probable size of a loss that may occur.
What impact would inflation have on retirement? Increases capital needs Fewer alternatives in retirement Unable to meet capital requirements Reduces purchasing power
Reduces purchasing power
All of the following are qualified education expenses for the Lifetime Learning Credit and American Opportunity Credit, except: Tuition and Fees. Books and Supplies. Equipment. Room and Board.
Room and Board.
Saben is 40 and wants to retire in 20 years. His family has a history of living well into their 90s. Therefore, he would like to plan on living until age 100, just in case. He currently needs $100,000 and expects that he will need about 80% of that if he were retired. He can earn 9 percent in his portfolio and expects inflation to be 3 percent annually. Some years ago, he purchased an annuity that is expected to pay him $30,000 per year beginning at age 60. It includes an inflation rate cost of living adjustment. In addition, he received $500,000 from his uncle BJ when he died. Saben has spent $200,000 on his home, but is investing $300,000 for his retirement. His Social Security benefit in today's dollars is $20,000. Which of the following statements is true? Saben needs to accumulate approximately $1,205,578 by age 60 to fund his retirement. Saben's current savings and other sources of income are adequate to satisfy his retirement needs. Saben needs to save approximately $9,300 per year for the next 20 years to fund his retirement. Saben needs to save approximately $7,926 per year at year end for the next 20 years to fund his retirement.
Saben's current savings and other sources of income are adequate to satisfy his retirement needs.
Which of the following types of investment risk cannot be eliminated through diversification? Unsystematic risk. Company specific risk. Systematic risk. Business risk.
Systematic risk.
Which of the following types of life insurance could not be descibed as an investment, with a savings component? Permanent life insurance Ordinary life insurance Universal life insurance Term life insurance
Term life insurance
Tracy and Brett are married. Their current assets $9,243 Their current liabilities $6,921 Their monthly non-discretionary expenses $4,693 Their annual combined income $70,000 Their annual debt payments (excluding monthly housing costs) $22,084 Assume for this question only that Tracy and Brett's monthly housing costs (P&I&T&I) are $1,500. Which of the following lender thresholds will Tracy and Brett meet? The 28% benchmark. The 36% benchmark. Both benchmarks. Neither benchmark
The 28% benchmark $1,500 ÷ ($70,000 ÷ 12) = 25.7; ($1,500 + ($22,084 ÷12) ÷ ($70,000 ÷12) = 57.2
Your client Holly Lynne has a 15% required rate of return. She is considering investing in XYZ, Inc., which paid an annual dividend of $0.75 this year and is projected to increase its earnings and dividends by 10% annually. The current market price is $15.40. The intrinsic value of the stock is $16.50, so the client should not purchase this stock since the company is currently overvalued. The intrinsic value of the stock is $16.50, so the client should purchase this stock since the company is currently undervalued. The intrinsic value of the stock is $15.00, so the client should not purchase this stock since the company is currently overvalued. The intrinsic value of the stock is $15.00, so the client should not purchase this stock since the company is currently undervalued.
The intrinsic value of the stock is $16.50, so the client should purchase this stock since the company is currently undervalued.
All of the following statements concerning educational fund 529 Savings Plans are correct EXCEPT: Contributions are recognized on a five year pro rata basis. Earnings grow on a tax deferred basis, unless used for qualified education expenses, and then distributions are tax free. The primary benefit of a 529 Savings plan is the state income tax deduction for contributions. Earnings are included in gross income and a 10% penalty is assessed if distributions are not used for qualified education expenses.
The primary benefit of a 529 Savings plan is the state income tax deduction for contributions.
The estimated value of a real estate asset in a financial statement should be based upon the: Income tax basis of the asset, after adjusting straight line and accelerated depreciation. The client's estimate of current value. Current replacement value of the asset. The value that a well-informed buyer is willing to accept from a well-informed seller where neither is compelled to buy or sell.
The value that a well-informed buyer is willing to accept from a well-informed seller where neither is compelled to buy or sell. The question is what values should be used in preparation of a personal financial statement. The answer is fair market value (FMV) and option d is the definition of FMV.
Betty wants to know the probability that her investment in HighFlier, Inc. will generate a return less than zero. The investment has a mean return of 6% and a standard deviation of 3%. Based on a normal distribution curve you correctly inform her that: There is a 2.5% probability of a negative return. There is a 5% probability of a negative return. There is a 10% probability of a negative return. There is a 34% probability of a negative return.
There is a 2.5% probability of a negative return.
All of the following federal income tax penalties are correct except: There is a 5% penalty per month for failure to file. There is a 0.5% penalty per month for failure to pay. There is a 20% penalty for accuracy related errors. There is a 20% penalty per month for fraud up to 100% of under payment.
There is a 20% penalty per month for fraud up to 100% of under payment. The penalty for fraud is 15% per month up to 75% of underpayment.
Which of the following has maturities greater than 10 years? Treasury Bills Treasury Notes Treasury Bonds All of the above
Treasury Bonds
The three primary sources of tax law are statutory sources, administrative sources, and judicial sources. True False
True
The three types of income in the US income tax system are ordinary income, portfolio income and passive income. True False
True
To avoid income shifting, the principle of the fruit and the tree requires that income is taxed to either the person who earns it or the person who owns the asset that produced the income. True False
True
true or false the annuity method assumes that the individual will die at the expected life expectancy with a retirement account balance of zero
True
Retirement plans with named beneficiary designations such as IRAs, SEPs, and SIMPLEs pass outside of the probate process. True False
True Retirement plans with named beneficiary designations will pass outside of the probate process via state contract law.
All of the following are treated as assets of the parent for financial aid, except? 529 Savings Plan. Prepaid Tuition. Coverdell ESA. UGMA.
UGMA UGMA accounts are considered assets of the child for financial aid purposes because the child has access to the account at age 18.
The following set of newly issued debt instruments was purchased for a portfolio:o Treasury bond.o Zero-coupon bond.o Corporate bond.o Municipal bond.The respective maturities of these investments are approximately equivalent. Which one of the investments in the portfolio would be subject to the greatest relative amount of price volatility if interest rates were to change quickly? Treasury bond. Zero-coupon bond. Corporate bond. Municipal bond.
Zero-coupon bond.
why is it important to begin to save early for retirement
allows for compound investment returns that help savings grow significantly
The balance sheet equation is: Total Assets ÷ Total Liabilities = Net Worth. b. Total Assets x Total Liabilities = Net Worth. c. Total Assets - Total Liabilities = Net Worth. d. Total Assets + Total Liabilities = Net Worth.
c. Total Assets - Total Liabilities = Net Worth.
retirement distribution approach -money for life approach
divide capital into unequal strata with each representing five years
how is inflation relevant to retirement planning
inflation erodes the purchasing power of money throughout a persons life
retirement funding or capital needs analysis
is the process of determining how much money a person needs to accumulate to be financially independent during retirement
retirement distribution approach - 4% per year approach
limits withdrawals from the capital accumulation to four percent per year
Jimmy has the following expenditures during the year: i. Health Care ii. Spending on Club Dues iii. Travel iv. Gifts to Grandchildren Which of these expenditures would you expect to decrease during Jimmy's retirement? ii i, ii, & iii i, ii, iii &, iv none of the above
none of the above
what impact would inflation have on retirement
reduces purchasing power
-is the period of time a person is expected to be in the work force -the remaining work life expectancy (RWLE) is the work period that remains at a given point in time before retirement -is essential in retirement planning
remaining work life expectancy
-is the time period beginning at retirement and extending until death -proper planning is needed because if the retired individual lives longer than he and his financial planners prepared for, there is a risk of running out of money
retirement life expectancy (RLE)
true or false the two methods for calculating WRR are the top down approach and the budgeting approach
true
