Master ALL

Adjusted Gross Income (AGI)

"Above-the-Line" deductions are subtracted from gross income to calculate

Above-the-Line $3,000 per year

"Above-the-Line" or "Below-the-Line"? Capital Loss

Above-the-Line If paid with after-tax dollars, Any expense over 10% AGI is deductible.

"Above-the-Line" or "Below-the-Line"? Employer-Sponsored Health Insurance Premiums

Above-the-Line

"Above-the-Line" or "Below-the-Line"? HSA Contributions

Above-the-Line

"Above-the-Line" or "Below-the-Line"? IRA Contributions & Employer-Match Payments

Above-the-Line

"Above-the-Line" or "Below-the-Line"? Ordinary and necessary business expense in one's trade, business or rental operation.

Above-the-Line 100% of self, spouse and dependents' premiums paid with after-tax dollars. Even if <10% AGI

"Above-the-Line" or "Below-the-Line"? Self-Employed Health Insurance Premiums

Above-the-Line 15.3% FICA

"Above-the-Line" or "Below-the-Line"? Self-Employment Tax

Above-the-Line Max $2,500 + Phaseouts

"Above-the-Line" or "Below-the-Line"? Student Loan Interest

Series 24

"General Securities Principal" Entitles the holder to supervise the business of a broker/dealer.

Series 7

"General Securities Registered Representative" Entitles the holder to sell all types of securities products, with the exception of commodities futures (which requires a Series 3 license). The Series 7 is the most comprehensive of the FINRA representative licenses and serves as a prerequisite for most of the principals examinations.

Series 6

"Investment Company/Variable Contract Products Limited Representative" Entitles the holder to sell mutual funds and variable annuities and is used by many firms that sell primarily insurance-related products.

Kurtosis

"Peakedness" of the distribution

Series 66

"Uniform Combined State Law Exam" Entitles a successful candidate to both sell securities and give investment advice.

Series 65

"Uniform Investment Adviser Law Exam" Qualifies a candidate as an IA or IAR. It does not allow a professional to sell securities, but rather, to offer investment advice.

Series 63

"Uniform Securities Agent State Law Exam" Entitles the successful candidate to sell securities as a securities agent.

Perfect Positive Correlation

+1

Market to Market

Daily futures pricing adjustment

There is no taxation on the grant date or exercise date. When the shares are sold, Daniel recognizes $2,000 in ordinary income and $78,000 in long-term capital gains. The income is from the $2 difference between the FMV at grant and the exercise price. The capital gains are from the $78 difference between FMV at sale and FMV at grant date.

Daniel receives an option under his Employee Stock Purchase Plan (ESPP) to purchase 1,000 shares of QRS corp. stock at $20 per share when it is trading at $22 per share. He exercises the option when QRS corp. is trading for $25 per share. Five years later he sells all of his shares for $100 per share. How is this transaction taxed?

Z-Statistic (Formula)

Data Value - Mean / Standard Deviation

Record Date

Date on which a company will determine the registered owners of stock and, therefore, who will receive the dividend. The day after the ex-dividend date.

Ex-Dividend Date

Date one business days before the date of record, on which the stock trades without a dividend.

If an option's exercise price increases then the option's value?

Decreases. The underlying stock must appreciate to increase the option's intrinsic value.

Home Office Deduction

Deduction available to self-employed taxpayers who maintain a space on their primary residence's property for regular and exclusive use as a principal place of business. Space may be separate from the primary residence

Itemized Deductions

Deductions from AGI files on IRS Form 1040 Schedule A which must be considered ordinary & necessary in the taxpayer's line of business.

Elastic Demand Technology, Luxury Goods

Demand in which changes in price have a large effect on the amount demanded. i.e. __________________________________

Inelastic Demand Utilities, Gas, Food

Demand in which changes in price have little or no effect on the amount demanded. i.e. __________________________________

Tax-Free

Dental & Vision Insurance are often provided by employer group plans. The employer gets a tax deduction and the employee gets a _____________ benefit. Vision covers care and treatment such as annual eye exams, glasses, contacts and glaucoma. (Not LASIK surgery).

Negotiable CD

Deposits of $100,000+ with a commercial bank at a fixed interest rate for up to 1 year. Bought and sold in secondary markets.

Section 1250 Property Partial Recapture 25% Straight-Line Marks's basis is $45,000 (75,000 - 30,000) He gains $55,000 when he sells the property for $100,000 $30,000 taxed @ 25% rate (Equals Straight-Line Depreciation) $25,000 taxed @ 15-20% rate (Depends on Income)

Depreciable real property for business use. Subject to ________ recapture of previous depreciation if sold. Therefore, some gains from the sale of Section 1250 property is unrecaptured. Taxed at max ______% capital gains rate or lower marginal income tax bracket. Section 1250 (IRC) requires the recapture of depreciation taken in excess of what would have been deductible had ___________________ depreciation been used instead. i.e. Mark sold a building used in his business in 2019 for $100,000. He originally purchased the property for $75,000 in 2017. Straight-line depreciation of $30,000 was taken. Mark is in a 32% marginal income tax bracket. What is the amount and character of her gain/loss?

Section 1245 property Computer, truck, furniture, filing cabinet, desk Full Recapture $70 Ordinary Income (1245); ($400 - $250 = $150); ($220 - $150) $140,000 Ordinary Income (1245) & $40,000 Capital Gains (1231)

Depreciable tangible personal property for business use. Examples? Subject to ________ recapture whereby the gain recognized at sale is treated as ordinary income to the extent of depreciation taken. i.e. Ginny sold a file cabinet used in her business for $250. She had purchased it for $400 and taken depreciation of $220. What is the amount and character of her gain/loss? i.e.2. Ann purchased a $200,000 machine to use in her business and took $140,000 of depreciation. She sold the machine for $240,000 years later. What is the amount and character of her gain/loss?

Lesser of FMV or Basis is utilized (Usually FMV since it is depreciated) Typically it is better to sell this type of property. A taxpayer could obtain a capital loss then gift the remaining cash.

Depreciated property gifted to charities is available as an itemized deduction to up to what percent of a taxpayer's AGI?

Modified Accelerated Cost Recovery System (MACRS) 1245 Property; 5 years 1245 Property; 7 years 1250 Property; 27.5 years 1250 Property; 39 years

Depreciation method used for tax purposes whereby different types of property are assigned specific recovery periods and depletion percentages. Autos, Light Duty Trucks & Computers are Section ______ property and may be capitalized over _____ years. Office Furniture & Fixtures are Section ______ property and may be capitalized over _____ years. Residential Rental Property is Section ______ property and may be capitalized over ______ years. Commercial Rental Property is Section ______ property and may be capitalized over _____ years. i.e. 5yr 7yr 20% 14.29% 32% 24.49% 19.2% 17.49%

Straight-Line Depreciation Method Adjusted Cost Basis - Residual Salvage Value, deducted in annual amounts. Year of Asset Acquisition 40%; 1.5 months

Depreciation method used for tax purposes wherein depreciation is uniform throughout the useful life of the asset. Calculation? Taxpayers must recognize a "half-year convention" and realize only 50% depreciation in the ____________________. The "Mid-Quarter Averaging Convention" states that if >_____% of personal property assets are placed in service during the last quarter of the year then they are considered to be placed into service at its midpoint and a taxpayer will only be able to recognize ________ month(s) of depreciation. i.e. 5yr 7yr 10% 7.14% 20% 14.29% 20% 14.29%

Straight-Line Depreciation

Depreciation method which should be used for residential and commercial real property.

Policyowner realizes gain and is taxed as ordinary income on the amount that the cash surrender value exceeds premiums (with dividends and loans subtracted from premiums) i.e. Dan surrenders his universal life policy for $100,000 cash. He has paid $90,000 in premiums and received $20,000 in dividends. $100,000 - $70,000 = $30,000 $70,000 is tax-free, $30,000 is taxable as ordinary income.

Describe taxation when a life insurance policy is surrendered for its cash value.

Coupon < CY < YTM < YTC

Describe the relation ship between Coupon, Current Yield, Yield to Maturity and Yield to Call of a Discount Bond.

Coupon > CY > YTM > YTC

Describe the relation ship between Coupon, Current Yield, Yield to Maturity and Yield to Call of a Premium Bond.

Coupon ($1000) = CY = YTM = YTC

Describe the relation ship between Coupon, Current Yield, Yield to Maturity and Yield to Call of a bond trading at par.

An investor's indifference curves may cross the efficient frontier in two places, lay tangent to it or not cross it at all.

Describe the relationship between the efficient frontier and an investor's indifference curves?

Promissory Warranty

Describes a condition, fact, or circumstance to which the insured agrees to be held during the life of the contract.

Marked-To-Market 40% STCG + 60% LTCG

Describes the prices on outstanding futures contracts that are adjusted each day to reflect current futures market conditions. Taxed as?

U.S. Treasury Notes

Direct debt obligations of U.S. Treasury which pay semi-annual interest, mature at par value and have maturities of 2-10 years

U.S. Treasury Bonds

Direct debt obligations of U.S. Treasury which pay semi-annual interest, mature at par value and have maturities of ~30 years. These are the most secure bonds and are considered default risk-free as they are backed by the "full faith and credit" of the U.S. Government.

Morbidity Rates

Disability insurance premiums are based on ____________ rates per benefit period.

Future Increase Option Rider

Disability insurance rider that allows the insured to buy extra coverage without proving evidence of insurability.

Cost of Living Rider

Disability insurance rider which allows the policyholder to purchase one-year term insurance equal to the percentage change in the consumer price index with no evidence of insurability.

Social Insurance Substitute Rider

Disability insurance rider which stipulates that benefits are payable only if no Social Security disability income benefits are payable. Reduces cost of original policy

60-70%

Disability insurance typically replaces _____% of one's prior income.

Partial Disability Rider 50%; 6 months

Disability policy rider covering "the inability to perform some, but not all of your duties" Pays up to _____% of disability benefit for up to ____ months.

Residual Disability Rider

Disability policy rider which pays fluctuating percentage of lost income without time limit if an individual is able to return to work in in a diminished capacity.

Own Occupation Disability

Disability policy which covers the inability to perform any or all of the duties of one's own occupation. Recommended; Most Expensive

Modified Own-Occupation Disability

Disability policy which covers the inability to perform the specific occupation you were trained for and engaged in at the time you became disabled. More restrictive than own occupation

Any Occupation Disability

Disability policy which covers the inability to work any job. Least expensive but very restrictive.

Split Definition Disability

Disability policy which starts as own occupation and later transitions to any occupation.

U.S. Savings Bond

Discount bond issued by the federal government that pays a guaranteed minimum rate of interest. Redeemable through financial institutions. Only taxed at the Federal level.

Alternative Investments

Diverse asset class that typically includes private equity, real estate, and commodities. It provides an alternative to traditional investments, such as debt and equity securities.

1. Primary residence mortgage interest is deductible but other property's interest is not. 2. Both are deductible 3. Both are deductible 4. Not deductible

Do the following situations allow for the qualified residence interest deduction to be utilized? 1. A primary residence loan also secures another property. 2. A primary residence and separate residence are both financed under separate loans. 3. The primary residence is financed by a mortgage and a home equity loan has been taken to put on an addition. 4. A home equity loan is used to pay personal living expenses or to payoff other loans.

Property Settlement Agreement

Document specifying the division of assets agreed to by both parties and entered in court for the judge's approval before a divorce decree is issued.

Year Investment Share Price Shares Purchased 1 $1,000 $25 40 2 $1,000 $22 45.45 3 $1,000 $20 50 Average Cost = Dollars Invested / Shares Purchased = $3,000 / 135.45 = $22.15

Dollar Cost Averaging (Example)

Eurodollar CDs

Dollar-denominated deposits in non-U.S. banks

American Depository Receipts (ADRs)

Domestically issued certificates representing ownership of foreign stock held in trust by a bank located in the country where the stock is traded. Dividends are declared in foreign currency and then converted to and paid out in U.S. Dollars, creating exchange rate risk.

Low coupon, Low YTM, Long-Term

Duration and convexity are greatest in which type of bonds?

Untaxed, taxable LIFO

During the distribution phase of a nonqualified variable annuity the principal is ____________ and the earnings are _____________ as ordinary income. Nonqualified annuity withdrawals are ___________ meaning that the interest is drawn out and taxed first.

Ordinary Income

During the distribution phase of a qualified annuity both the principal and earnings are taxable as ___________________.

Disciplinary, Compliance

Duties owed to a CFP's firm and subordinates include: Providing notice of ____________________ actions taken against the CFP. Supervision of subordinates to ensure reasonable care. ____________________ with a firm's lawful objectives.

The study of production, distribution and consumption

Economics

U.S. Series EE Bonds Qualified Higher Education Expenses Tuition & Fees Taxpayer, Taxpayer's Spouse or a Dependent Only in the year qualified higher education expenses are paid.

Educational savings bonds are U.S. Series _____ bonds whose proceeds are used for ______________________________ expenses limited to ______________ & ________ only for the benefit of the _________________, the taxpayer's _____________, or a ___________________. The interest may be excluded from gross income, provided the taxpayer's adjusted gross income does not exceed certain amounts. Educational savings bonds are redeemable when?

( 1 + (( Nominal APR ) / Period ))period* - 1

Effective Annual Rate (Formula)

Taxable Income / Taxes Paid "Average" Tax Rate

Effective Income Tax Rate

Employee Stock Purchase Plan (ESPP) $25,000

Employer plan in which participating employees can purchase company stock at a discounted price via payroll deduction. Payroll deductions build up between the offering date and the purchase date. ESPPs must be written plans which are approved by shareholders. Plans must be non-discriminatory according to ERISA guidelines , meaning they are not for key employees, part-timers, seasonal workers, those employed <2 years or employees with >5% ownership interest. Annual Limit = $___________________

Section 162 Executive Bonus Plan

Employer plan wherein a business pays their employee a bonus equal to premiums due on a personally owned life insurance policy. The employer gets a tax deduction and the employee counts the bonus as ordinary income.

Accountable Plan

Employer's reimbursement plan under which employees must submit documentation substantiating expenses to receive reimbursement and reimbursements are limited to legitimate business expenses. Reimbursement is not considered employee income nor is it deductible to them.

Section 125 Cafeteria Plan

Employer-sponsored benefits plan that lets employees pay for certain qualified medical expenses - such as health insurance premiums - on a pre-tax basis. It's called a "cafeteria plan" because, like walking through a cafeteria and selecting various dishes to eat, employees can choose the types of healthcare options they want, such as medical, dental, vision and other benefits, and decline the ones they don't. In addition to the health benefits, employees enjoy lower taxes. Contributions to the cafeteria plan are made before taxes are taken out of their paychecks. For employers, they pay less since employees only select the benefits they want rather than the whole spectrum of offerings.

Group Permanent Life Insurance

Employer-sponsored cash value life insurance which features simplified underwriting, group billing and additional administrative costs. May be more expensive due to group adverse selection risks. Great for those who are otherwise uninsurable.

Recite This

Employer-sponsored group disability insurance premiums are tax deductible to the employer and, if utilized, pay a taxable benefit to the employees. Individually purchased disability insurance is non-deductible but pays a tax-free benefit.

Group Carve-Out Plans

Employer-sponsored group term life insurance plan designed to reward key employees beyond what is available to them through the company's group term life insurance plan. Employer pays premiums which are income to the key employee.

Group Term Life Insurance (GTLI)

Employer-sponsored term life insurance which is underwritten as a group. Up to the first $__________ of employee coverage which is paid for by the employer is deductible to them and not considered income to the employee. Coverage is often a multiple of the employee's salary. Amounts >$50,000 paid for by the employer are included in employee compensation. Conversion is often an employer plan provision. Individual policies may be better for healthy individuals since group rates have to take adverse selection into account.

$200,000

Employers are required to begin collecting additional medical tax from an employee's first payroll period in which gross compensation exceeds $_________________. Employees filing MFJ who make between $200-$250k will receive a partial refund.

Types of REITs

Equity: Operate Rental Properties Mortgage: Finance Real Estate Mortgages Hybrid: Combination

Cash

Equivalents and bank instruments of deposit characterized by their liquidity and marketability. Utilized to pay current expenses.

Tax Refund

Estimated taxes, taxes previously withheld & tax credits are subtracted from an individual's annual income tax liability to reduce any potential balance due. If the total of all of these is greater than the tax liability then the taxpayer is entitled to a _____________________.

Sensitivity Analysis

Evaluation of the risk to an investment's returns from multiple singular variables. i.e. Pandemic, Bear Market

Gifts to foreign organizations Gifts to Individuals Gift of Tuition Gift of Raffle/Lottery/Bingo tickets Volunteering Political Contributions

Examples of nondeductible charitable contributions include_____________________________.

Purchasing Power Risk

Excess cash reserves can lead to which type of risk?

Section 1033 Nontaxable Exchange (Involuntary Conversion) 2 years; 3 years Replacement; Similar No previously realized gain is recognized Capital Gains $5,000; $2,000

Exchange of property resulting from the destruction, theft, seizure, condemnation, sale or exchange of a taxpayer's real property. A taxpayer who undergoes an involuntary conversion may postpone recognition of gains but must replace the property within _____ years from the end of the taxable year in which involuntary gain was realized. ( ____ years if because of government-forced condemnation). The taxpayer is required to reinvest in _________________ property which is _____________ in service or use in order to forgo recognition of gains from involuntarily converted property. If the amount reinvested (cost of replacement property) within the set time period is greater than the amount realized (from involuntary conversion) then what happens? Proceeds not reinvested are taxed as ____________________. i.e. Yaroslav had condemned property with an adjusted basis of $26,000, for which he received $31,000 from the state. Therefore, he has a realized gain of $___________. He buys a new property which is similar in use to the old property for $29,000. He would recognize $_________ in capital gains.

Closed-End Investment Company

Exchange-traded investment company which pools assets for an IPO but is then unable to be purchased post-IPO. (Fixed capitalization) Thus, pricing will differ from NAV and they are able to contain illiquid securities.

Put Option Holder potential Gain/Loss?

Exercise Price - Premium / Premium

Probability Expected Return 10% 15% 1.5 20% -4% -0.8 30% 8% 2.4 40% 6% 2.4 + _____ 5.5%

Expected Return (Example)

Not Depreciable (i.e. Roof Leak, Broken Window, New Car Part) Are Depreciable (i.e. Brand New Roof or HVAC Unit, Conversion of Space, Addition of Handicap Ramp)

Expenses incurred for maintenance & minor repairs to capital assets for the purpose of restoration to an original condition are ______ depreciable. Renovations extending an asset's useful life, adapting it to a new purpose or adding substantial value ______ depreciable.

Medicare Supplement (Medigap)

Extra health insurance purchased from a private company to pay health care costs not covered by Original Medicare such as the uncovered 20% coinsurance of Medicare Part B.

Money Market Deposit Account

FDIC insured cash account with a bank or S&L which requires a minimum balance and has limited check writing privledges (<6mo.) These are both liquid and redeemable.

National Flood Insurance Program (NFIP)

FEMA sponsored program which makes federally backed flood insurance available to community homeowners, renters, and business owners. Identifies and maps floodplains to increase awareness and improve plans. 30 day waiting period before purchased policies become active.

Investment Advisor Registration Depository (IARD)

FINRA operated electronic filing system that facilitates investment adviser registration, exempt reporting adviser filing, regulatory review, and the public disclosure information of registered investment adviser firms and individuals.

Form U-5, Form U-4 2 years

FINRA registration is non-transferable and therefore an IAR must file Form ______ when leaving a broker dealer and a new Form ______ upon association with a new broker dealer. Representatives must register with a new firm within ____ years to keep their license.

Call option writer wants the price of the underlying security to?

Fall

Put option holder wants the price of the underlying security to?

Fall

Frank-Dodd Act >$100M

Federal Act designed to overhaul the financial regulatory system after the "Great Recession" of 2008. The main goal was to improve financial stability and consumer protection. Established advisor thresholds with "large" advisors of >$_______M required to register with the SEC.

Investment Advisors Act of 1940

Federal Act which defines the role and responsibilities of investment advisors and requires their registration with the SEC as well as disclosure of the background information and investment offerings.

Securities Act of 1933 (Paper Act)

Federal Act which regulates and requires the registration of new securities issues aka "primary offerings" or "initial public offerings" (IPOs). Requires full disclosure of all materials facts via prospectus at or before solicitation with the purpose of fraud prevention.

Consumer Credit Protection Act $50 or less

Federal Act which: 1. Limits the amount of wages that can be garnished per week by an employer to satisfy creditors. 2. Requires lenders to fully inform consumers about all costs associated with credit-related purchases in terms of APR and dollar amounts. 3. Limited credit card liability to ______________

Fair and Accurate Credit Transactions Act (FACT Act)

Federal Act which: 1. Provides the ability for consumers to obtain a free copy of their consumer credit report once during a 12 month period. 2. Stipulates that sensitive consumer information must be disposed of securely. 3. Allows for the placement of credit history alerts if fraud is suspected or if a consumer is actively deployed in military service.

Monetary Policy

Federal Reserve and Central Bank activities to control the money supply of the U.S. economy through direct control of the discount rate, adjustment of member branch cash reserves and buying and selling U.S. Government securities in open-market operations represents _______________ policy.

Investment Company Act of 1940

Federal act regulating companies that invest and reinvest in securities (mutual funds). The act requires an investment company engaged in interstate commerce to register with the SEC.

Securities Exchange Act of 1934

Federal act that established the SEC as the primary securities regulatory authority and regulates the trading of securities in secondary markets and exchanges.

Equal Credit Opportunity Act

Federal act that protects consumers from discrimination in the granting or denying of credit.

Securities Investor Protection Act of 1970

Federal act which created the SIPC to protect investors from brokerage firm failure (not stock performance).

Maloney Act of 1938

Federal act which made possible self-regulation by securities firms involved in the over-the-counter market through trade associations such as the National Association of Securities Dealers (NASD)

Fair Credit Debt Collection Practices Act

Federal act which prohibits debt collectors from workplace interactions, harassment, intimidation and misleading practices.

Fair Credit Billing Act 60 days

Federal act which provides consumers with a means to dispute a billing error on open-ended credit accounts (credit and charge cards). Consumers must notify creditors in writing of billing errors within _____ days.

Consumer Credit Reporting Reform Act

Federal act which requires that credit bureau reports must be accurate, relevant and current.

Bankruptcy Act of 2005 Consumer credit and unsecured loans

Federal act which stipulates that individual debtors must file for Chapter ____ bankruptcy if able. For consumers, Chapter 7 bankruptcy is limited to _____________________________ and requires credit counseling. Lenders must warn consumers of the risks of making only minimum payments.

McCarran-Ferguson Act of 1945

Federal act which stipulates that insurance companies are to be regulated at the state level.

Federal Housing Administration (FHA)

Federal agency established to increase home ownership by providing insurance programs to safeguard lenders against risk of nonpayment.

Medicaid 5-year lookback Their primary residence and vehicle, life insurance with cash value <$1,500 and $1,500 cash for burial.

Federal and state social assistance program that pays the health care services of impoverished individuals. Those on medicaid must have little to no assets and very low income. Regarding the transfer of assets and the Estate Recovery Act, there is a ____ year lookback when the cost of long-term care is furnished by Medicaid. Medicaid participants are allowed to retain?

Medicare During the 7 month window of 3 months before and after the month in which an individual turns 65.

Federal health insurance program for individuals age 65 and older and those who are disabled and have received Social Security disability for 24 months or are on kidney dialysis or have end-stage renal failure. When can you initially enroll? If you have group health insurance and choose to remain enrolled then Medicare is supplementary to that insurance.

Single (S)

Federal income tax filing status denoting an individual who is unmarried, divorced or legally separated on December 31 of the calendar ta year.

Surviving Spouse aka "Qualifying Widow(er)"

Federal income tax filing status for a taxpayer who maintains a dependent child and whose spouse has died within the last 3 years.

Head of Household

Federal income tax filing status for an unmarried individual (Dec 31) who maintains a home for a child or dependent family member and provides >50% of their annual support.

Married Filing Jointly (MFJ)

Federal income tax filing status usable by anyone married on December 31 of the current tax year. Usable if spouse dies intra-year. Each individual has joint and several liability for the entire tax liability.

Married Filing Single (MFS)

Federal income tax filing status usable by married individuals who each wish to report their own income, deductions and tax credits Often used if couples are divorcing or attempting to avoid joint and several tax liability.

Consolidated Omnibus Budget Reconciliation Act (COBRA) 20 employees 18 months

Federal law that provides for continuing group health insurance coverage for some employees and their families after a job loss or other qualifying events. Private-sector employers with more than _____ employees must generally make COBRA coverage available. Part-time employees count as 1/2 employee. Employees must pay the full cost of the insurance, plus a small administrative premium. COBRA coverage generally lasts for a maximum of _____ months but may be extended to 36 months under certain circumstances (death, divorce, etc). Employers have the option of extending coverage for a longer period than COBRA requires.

Parent Loan for Undergraduate Students (PLUS)

Federal loans for credit-worthy parents of undergraduate students to help pay for college or career school. May be only non-private option available for parents of children who would otherwise not qualify for financial aid.

Pell Grant

Federal need-based grant to help students pay for undergraduate education. Is a prerequisite for Supplemental Educational Opportunity Grants (SEOG)

Unemployment Compensation 26 weeks (1/2 year)

Federal social insurance program that provides temporary income for qualified individuals who are unemployed through no fault of their own and actively looking for a job. Pays a taxable benefit for up to ____ weeks in lieu of salary and is based on previous wage levels. Cannot be claimed if you voluntarily quit your job without good cause.

Year 1: Married Filing Jointly Year 2: Surviving Spouse Year 3: Surviving Spouse Year 4: Head of Household

Filing Status Example A taxpayer's spouse has died this year and they also are raising a 7 year old dependent child in their home. How would they file for the next 4 years?

Frivolous Return $5000

Filing an improper return such as one omitting your SSN or including a comment such as, "income taxes are unconstitutional". Penalty is $__________

Unsystematic Risk (Types)

Financial Risk (Capital Structure) Liquidity Marketability Default Risk Political Risk Tax Risk Manager Risk

Line of Credit

Financial arrangement extended by a bank or other financial institution to a government, business or individual customer that enables the customer to draw on the facility when the customer needs funds.

Economic & Resource

Financial counseling theory approach which proposes that a client will act rationally with appropriate counseling.

Cognitive-Behavioral

Financial counseling theory approach which proposes that an investor's decisions are based primarily on their attitudes, beliefs and values.

Classical Economics

Financial counseling theory approach which proposes that an investor's decisions are primarily related to risk versus reward and the goal of increasing assets while decreasing expenses.

Strategic Management

Financial counseling theory approach which proposes that decisions are made based on a client's goals and analysis of their strengths and weaknesses. SWOT Tests

Trust Company

Financial institution that can administer estates, pension plans, and agency contracts, in addition to other activities conducted by banks.

Brokerage Company

Financial institution that facilitates the buying and selling of financial securities between a buyer and a seller.

Investment Bank

Financial institution that specializes in raising capital for securities issuers by underwriting, issuing and reselling new securities. May advise corporations on strategies to raise long-term capital. Distribute large blocks of securities to institutions. Assist issuers with securities law compliance.

Insurance Company

Financial institution which furnishes insurance protection for businesses and individual consumers.

Employee Stock Options

Financial instruments which offer an employee the right to purchase a set number of shares at a specified price for a fixed period of time. Typically for key employees and executives. The grant of a stock option is nontaxable.

Income Statement (Profit & Loss Statement)

Financial statement that displays revenues and expenses for a specific period.

Statement of Cash Flows

Financial statement that provides financial information about the cash receipts and cash payments of a business for a specific period of time.

Balance Sheet

Financial statement that reports assets, liabilities, and owner's equity on a specific date. (Typically Dec 31)

Pro Forma Income Statement

Financial statement that shows the projected results of the operations of a firm over a specific period

Venture Capital

Financing provided by large investors to new or emerging privately held companies that are perceived as having great profit potential. Convertible preferred stock is often utilized Risks: Risky Investments, Buyouts, Low Liquidity

Life Insurance Dividend Options

Five options available to permanent life insurance policyowners of policies which pay dividends. (1) Cash Dividends (2) Reduced Premium (3) Accumulate at Interest - Dividends added to DB (4) Paid-Up Additions - Increases DB (5) Fifth Dividend Option - Buys 1-year term equal to CV

Bond Bullets

Fixed income investment strategy in which an investor purchases several non-callable bonds which will mature simultaneously. Strategy is used to decrease interest rate risk.

Bond Barbell Strategy

Fixed income investment strategy in which and investor simultaneously invests in both short-term and long-term bonds then periodically rebalances their allocation. Allows and investor to lock in attractive long term rates while also keeping their options open. If the portfolio needs to be restructured due to a change in interest rates, only a group of bonds needs to be sold.

Variable Outflows

Food, clothing, entertainment, utilities, recreation, maintenance, medical care, etc. are examples of _________________ outflows.

New assets and liabilities

For math problems involving changes in net worth you must combine _______ assets and liabilities to determine changes.

Chapter 7 Bankruptcy

Form of bankruptcy which involves the forfeiture of an individual's assets in exchange for the discharge of debts.

S corporation

Form of corporation that avoids double taxation by having its income taxed as if it were a partnership.

HO-2: Broad Form

Form of homeowners insurance which covers the dwelling, other structures and personal property on a named perils basis.s basis.

HO-5: Comprehensive Form

Form of homeowners insurance which covers the dwelling, other structures and personal property on a named perils basis.s basis. "All-Risk" Coverage

HO-3: Special Form

Form of homeowners insurance which covers the dwelling, other structures on an open perils basis and personal property on a named perils basis. Most popular and recommended.

HO-4: Contents Broad Form

Form of homeowners insurance which covers the liability and personal property of tenants & renters on a named perils basis.

HO-6: Unit Owners Form

Form of homeowners insurance which covers the personal property of those living within condominiums and cooperative apartments.

HO-8: Modified Coverage Form

Form of homeowners insurance which is used to cover older or historic homes by utilizing replacement cost and not actual cash value.

Strong Form

Form of the Efficient Market Hypothesis (EMH) which believes that nothing is useful in helping investors outperform the market.

Weak Form

Form of the Efficient Market Hypothesis (EMH) which believes that only insider information and fundamental analysis are useful in helping investors outperform the market.

Semi-Strong Form

Form of the Efficient Market Hypothesis (EMH) which believes that only insider information is useful in helping investors outperform the market.

Net Worth Statement aka "Statement of Financial Position" or "Personal Balance Sheet" December 31st

Formal report that shows what an individual owns, owes, and the difference between the two. Essentially, shows a snapshot of finances on _____________.

> 1 year

Forms of discipline which a CFP may be subject to include: 1. Private Written Censure 2. Public Letter of Admonition 3. Public Suspension of CFP Marks < 5 years 4. Public Revocation of CFP Marks Any suspension of >____yr requires a petition for reinstatement.

Schedule C Self-Employment Income Partnership K-1 income Part-Time Earnings Farm Income Board of Director Fees

Forms of self-employment income include:

Sufficient Sample Size Loss is Measurable and Definite Loss is Accidental Loss is Uncatastrophic to Society Avoidance of Adverse Selection - 5th

Four Elements of Insurable Risk

Gifting a NQSO

From an estate planning perspective, the employee receives two "benefits" of making lifetime gifts of NQSOs. (1) If the stock value goes up after the gift, the appreciation is shifted from the employee's estate. (2)In addition, the employee's estate is reduced by the income taxes related to the exercise. There is no taxable income to the donor when the gift is made. When the donee exercises the option, taxable income is reported by the donor-employee for the excess of the fair market value of the stock over the option price (Bargain Element).

Exchange Traded Fund (ETF)

Fund that typically mirrors an index Features instantaneous transactions MV varies from NAV Low turnover ratio Tax-efficiency Passive Management = Low Expense Ratios Able to be sold short Allows for in-kind distributions of underlying securities

Fund of Funds (FOF)

Fund which attempts to achieve broad diversification and asset allocation with a variety of investments wrapped into one portfolio. May be structured as a mutual fund, hedge fund, private equity fund or unit investment trust.

Financial Ratios Economic Environment Interest Rates Business Cycle Monetary & Fiscal Policy Industry Analysis Market Tendencies

Fundamental Analysis considers:

Bottom Up Fundamental Analysis

Fundamental Analysis in which; Company > Industry > Economy

Top Down Fundamental Analysis

Fundamental Analysis in which; Economy > Industry > Company

Short-Term Capital Gain/Loss Ordinary Income

Gain or loss experienced via the sale of an asset which was owned <1 year. STCG is taxable as __________________________.

Long-Term Capital Gain/Loss 0%, 15% & 20%

Gain or loss experienced via the sale of an asset which was owned >1 year. Preferential Tax Rates of _____%, _____% & _____%

TMV calculation for I/Y

Geometric Mean (Formula)

Charitable Contribution Records; Entire

Gift to a charitable organization for which a taxpayer may itemize on IRS Form 1040 Schedule A and receive a tax deduction if proper _______________ are kept and the ______________ interest is gifted.

S corporation

Good choice of business formation if loss is expected at start-up.

Office of the Comptroller of the Currency (OCC)

Government agency which charters national banks and is dedicated to ensuring a safe and sound national banking system by setting standards and regulations for fiduciary lenders.

Fiscal Policy

Government spending and taxation utilized to influence the economy represents ____________ policy.

$50,000 Intangible appreciated property gifted to a public charity is deductible by it's FMV up to 30% of her AGI or it's basis up to 50% of her AGI 0.30 x $100,000 = $30,000 0.50 x $100,000 = $50,000 (Choose Basis)

Grace donated stock with FMV of $100,000 to a qualified public charity this year. She paid $70,000 for the stock 3 years ago. Her AGI is $100,000. What is the maximum immediate deduction she may receive?

Capital Market Line (William Sharpe)

Graph of risk/return (SD) displaying a line moving diagonally from the risk-free rate through the market portfolio.

Efficient Frontier

Graph representing a set of possible portfolios which maximize expected return at each level of portfolio risk.

Indifference Curve

Graph showing all combinations of portfolios that would provide an investor with the same utility. Investor finds all combinations on a curve equally preferable.

Yield Curve (Structure of Interest Rates)

Graph showing the relationship between bond yields and maturities.

Net Operating Income

Gross Income - Expenses (Not including interest and taxes).

PV: -1,000 FV: 1,500 N: 10 (5 x 2) _______________________________ Cpt I/Y: 4.138 (4.138 x 2) = 8.28%

Hannah invests $1,000 which will grow to $1,500 in 5 years. The investment compounds semiannually. At the end of 5 years what is her rate of return.

Preferred Provider Organization (PPO)

Health care plan that contracts with a group of health care professionals to provide services at a reduced fee and gives patients financial incentives to use in-network providers. A PPO plan is designed to give you more flexibility in choosing which health care providers you see. Care is typically more affordable if you stay in-network. But if you have a doctor you prefer to see, it might be easier to visit him or her with a PPO plan. Advantages (1) More flexibility to use providers both in-network and out-of-network. (2) You can usually visit specialists without a referral, including out-of-network specialists. Disadvantages: (1) Typically higher monthly premiums and out-of-pocket costs than for HMO plans. (2) More responsibility for managing and coordinating your own care without a primary care doctor.

Group Health Insurance 70%

Health insurance plan which provides coverage to a group, usually comprised of company employees or members of an organization. Group health members usually receive insurance at a reduced cost because the insurer's risk is spread across a group of policyholders. Group plans require at least ____% participation by group members. Premiums are split between the organization and its members, and coverage may be extended to members' family and/or other dependents for an extra cost. Employer-paid premiums are tax deductible as ordinary business expense. Employees enrolled in an employer-sponsored plan with premiums paid via payroll deduction are likely paying with pre-tax dollars and thus not claimable as a year-end tax deduction. Benefits are tax-free to the employee.

Major Medical

Health insurance policy designed to offset heavy medical expenses resulting from catastrophic or prolonged illness or injury. Features coinsurance, deductibles and maximum out of pocket expenses.

Health Reimbursement Arrangement (HRA)

Health plan in which the employer sets aside money to help employees pay for qualified medical expenses. Contributions are tax deductible to the employer The plan may only reimburse medical expenses which are not covered by other health insurance plans such as employee copay, deductible & certain medical services. HRA reimbursements are 100% tax-free to the employee and 100% taxable income to the employer. Unspent HRA money may be rolled over to the following year, although an employer may set a maximum annual rollover limit. If an employee is terminated or leaves the company to work for another firm, the HRA does not go with them.

Phaseouts

High AGI levels may cause this for certain possible deductions.

Subprime Loan

High interest loan to someone at high risk of defaulting

(End Value - Beginning value + Cash Dividend) / End Value

Holding Period Return (Formula)

Endorsement

Homeowners insurance rider-like addition of protection for circumstances in which a typical policy excludes or limits coverage. i.e. Earthquake, flood, sinkhole, personal property @ replacement cost.

Medicare Part A 90 days, 60 days 3+ days, 20 days, 80 days Custodial care, Dementia, Alzheimer's any other disorders for which there is no hope of recovery.

Hospital Insurance is Medicare Part ____ Covers hospital care, skilled nursing facilities, home health and hospice care. Free if you have worked and paid social security for more than 10 years (40 calender quarters). Covers up to _____ days of inpatient hospital care each benefit period. You also have an additional ____ days of coverage, called lifetime reserve days. These 60 days can be used only once, and you will pay a coinsurance for each one. To be eligible for Medicare benefits involving skilled nursing care an individual must remain hospitalized for ____+ consecutive days and obtain doctor certification that the service is necessary. Once admitted, the first ____ days of skilled nursing care are free and the following ____ days feature a copay. Does not cover?

< 28% of monthly GROSS income

Housing Cost Ratio

Leading Indicators

Housing starts, new unemployment claims, fluctuation in bond yields, durable goods orders and investor sentiment are examples of ________________ indicators.

Must pay both employer and employee FICA portions (15.3%) S.S. OASDI (12.4%) + Medicare Tax (2.9%)

How are self-employed individuals taxed?

General Partner taxed as ordinary income at their marginal tax rate. Limited Partners receive IRS Schedule K-1 indicating their share of partnership interest. They then file as Self-Employment on Schedule E.

How are the partners of a partnerships taxed?

Qualified Dividends - LTCG Nonqualified Dividends - Income REIT Dividends - Income

How are these didivends taxed? Qualified Dividends Nonqualified Dividends REIT Dividends

A bond's intrinsic value (future value of cash flows) is found by doing a TVM calculation for PV.

How do you find the value of a bond?

Duration is less

How does a bond's duration compare to its term to maturity?

As income at maturity

How is the discount of any bond taxed?

IRS Form 4868

IRS Form ________ is used to apply for a 6-month extension to the tax filing deadling.

P/E Ratio Effect (EMH Anomaly)

Idea that securities with lower P/E values tend to provide higher returns.

$1,100 or (Earned Income + $350) [Up to $12,200]

If a child of minority age has both earned and unearned income they would be forced to choose a standard deduction of $_____________ or ________________________________.

All Losses Taxes, Mortgage Interest & Casualty Losses 3-of-5

If an activity is considered a business then _____ loses are deductible and may offset a taxpayer's ordinary income. If an activity is considered by the IRS to be a hobby then only _______________________________ are deductible. An activity is presumed not to be a hobby if there have been profits in any ___-of-5 consecutive years ending with the year in question. If a "for profit" business begins by showing a profit then you may immediately begin filing as IRS Form 1040 Schedule C non-hobby income.

Employee gets a tax deduction and recognizes no income.

If an employee pays for their own disability insurance premiums then

Employer gets a tax deduction Employee recognizes premium payments as ordinary income

If an employer pays for their employee's disability insurance premiums then

2.43% (Average) Based on Unbiased Expectations Theory

If forecasts for T-Note interest rates over the next 4 years are 2.25%, 2.35%, 2.48% and 2.66% then the current yield of a 4-year T-Note should be?

2 years Immediately taxable

If like-kind property is exchanged with a related party, the taxpayer and related party must not dispose of the property until after ____ years following the exchange. If the property is sold before this then all deferred gain is _________________________. There is an exception to this time limit if one party dies or is subject to involuntary conversion (court ordered sale).

They may agree amongst themselves but only one may claim the dependent.

If more than one taxpayer is eligible to claim an individual as a dependent what happens?

increases, decreases

If the Federal Reserve buys U.S. Government securities in open-market operations then the money supply _________________ and prevailing interest rates ____________________.

decreases, increases

If the Federal Reserve sells U.S. Government securities in open-market operations then the money supply _________________ and prevailing interest rates ____________________.

Constructively Received Example: An uncashed payroll check for Dec 31, 2019 still counts towards the 2019 tax year. Nothing was stopping the taxpayer from collecting this money and thus it is considered to be constructively received.

If there is no substantial limitation or restriction on a taxpayer's right to bring funds under their personal control then they are considered to be?

$3,000 $80,000 x 0.06 = $4,8000, however, imputed interest cannot exceed borrower's net investment income ($3,000).

Imputed Interest on a Gift Loan Between Individuals (Example) Chase loans Greg $80,000 interest-free. Greg's only income is a $45,000 salary and $3,000 of investment income. Chase has investment income of $50,000. The Federal Funds Rate is 6%. How much income would Chase recognize?

$100 (Taxed @ 37%) $2,300 - $2,200

In 2019, the Jones' transferred (gifted) $70,000 to their granddaughter Jennifer via an UTMA account which then earned $2,300 interest. What is her net unearned income?

Legal Object

In order to be a legal _____________ and to be enforceable, an insurance contract cannot be either illegal or against public policy.

Functional Use Taxpayer Use

In order to qualify as replacement property in a Section 1033 Nontaxable Exchange "Involuntary Conversion" the new property must pass certain circumstantial tests. The _____________________ test applies if the taxpayer is the owner of the business. They must replace the property with another that is functionally similar. The _____________________ test applies if the taxpayer is an investor. They may replace the converted investment property with similar investment property even if they are not the same type.

Basic Federal Income Tax Formula

Income (broadly conceived) less exclusions from gross income and subtract adjustments for AGI and the greater of the standard deduction or itemized deductions to equal taxable income.

Adjusted Gross Income (AGI)

Income remaining after subtracting all allowable adjustments from gross income but before subtracting below-the-line deductions and/or expenses.

Tax Outflows

Income tax, FICA and Self-Employment tax are examples of ________ outflows.

Investment Advisor Representative (IAR)

Individual agent or representative who works for an investment advisory company (e.g., RIA, broker-dealer) and provides investment-related advice.

Registered Investment Advisor (RIA)

Individual or firm who advises individuals on investments, manages their portfolios and maintains fiduciary responsibility.

Attorney, CPA, Enrolled Actuary/Agent, Certain Unenrolled Tax Return Preparers Not CFPs

Individuals able to represent a taxpayer during an audit include?

Coincident Indicators

Industrial production, income levels, current unemployment rate and corporate profits are examples of __________________ indicators.

Personal Umbrella Liability Insurance Net Worth Existing liability coverage is exhausted.

Insurance policy which provides a layer of liability protection on top of an individual's homeowners and auto insurance. Standard coverage: $1M (Can be $1-10M) Important for self-employed individuals and professionals. Coverage should equal one's ________________. Will not pay until when? Never covers business liabilities.

Business Umbrella Policy

Insurance policy which provides excess coverage for the acts of negligent employees.

Public Insurance

Insurance provided and financed by the Federal government such as the FDIC, SIPC, PBGC as well as Medicare, Medicaid and other social insurances are forms of ___________ insurance.

Commercial Property Insurance

Insurance that covers commercial buildings and their contents against various types of property loss.

Professional Liability Insurance

Insurance that covers persons engaged in various occupations against liability resulting from their rendering or failing to render professional services. i.e. Malpractice, Errors & Omissions

Term Life Insurance

Insurance that provides financial protection from losses resulting from a death during a definite period. Able to provide the most immediate coverage per premiums paid. Cost prohibitive for the elderly

Homeowners Insurance

Insurance which provides cover for liability losses as well as damage and loss of the home, surrounding structures and contents

Choose FMV or Basis If FMV is chosen then up to 30% for public charities or 20% for private charities. If Basis is chosen then up to 50% for public charities or 20% for private charities. Stocks or investments

Intangible appreciated (LTCG) property gifted to charities is available as an itemized deduction to up to what percent of a taxpayer's AGI? Examples include ___________________________

Civil Fraud 75%

Intention to cheat the government by deliberately understating tax liability proven by clear and convincing evidence. Penalty is _____% of the tax underpayment.

Reverse Repurchase Agreements

Inter-Dealer purchases of government securities with sell-back agreements for a specified later date at an agreed upon price.

Repurchase Agreements

Inter-Dealer sales of government securities with buy-back agreements for a specified later date and agreed-upon higher price. Utilized to obtain short-term liquidity.

Imputed Interest on Below-Market Loans

Interest is imputed, using the Federal Funds Rate, when a loan does not carry a market rate of interest.

Un-extended; April 15th

Interest on underpayments/over payments to the IRS starts on the ___________________ tax filing deadline.

Investment Interest Expense

Interest paid on borrowings or loans that are used to fund portfolio investments (i.e. Margin Account Interest) Individuals are allowed an itemized deduction for qualified investment interest paid during the year.

Conventional Fixed Rate Mortgage

Interest rate and monthly payment amount remains the same for the life of the loan. Level interest rate & fixed amortization.

Federal Funds Rate

Interest rate banks charge each other for overnight loans

Coupon Rate / Nominal Yield

Interest rate that bond issuer will pay bondholder. Stated as a percentage of par value.

MSCI EAFE

International Stock Index

Equity REIT

Invest in and operate rental properties

Dollar Cost Averaging

Investing the same amount of money on a regular basis regardless of market conditions

Unit Investment Trust (UIT)

Investment company wherein investments are initially selected but then left unmanaged. No Management Fee No Corporate Officers Units are sold in secondary markets but not major exchanges. Purchased @ NAV+Commission. Units are redeemable at maturity and investors receive both interest income and principal payout.

Dividend Reinvestment Plan (DRIP)

Investment plan that allows for automatic reinvestment of dividends in the same company's stock without paying a further brokerage fees.

Sector Rotation

Investment strategy that entails shifting the portfolio into industry sectors that are expected to outperform others based on macroeconomic forecasts. Active Management Strategy

Market Timing

Investment strategy where an investor attempts to predict the market's future direction. Active Management Strategy

Buy-and-Hold

Investment strategy where an investor purchases securities and keeps them in hope that they will appreciate in value over time. Passive Management Strategy

Tax-Shelter Investments

Investments with the primary purpose of tax management.

Herding

Investor tendency to follow the crowd.

Not for volunteering Yes for related personal expenses

Is a charitable contribution deduction available for volunteering or related personal expenses such as mileage and/or supplies?

Yes

Is residual salvage value included as part of depreciation calculations?

"SALT Taxes", or Property, State & Local Income Taxes (Up to $10,000) Home Mortgage Interest up to $750,000 for loans originating after Dec. 16, 2017. Personal Casualty Loss for Federally Declared Disasters only Charitable Contributions Investment Interest Expense (Interest paid on money borrowed to purchase taxable investments) Medical & Dental Expenses >10% AGI Qualified Educational Expenses Student Loan Interest Gambling Losses

Itemizable Tax Deductions

Medical Expenses 10% of taxpayer's AGI

Itemizable deduction related to unreimbursed and/or after-tax issues regarding medical diagnosis, cure, treatment, prevention, transportation of a taxpayer and their family (Spouse, Children). Includes after-tax premiums for taxpayer-payed Accident, Health & Disability insurance. No qualified medical expense deduction is allowed until those expenses exceed ___________________________.

Personal Casualty Loss 10% AGI - $100 deductible

Itemizable deduction which is usable only in the case of loss due to a Federally declared disaster in the amount exceeding _____% AGI - $_____ deductible.

Qualified Residence Interest

Itemized deductible interest incurred in acquiring, constructing or substantially improving a qualified residence and one other residence such as a vacation home. Interest much be secured by physical real property. Pre-2018 deduction: $1M Post-2018 deduction: $750k

Inheritance (Stepped-Up Tax Basis) Life Insurance Adjusted Investment Tax Basis Compensatory Damages Property & Casualty Living Expenses Fringe Benefits Worker's Compensation & Social Security (Low Income Individuals) Municipal Bonds Scholarships 529 Plan & Coverdell Interest when used for Qualifying Educational Expenses

Items & Activities specifically excluded as taxable income

Do Not

Items such as improvements, building permits, legal fees, commissions, sales tax, installation & transportation fees may increase a capital asset's adjusted cost basis. (Additional Costs) Repairs, ongoing utilities, mortgage payments & property tax _______________. (Maintenance Costs)

$200,000 If Buddy had waited >2 years to sell then she wouldn't have recognized any gain from the exchange.

Jenny is a real estate manager in Louisiana. She owns an apartment building that has a fair market value of $300,000. She paid $100,000 for the building several years ago. Her brother Buddy owns an office building in California with a fair market value of $300,000 and agrees to trade buildings with her. The exchange took place last year. This year, Buddy sells the apartment in Louisiana for $300,000. How much gain, if any, must Jenny recognize this year?

10%; 20%

Joe buys a light duty truck costing $20,000 for his delivery business. In the first year of service, using straight-line depreciation, he can recover ______% since it is Section 1245 property. Under MARCS depreciation he could recover ______%

Only the taxable bonds interest is allowed as an itemized deduction.

John borrows $40k & invests $20k each in municipal and taxable bonds. Is the interest of these bonds deductible?

Reverse Stock Split (Example)

John has 100 shares of ABC corp trading at $5 per share. ABC corp declares a 4:1 reverse stock split. Share Value: $20 ($5 x 4) / 1 Number of Shares: 25 (100 x 1) / 4

$41,000 $5,000 cash is fully deductible (It is less than 60% of his AGI) The maximum deduction he can achieve for the gifted property is $36,000 (30% of the FMV)

John has an adjusted gross income of $120,000 and charitable contributions of $5,000 cash to his church and the a parcel of land to his city with a basis of $40,000 and FMV of $70,000. What is the maximum deduction he may receive?

Total unearned income - child standard deduction ($1,100) - Greater of $1,100 or Itemized deductions directly related to unearned income. Almost always the answer is: (Child Unearned Income - $2,200) = Net Unearned Income Taxed @ 37%

Kiddie Tax Calculation

Perform 2 of the 6 ADLs, or Suffer cognitive impairment such as Alzheimer's, Stroke, Brain Damage

LTC Insurance benefits trigger when an insured is unable to do what?

Unenforceable

Lack of any insurance contract requirement (Indemnity, Adhesion, Unilateral, Aleatory, Utmost Good Faith) will cause the policy to be ___________________ w/o legal effect.

Uncontrollable Capital Gains Distributions High Expense Ratios Inability to Control Underlying Investments

Largest drawbacks of Mutual Funds?

Vicarious Liability

Legal doctrine under which a party can be held liable for the wrongful actions of another party. i.e. Employer for employees

On the same date Dec 31 of the tax year in question Nonresident Aliens

Legally married individuals may file joint tax returns if their tax return begins ___________________________. If they are married on ______________________ and if neither are ________________________ at any point during the tax year.

Uniform Transfer to Minor Act (UTMA)

Legislation similar to the UGMA that extends the definition of gifts to include real estate, paintings, royalties, and patents.

Uniform Gift to Minors Act (UGMA)

Legislation that provides a tax-effective manner of transferring property to minors without the complications of trusts or guardianship restrictions.

5 years

Length of carryover available for disallowed charitable contributions.

Holding Period

Length of time that taxpayer has owned an asset.

28-31 days Overdue premiums are subtracted from the death benefit.

Life Insurance Grace Period If an insured dies which the policy is in its grace period what happens?

Option A: Level Death Benefit (Decreasing NAR) Option B: Increasing Death Benefit (Level NAR), (FV+CV=DB), More expensive

Life insurance death benefit options include?

Financial Needs Analysis Method

Life insurance needs analysis approach wherein a surviving spouse's possible recurring and/or expected expenses are calculated to determine how much life insurance is needed on the other spouse's life.

Capital Retention Approach

Life insurance needs analysis method used to determine the total amount of insurance proceeds the surviving spouse will need to receive and invest in order to take care of ongoing family needs. The income-producing assets are then available for distribution later to the heirs.

Human Life Value Approach

Life insurance needs analysis which involves estimating an individual's personal earnings each year to retirement, from which the costs of self-maintenance, Life Insurance premiums, and income taxes are deducted to produce residual income. The residual income stream is then discounted to its present value.

Retain (Transfer-for-Value rules do not apply)

Life insurance policies transferred as a result of divorce ________________ their tax-free payout status.

Misstatement of Age or Gender Clause

Life insurance policy provision that specifies that if the insured's age or gender has been misstated, the death benefit payable under the policy will be adjusted to what the premium paid would have purchased at the correct age or gender.

Accidental Death Benefit

Life insurance policy rider that doubles (or triples) the face amount of insurance payable if the insured dies as a result of an accident. aka Double or Triple Indemnity

Disability Waiver of Premium

Life insurance policy rider which waives the payment of premiums if the policyholder should become disabled which continues until the policyholder returns to work.

3 years

Life insurance proceeds are includable in the decedent's estate if (1) Left payable to the estate (2) If the estate had any incidents of ownership within the last ____ years.

Family Limited Liability Partnership (FLLP)

Limited liability partnership in which the majority of the partners are persons related to each other, essentially as spouses, parents, grandparents, siblings, cousins, nephews, or nieces. Typically set up by a senior family member in order to divest their business or investments by exchanging such assets for a 1% GP interest and 99% LP interest. Over time, they will make tax-advantaged transfers of the LP interest to younger family members.

Real Estate Limited Partnership (RELP)

Limited partnership entity organized to invest in real estate. An experienced property manager or real estate development firm serves as the syndicator (general partner). Outside investors provide financing, in exchange for a share of ownership as limited partners. Privately traded, unmarketable & illiquid Taxed as passive income. Mortgage interest and depreciation are deductible.

Non-Publicly Traded Partnership or "Real Estate Limited Partnership" (RELP) Passive Activity Losses (PAL), Non-Publicly Traded Partnerships (Including, but not limited to the same RELP and not including MLPs)

Limited partnership which is not traded in an established securities secondary market and acts as a "Passive Income Generator". Losses from Non-Publicly Traded Partnerships are called _________________ losses and can only be used to offset income from ___________________________________.

Unsecured Loan (Signature Loan)

Loan guaranteed only by a promise to pay. Creditors faced with the prospect of non-repayment may opt to settle rather than litigate.

Installment Loan

Loan repaid with interest in equal periodic payments

Home Equity Loan

Loan secured by equity value in the borrower's home.

Adjustable Rate Mortgage (ARM)

Loan used to purchase a home in which the interest rate is variable according to market interest rates.

Fixed Rate Loan

Loan with an interest rate that never changes.

Adjustable Rate Loan

Loan with an interest rate which may change. Riskier that Fixed Rate Loans

Personal Loan

Loans offered by banks and other financial institutions which tend to be shorter-term than mortgages and are unsecured with invariably higher interest rates.

LEAPS

Long Term Equity Anticipation Securities are long-term (2-3 year) option contracts.

Debenture

Long-term unsecured debt. (Promise to Pay)

Wildcat Drilling

Looking for oil or gas in an unproven area. Structured so that investors take high risks but can reap substantial profits if oil and gas are found.

Related Parties i.e. Lineal descendents, brothers & sisters, corporations in which taxpayer is a majority owner. $14,000; Realized Gain ($22,000) - Previously Dissallowed Loss ($8,000)

Losses from the sale of property between _____________ parties are disallowed for income tax purposes. If the subsequent sale of property by recipient related parties results in material gains then the amount of that gain may be reduced by previously disallowed losses. i.e. Kramer sold stock to his daughter Erica for $12,000 in 2014. His adjusted basis in the stock was $20,000. In 2019, Erica sells the stock in the open market for $34,000. What is Erica's recognized (taxable) gain from this transaction?

No

May land be depreciated?

Covariance

Measure of linear association between two variables. Positive values indicate a positive relationship; negative values indicate a negative relationship

Treynor's Ratio (Rate of Return - Risk-Free Rate) / Beta

Measure of risk-adjusted performance that relates a portfolio's excess returns to its beta. Ratio used to measure comparative performance between diversified portfolios. Formula?

Price Elasticity

Measure of the change in the quantity demanded or purchased of a product in relation to its price change.

Skewness

Measure of the degree to which a distribution is asymmetrical

Original Cost Basis

Measure of the unrecovered dollars assigned to a taxpayer's investment. The amount of a taxpayer's initial investment.

Standard Deviation (Variance)

Measure of variability that describes an average distance of every score from the mean. Higher levels indicate elevated near-term risk since returns could significantly swing downward.

Jensen's Alpha Portfolio Rate - (Risk-Free Rate + ((Market Rate - Risk-Free Rate) x Beta)

Measures investment performance as the raw portfolio return less the return predicted by the capital asset pricing model. Measures the risk-adjusted value added by a portfolio manager. Formula?

Semivariance

Measures only downside deviation (returns below the mean). Lower semivariance indicated less likelihood that a security will incur a substantial loss in value.

Z-Statistic

Measures the number of standard deviations a data value is from the mean (either above or below).

Bond Duration

Measures the sensitivity of a bond's price to interest rate changes and subsequent yield adjustment. The average time for a bondholder to receive the interest and principal payments from a bond.

Dollar Weighted Return (IRR)

Measures total portfolio return based on cash inflow and outflow activity until the end of the time period.

Medicare Part B Dental, eyeglasses, pedal care, cosmetic surgery, acupuncture, orthodontics, hearing aids.

Medical Insurance is Medicare Part ____ Covers outpatient care including doctor's visits, outpatient procedures, specialist visits, labs, X-rays, diagnostics. Does not cover? Voluntary enrollment with monthly premiums based on prior MAGI. Features 80/20 coinsurance. Thus, a medicare supplement is necessary to pick up the additional uncovered 20%.

Medicare Part C

Medicare Advantage Plans are Medicare Part ____ "All-in-One" health plans offered by approved private corporations which replace Original Medicare and provide all of the benefits of Part A & B. Part D offered. Features coinsurance, deductibles, and other out-of-pocket expenses.

Medicare only pays 20-100 days of skilled nursing care and never pays for custodial care.

Medicare is not a good LTC alternative to rely on because?

Discounted Free Cash Flow Model V = FCFE / r - g V = Intrinsic Value FCFE = Free Cash Flow to Equity r = Required Rate of Return g = Dividend Growth Rate

Method for estimating a firm's value when they do not forecast their dividends by using their Free Cash Flow to Equity (FCFE) instead. Formula?

Fundamental Analysis

Method of evaluating the intrinsic value of an asset and analyzing the factors that could influence its price in the future.

Stochastic Modeling

Method of financial analysis that attempts to forecast how investment returns on different asset classes vary over time by using thousands of simulations to produce probability distributions for various outcomes.

Time-Weighted Return

Method used to calculate returns of mutual funds

$3,000 - $2,200 = $800

Michael, age 14, has $3,000 of taxable interest income & $5,000 of earned income from a paper route. His parents claim him as a dependent. How much of his income, if any, will be taxed at the applicable rate for estates and trusts?

The study of how decisions are made when allocating scarce resources

Microeconomics

i.e. Recognized Gain Equals Boot Received Realized Gain = $27,000 (50,000-35000 = 15,000); (15,000 + 12,000 = 27,000) Recognized Gain = $12,000 $12,000 cash is recognized but gain from like-kind exchange is not.

Mike exchanged investment land with an adjusted basis of $35,000 for another parcel of investment land with a fair market value of $50,000. He also received $12,000 in cash. What is his realized and recognized gain?

State Life Insurance License + Series 6

Minimum licensing required to sell VA or VUL

Intrinsic Value (Option)

Minimum price at which the option will trade. Amount the Option is "In the money" One part of the Option Premium Option Premium = Intrinsic Value + Time Value i.e. ABC is trading @ $45. You own a call option with exercise price @ $40. (IV = $5) i.e. XYZ is trading @ $50. you own a put option with exercise price of $48. (IV = $0)

AMT Deferral Item

Misc. AMT preference items; Most common is the Bargain Element of ISOs.

Unreimbursed Business Expenses Investment Management Fees Tax Preparation Fees Hobby Expenses

Miscellaneous Itemized Deductions which are no longer available as per the Tax Cuts & Jobs Act of 2018.

Dividend Discount Model

Model that values shares of a firm according to the present value of the future dividends the firm will pay.

Capital Asset Pricing Model (CAPM) Risk-Free Rate + ((Market Rate - Risk-Free Rate) x Beta)

Model which relates required (expected) rate of return on a security to its systematic risk as measured by beta. Formula?

5% Money Market 40% Bonds 35% Large Cap Equities 5% Small Cap Equities 15% International Equities

Moderate Portfolio Asset Allocation (Example%) Money Market Bonds Large Cap Equities Small Cap Equities International Equities

Punitive Damages

Monetary damages that may be awarded to a plaintiff to punish the defendant and deter similar conduct in the future.

Black-Scholes Option Pricing Model

Most widely used option pricing model which is based upon five variables. Underlying asset FMV Time to expiration Exercise price Volatility of underlying asset Risk-free rate of return.

General Obligation "GO" Bonds

Municipal bonds issued by state and local governments that pledge their "full faith and credit," including tax revenues, to repayment. Utilized to build or repair non-revenue producing structures such as sidewalks and bridges. Subject to resident taxpayer vote.

Private Activity Bonds

Municipal bonds issued to fund a private enterprise for non-governmental purposes. (i.e. Sports Stadium, Industrial Development)

Revenue Bonds

Municipal bonds supported by revenues from a specific project that is funded by the proceeds of the issuance. Only required to pay interest and back principal if the project generates a sufficient amount of revenue. Riskier than GO Bonds.

Specific Identification (Best) Average Cost Method (Sharesholder Services) FIFO (Worst)

Mutual Fund Basis Calculation Optins

Federal Estate Tax in respect of a decedent (IRD) Impairment-Related work expenses of handicapped taxpayers Unrecovered Annuity Basis due to death Gambling Losses (To extent of winnings which must all be reported)

Name some miscellaneous itemizable tax deductions.

Nondiscretionary Expense

Necessary and essential expenses are considered to be _____________________ expenses.

Subsidized Stafford Loan

Need based loan that the government pays the interest on until you complete college. Must be enrolled at least half-time.

Net Inflow - Net Outflow

Net Cash Flow (Calculation)

(Assets - Liabilities)

Net Worth (Calculation)

Stock Split

New issue of proportional ownership to existing shareholders. Market value decreases and the number of shares outstanding increases. May boost a stock's attractiveness to small investors.

Reverse Stock Split

New issue of proportional ownership to existing shareholders. Market value increases and the number of shares outstanding decreases. May be utilized when a security is attempting to avoid being delisted from an exchange.

(BEG Mode) PMT: -5,000 I/Y: 4 N: 5 ___________________________________ Cpt PV: $23,149

Nick's grandmother plans to give him $5,000 at the beginning of each year for 5 years. Assuming a 5% discount rate, what is the present value of this sum?

Miscellaneous Itemized Deductions such as: Tax Preparation "Accounting" Fees Investment Management/Advisory Fees Professional Dues & Subscriptions Unreimbursed Employee Expenses

No Longer Available Itemizable Deductions as per the Tax Cuts and Jobs Act of 2017.

Standard Deduction

No income tax filing is required when a taxpayer's income falls below their requisite _______________________.

Open-End Investment Company (Mutual Fund)

Non-Exchange traded securities wherein an unlimited number of shares may be bought & sold. Underlying securities are pooled and recorded via prospectus Provide Diversification and Professional Management

Alimony, Child Support, Student Loans, Income Tax Liability

Non-dischargable debts via bankruptcy include? (4)

High-Yield (Junk) Bond

Non-investment grade bond (BB+ or lower) that typically carries a higher coupon to compensate investors for the higher perceived default risk.

Series EE Bonds

Non-marketable, interest-bearing U.S. Government savings bond issued at a discount from par value. Semiannual interest is deferred until redemption.

Series HH Bonds

Non-marketable, interest-bearing U.S. Government savings bond issued at par and purchased only by trading in Series EE bonds at maturity.

Series I Bonds

Non-marketable, interest-bearing U.S. Government savings bond issued at par which is indexed for inflation.

Excess Benefit Plan

Non-qualified deferred compensation plan which features salary continuation that is designed to pay the difference between an executive's qualified plan payout and the amount receivable if IRC Section 415 limits of $225,000/yr did not exist. Such plans are purely unfunded and not subject to ERISA non-discrimination rules.

Preferred stock

Non-voting share of corporate stock that entitles the holder to a non-contractually obligated fixed dividend, whose payment takes priority over that of common-stock dividends. Shares do not mature.

Death Benefit Only Plan (DBO)

Nonqualified deferred compensation arrangement that promises to pay an income benefit to a named person on the employee's death. Typically, the employer owns, pays for and is the beneficiary of a life insurance policy on their employee and forwards the death benefit to their heirs in lieu of previously deferred compensation. This creates taxable income for the heirs.

Adoption Expense Credit Employer-Provided Adoption Assistance. $14,080 5 years The year the adoption is finalized

Nonrefundable tax credit for qualified adoption expenses such as adoption costs, court costs, etc. May be combined with an income exclusion for _____________________________________. Cannot be used for surrogate arrangements or to adopt a spouse's child. Max $_______________ per child. Phaseouts apply Unused credit may be carried forward ______ years. i.e. John & Mary adopt a child. They paid $6,050 in adoption expenses last year and their MAGI is $198,000. The adoption credit becomes available in the year ___________________. They may take up to a $14,080 credit this year but since it is non-refundable it can only reduce their tax liability to 0. They will have 5 years to use the $6,050 credit balance.

Lifetime Learning Tax Credit 20%; $10,000 $2,000 Unlimited; Not just first 4 years of higher education.

Nonrefundable tax credit for students for ______% of the first $_____________ of educational expenses. Max ____________ per family Available for an ________________ Duration No non half-time student or felony drug disqualifications. The same individual cannot claim both the American Opportunity and Lifetime Learning tax credits in the same year.

Lifetime Learning Tax Credit 20%, $10,000 Unlimited; Not just first 4 years of higher education.

Nonrefundable tax credit for students. _____% of the first $______________ of educational expenses. Max ___________ per family. Available for an _____________ duration. No non half-time student or felony drug disqualifications. The same individual cannot claim both the American Opportunity and Lifetime Learning tax credits in the same year.

Child and Dependent Care Credit

Nonrefundable tax credit that may be claimed by workers who pay employment-related expenses for care of a child or other dependent if that care gives them the freedom to work, seek work, or attend school full time. Taxpayer must maintain a home for the qualifying child

Child and Dependent Care Credit

Nonrefundable tax credit that offsets taxes dollar-for-dollar for child and dependent care expenses of workers who paid such expenses in order to work, seek work or attend school full-time.

Like-Kind Exchange

Nontaxable exchange of real business or investment property under IRS Section 1031. Qualifies as a tax deferred exchange.

Preferred Stock

Nonvoting share of ownership in a corporation that pays a non-guaranteed fixed dividend that has priority over common stock dividends. Attractive to corporations b/c of the 70% Domestic Dividend Deduction.

Correlation Coefficient

Numerical index of the degree of relationship between two variables. (-1 to 1)

Record & Ex-Dividend Date Relationship (Example)

Oct 1: Last day to buy security with dividend Oct 2: Ex-Dividend Date Oct 3: Record Date

Indemnity Coverage "Fee-for-Service"

Offers choice and flexibility to subscribers who want to receive a full range of benefits along with the freedom to use any licensed healthcare provider. The insurance company then pays a set portion of your total charges. The insured is reimbursed from the first dollar spent but benefits may not cover total expenses. There is no deductible or coinsurance. Indemnity plans are also referred to as "__________________" plans.

Dow Jones Industrial Average (DJIA)

Oldest and most widely cited market index based on the prices of 30 blue-chip, large industrial firms on the NYSE. Price-Weighted not Market Cap Weighted

Realized Gain = $200,000 (800,000 - 600,000) Recognized Gain = $0 (Boot exchanged was equivalent)

On February 2nd of the current year Armando exchanged a bank building with an adjusted basis of $600,000 and subject to a mortgage of $275,000 for another bank building with a fair market value of $800,000 and subject to a mortgage of $275,000. What amount of taxation, if any, will the taxpayer recognize this year?

IRS approval

Once adopted, accounting & inventory methods cannot be changed without ______________________.

Investment Advisor

One who is in the business of and compensated for providing investment advice.

Call Option

Option to buy shares of stock at a specified future time.

Put Option

Option to sell shares of stock at a specified future time.

Stop Order

Order to execute a transaction when the stock price reaches a specified level; a special form of limit order

Stop Loss Order

Order to sell when the price drops to (or below) a particular price

REIT dividend taxation?

Ordinary Income

Rental Real Estate Taxation?

Ordinary Income

Noncapital Assets Acid Test - Accounts Receivable - Copyrights & Creative Works (i.e. Artist's own Painting) - Inventory (Business) (i.e. Realtor's Rental Properties) - Depreciable Personal & Real Business Property (i.e Business Vehicle)

Ordinary assets which are not considered to be capital assets. Identified by?

Accredited Investor

Organization or individual investor who meets certain criteria established by the SEC and so qualifies to invest in unregistered securities. Must meet at least one of the following requirements: - Annual Income of $200,000 (I) or $300,000 (J) - Net Worth of $1,000,000+ - Officers and Directors of the Corporation

Investment Banking Firm

Organization that assists corporations in raising funds, usually by underwriting and helping to sell new issues of stocks, bonds, or other financial securities.

Health Maintenance Organization (HMO)

Organization that provides comprehensive medical care to subscribers who visit assigned providers for a fixed capitation fee. Advantages: (1) Provides broad services for lower premiums and out-of-pocket costs. (2) Claims are infrequent because most care is done in-network. (3) Convenience of having a primary care doctor as your advocate to coordinate and manage your care. Disadvantages: (1) The premium that is paid is just enough to cover the costs of doctors in the network. (2) The members are "stuck" to a primary care physician and if managed care plans change, then the member may not be able to continue with the same PCP.

Real Estate Investment Trust (REIT)

Organization that purchases, owns, and manages real estate for its investors. Must pass 90% of income to shareholders as dividends in order to escape federal taxation. 75% of underlying assets must be real estate. Dividends taxed as ordinary income

Government National Mortgage Association (GNMA) "Ginnie Mae"

Organization which operates in the secondary mortgage market to purchase mortgages which are then pooled and repackaged to create mortgage securities which are sold at auction to private lenders as pass-through certificates. Direct backing of the Federal Government. $25,000 minimum. High Reinvestment Risk.

Personal Residence

Owner-occupied housing unit operated as a personal use asset. May provide leverage and tax deductions.

Systematic Risk (Types)

PRIME Mnemonic Purchasing Power Risk Reinvestment Risk Interest Rate Risk Market Risk Exchange Rate Risk

Child Tax Credit 17 3 $50

Partially refundable tax credit of $____________ for each qualifying child under age _______. An additional credit is available for low-income taxpayers with ____+ qualifying children. Credit is reduced by $______ for each $1000 of MAGI above $200,000 (S) or $400,000 (J).

IRS Form 1065

Partnership Income Tax Filing Form

IRS Form 1065

Partnership file tax returns on IRS Form ______________

General Partnership Individual owner's partnership interest. (Special Allocation) Ease of Formation & Management, Lack of Special Taxes

Partnership in which all owners participate in operations and assume joint & several liability for business debts. Profits/Losses are shared in proportion to __________________. Advantages?

Limited Liability Partnership (LLP)

Partnership in which general partners are not liable for the actions of limited partners. Only available for professionals in certain states such as lawyers & doctors.

Limited Partenrship Do Not Certificate of Authority to Operate Passive

Partnership in which partners are only liable to creditors to the extent of their contribution amount and proportional ownership. Limited partners ____________ participate in management and have no authority to bind the partnership. A written agreement must be submitted to the state in which the partnership will operate in order to receive a ___________________________________ Limited partnerships receive _______________ income.

Publicly Traded Partnership or "Master Limited Partnership" (MLP) The same MLP Passive Income

Partnership which is traded on an established securities secondary market. Losses from a MLP may only offset income from __________ Income is ______________ income. Net MLP loss may be carried forward indefinitely against future income of the same partnership.

Limited Partnership Taxation?

Passive Income

Undeveloped Land

Passive investment which produces negative cash flow. Risks include adverse rezoning, building permit difficulties, restricted access due to adjacent landowners & lower than expected population growth.

Estimated Taxes

People who are self-employed or receive substantial income from an employer that is not required to practice payroll withholding (such as lawyers and owners of rental property) are required by the IRS to estimate their tax liability and pay their taxes in advance in quarterly installments.

Recession

Period of reduced economic activity in which GDP decreases in 2 consecutive quarters.

Share Averaging

Periodically purchasing the same number of shares.

Alternative Minimum Tax

Personal income rate that applies whenever the amount of taxes paid falls below some designated level. Separate, backup tax to ensure that taxpayers with significant income do not avoid payment by using certain deductions and exclusions. Ensures that taxable income for high-income taxpayers does not fall below a certain amount due to large deductions.

IRS Form 1040 A

Personal income tax form usable if: Income is <$100,000 and derived solely from wages, salaries & tips. Only IRS or Student Loan Adjustments allowed MUST take Standard Deduction

IRS Form 1040 EZ

Personal income tax form usable if: Income is <$100,000 and derived solely from wages, salaries & tips. Taxable interest of $1,500 or less. No adjustments or dependents allowed. Must be <65 y/o and file Single or MFJ.

Economic Expansion

Phase of the business cycle in which an economy is growing and people are spending money. Purchases stimulate the production of goods and services, which in turn stimulates employment. During this phase income, demand, consumer credit, consumer sentiment, auto and retail sales, housing starts and mortgage debt are high whereas inflation (early on) and unemployment are low.

Economic Contraction

Phase of the business cycle in which there is a slowdown of the economy characterized by a decline in spending and during which businesses cut back on production and lay off workers. During this phase income, demand, consumer credit, consumer sentiment, auto and retail sales, housing starts and mortgage debt are low whereas inflation (early on) and unemployment are high.

Anchoring & Adjustment

Phenomenon wherein an individual bases their initial ideas and responses on one point of information which should have little bearing and periodically alters their idea based on that starting point.

Physical Hazard

Physical condition that increases the frequency or severity of loss. i.e. Exposed Wiring

Substantial Documentation Cash

Physical evidence of a charitable contribution including the charity's name and the amount and date. ___________ contributions require a bank record or receipt.

$55,000 The donations to a foreign organization in France the a political campaign do not count.

Pierre, a U.S. citizen, made the following charitable donations. $30,000 to his church so they could build an addition. $100,000 to an orphanage in France in the city where his parents lived as children. $10,000 to United Way $15,000 to a non-profit org in New Orleans that teaches French to children. $50,000 to a gubernatorial campaign in his home state. w/o regard to Pierre's AGI, how much may he deduct?

Accelerated Death Benefit

Policy provision that allows full or partial payment of the policy's death benefit before the insured's death if he/she is terminally ill.

Inefficient

Portfolios which exist below the efficient frontier are?

Optimally efficient per their assumed risk

Portfolios which exist directly on the efficient frontier curve are?

Long Straddle

Position created by purchasing a call and a put with the same strike price and expiration date in order to bet on the volatility of the underlying instrument.

Short Straddle

Position created by selling a call and a put with the same strike price and expiration date in order to benefit if volatility is low.

Security Market Line (SML)

Positively sloped straight line displaying the relationship between expected return and beta (risk).

Convertible Preferred Stock

Preferred stock which is exchangeable for common stock at a specified rate. Offer stable dividends and liquidation priority but also the opportunity to share in corporate profits through conversion if FMV increases. Used to finance venture capital and private equity firms.

Put Option Writer potential Gain/Loss?

Premium / Exercise Price - Premium

Call Option Writer potential Gain/Loss?

Premium / Unlimited

Medicare Part D

Prescription drug coverage is Medicare Part ____

Fair Market Value (FMV)

Price at which a property will change hands between a willing buyer and seller who both have knowledge of relevant facts and are not compelled to buy or sell.

Price Equilibrium

Price at which demand and supply are equal. The intersection of supply & demand curves which indicates fair market value.

Par Value (Common Stock)

Price listed on stock certificates or upon company charter. No Economic Importance.

Option Premium

Price of an option. (IV + TV)

Market Value

Price per share of a security. Indicates one share's net worth per shares outstanding.

Exercise (Strike) Price

Price set for calling (buying) or putting (selling) an asset

Lagging Indicators

Prime interest rates, CPI changes, outstanding loan amounts and unemployment duration are examples of ________________ indicators.

Prospectus

Printed document that advertises and describes a security to potential investors.

Private Placement

Private primary market issue of a corporation to a small group of accredited investors. (No IPO) No SEC Registration Limited to 35 unaccredited investors and unlimited accredited investors.

Federal National Mortgage Association (FNMA) "Fannie Mae"

Privately held corporation that is the largest buyer of existing mortgages in the secondary mortgage market.

Budgeting

Projecting and adjusting future cash inflows and outflows while considering goals.

Affirmative Warranty

Promise of a current condition on the insurance application.

Commecial/Residential Rental Property

Property loaned to tenants who pay rent to the property owner, thus providing an income stream. Taxed as ordinary income. Property owner receives annual depreciation deduction

Never; Income Carryover

Property settlements are a result of divorce are _________ considered to be _______________ of either party for purposes of taxation. The transferee receives a ______________ basis.

Trade or Business

Property which is eligible for cost recovery deductions includes real property, personal property & intangibles used in a ____________________.

Strategic Asset Allocation

Proportion of various types of investments that should compose a long-term investment portfolio. Belief that markets are efficient. i.e. Life-Cycle Funds

Stock Dividend

Proportional (Pro Rata) dividend of additional shares of corporate stock. i.e. ABC corp is worth $11M and has $1M in outstanding share value when they declare a 10% stock dividend. - MV decreases from $11/share to $10/share. (11 / 1.1) - Company value is unchanged - The number of shares outstanding increases to 12.1M

Farm Credit Administration (FCA)

Provided low-interest farm loans and mortgages to prevent foreclosures on the property of indebted farmers.

Reinstatement Clause

Provides the conditions under which a lapsed policy may be reinstated, if approved by the insurance company.

Call Provision

Provision in a bond contract that gives the issuer the right to redeem the bonds under specified terms prior to maturity.

Automatic Premium Loan Provision

Provision in permanent insurance policies wherein overdue premiums are automatically borrowed from the cash value after the grace period expires.

Section 1035 Exchange

Provision in the tax code which allows a policyholder to transfer funds from a life insurance, endowment or annuity to a new policy, without having to pay taxes. Annuity value may not be exchanged for life insurance cash vale.

At-Risk Rules Amount at Risk Suspended Loss Tyler only has $60,000 of capital at-risk and therefore he can only deduct that amount against other income. Tyler's nondeductible loss of $35,000 from the partnership may be carried over and used later when either he has $35,000 of partnership income or if he invests an additional $35,000.

Provision of the Tax Reform Act of 1986 which limits the maximum deductible loss of an investment to the amount at-risk at the end of the current tax year. The total stake (cash or property) invested in the activity plus any debt of the activity for which the taxpayer is personally liable are know as the _______________________. This amount is adjusted annually according to the taxpayer-investor's share of annual profit/loss. _______________________ occurs when the at-risk investment is insufficient to absorb the loss or the investment is sold and may only be considered to the extent of an increase in the at-risk amount. i.e. In the current year, Tyler invested $60,000 for a 20% interest in a partnership in which he was a material participant. The partnership entity incurred a loss and Tyler's proportional share was $95,000. How may he recognize his loss in the current tax year?

Incontestability Clause 2 years

Provision stating that the insurer cannot dispute the validity of a policy after a specified period, typically ____ years.

Federal Home Loan Mortgage Corporation (FHLMC) "Freddie Mac"

Publicly held corporation that is a subsidiary of the Federal Home Loan Bank System and serves as a secondary mortgage market.

Student Loan Marketing Association (SLMA) "Sallie Mae"

Publicly owned corporation that purchases student loans from financial institutions and packages them for sale in the secondary market. This increases the availability of money for educational loans.

Mortgage REIT

Purchase mortgage obligations and effectively become real estate lenders.

$40,000 added to assets (Vehicle's Value) $10,000 subtracted from assets (Down Payment) $30,000 added to liabilities (Auto Loan) $30,000 - $30,000 = $0 Net worth is unchanged

Purchases involving accumulating debt along with an asset may not affect net worth. For example, purchasing a vehicle for $40,000 with a $10,000 down payment. How is net worth affected?

Hedging Commodity Prices

Purchasing a contract in the opposite position of the one currently held in order to reduce the risk of commodity price fluctuations. i.e. ABC corp needs soybeans in the future. They should buy soybean futures. (Buying a right-to-buy)

Policy Replacement 30-day Free Look

Purchasing a new life insurance policy or annuity contract to replace an existing policy or contract. NAIC modeled regulations. The company being replaced must be notified in writing. Considerations regarding suitability include cost, existing values, need, insurability, risk tolerance and company credit. _____-day free look period.

Replication

Purchasing individual securities to mirror an index.

Long-Term Capital Gains

Qualified Dividend Income is taxed as _____________________ if: Dividends are declared by a domestic or qualified foreign corporation Dividends are paid from a stock or regulated investment company Stock is held for 61 days during the 121 days begining 61 days after the ex-dividend date.

Dependent

Qualifying child or relative who relies on the taxpayer for financial support.

Long-Term Capital Gains

Qualifying dividends are taxed as _________________________.

5 years, 2 years

RIA books and records shall be maintained and preserved in an easily accessible place for a period of not less than _____ years, the first _____ years in an appropriate office of the investment advisor.

Ralph is taxed on the bargain element of $10,000 as ordinary income. Bargain Element = FMV - Exercise Price Buys 100 shares for $50 when FMV is $150 $15,000 - $5,000 = $10,000

Ralph receives NQSOs for the right to buy 100 shares of ABC corp. stock at $50 per share no earlier than 5 years from the grant date. He purchases them in 5 years for $150 per share. How is this transaction taxed?

i.e. Recognized Gain when Boot is Appreciated "Other Property" Because of the type of boot, Randy recognizes $15,000 capital gains. The Machinery's FMV - Basis = $15,000

Randy exchanged investment land with adjusted basis of $35,000 and fair market value of $50,000 for another parcel of investment land with a fair market value of $80,000. Randy gave, as boot, other property (machinery) with a fair market value of $30,000 and adjusted basis of $15,000. How much gain does randy recognize?

Prime Rate

Rate of interest banks charge on short-term loans to their best customers.

Nominal Rate of Return

Rate of return disregarding inflation and taxes. i.e. Bond's Coupon Rate

Yield to Maturity (YTM)

Rate of return earned on a bond if it is held to maturity

Yield to Call (YTC)

Rate of return earned on a bond when it is called before its maturity date

Holding Period Return (HPR)

Rate of return over a given investment period.

Compound Rate of Return

Rate of return which accounts for annually compounded interest.

Discount Rate

Rate the Federal Reserve charges for loans to commercial banks.

PEG Ratio Lower is better

Ratio of a firm's P/E to its expected earnings growth rate

P/FCF Ratio

Ratio of a firm's price to its free cash flow.

P/S Ratio

Ratio of the amount an investor will pay for a company's annual sales.

PE Ratio (Price per share / Earnings per share)

Ratio of the price an investor will pay for a company's earnings.

Sharpe's Ratio (Rate of Return - Risk-Free Rate) / Standard Deviation

Ratio used to measure comparative performance between any two portfolios. Reward-to-Volatility Ratio Formula?

Commodity

Raw material or primary agricultural product that can be bought and sold. Traded on exchanges via futures contracts.

(( Coupon Rate / Inflation Rate ) - 1) x 100

Real Rate of Return (Formula)

Passbook Savings Account

Redeemable investment established with a commercial bank or S&L. Low interest rates. No check writing privileges. No minimum required balance.

Regulatory element, Firm Element

Regarding CE, advisors must complete annual _________ element requirements of FINRA and _________ element requirements of their specific company.

Convenience and Low Cost Flexibility

Regarding Managed Care Plans, choose a HMO if you need ___________ and a PPO if you need ____________.

Presumed Barred

Regarding a CFP's Fitness Standards, certificants with 2 or more personal or business bankruptcies, a felony within the last 5 years or the non-administrative revocation of a non-financial professional license or non-administrative suspension of a financial license are __________________ barred.

Always Barred

Regarding a CFP's Fitness Standards, those found guilty of felony theft, embezzlement, financial crimes, tax fraud, rape, murder or violent crime as well as non-administrative revocation of a non-administrative revocation of a financial license are ________________ barred

Exchanged

Regarding a Section 1031 Nontaxable Exchange, the holding period or exchanged property is _______________.

Substituted

Regarding a like-kind exchange (non-taxable exchange of qualifying real property), recipients each receive a __________________ basis.

In cash or cash considerations (payments to 3rd party for items such as medical expenses, life insurance premiums, housing, taxes, tuition, etc.)

Regarding criteria created by congress to separate and distinguish alimony payments from property settlements: Alimony payments must be paid _____________________ and the payor and payee may _________ be members of the same household at time of payment.

The parent with the greater share of custody.

Regarding divorcees with split custody of a child, which one is able to claim them as a dependent.

Compensation Method

Regarding fees and service charges, CFPs have a duty to represent their _________________________.

Transfers/Passes Carryover i.e. Madeline gifts property with FMV of $100,000 and basis of $75,000 to Michael. Michael's basis will be $75,000

Regarding gifted property, the holding period and basis of the donor ________________ to the donee who receives a _________________ basis.

Basic Coverage Broad Coverage Open Perils Coverage Open Perils Excluded Perils

Regarding homeowner's insurance coverage, _________ coverage encompasses 12 perils including: Fire, lightning, windstorm, hail, riot/civil unrest, aircraft, vehicles, smoke, vandalism, explosion, theft and volcano. __________ coverage adds 6 additional perils including: Falling objects, snow/ice weight, sudden rupture (water heater, HVAC, sprinklers, plumbing), accidental overflow, electrical current. __________ perils coverage is comprehensive and covers anything not specifically excluded. The most popular, most expensive and generally recommended form of coverage is __________ perils. ___________ perils include earthquake, flood, neglect, war, nuclear disaster, power failure and intentional loss.

Excluded

Regarding homeowner's insurance, land is always _____________ from coverage.

$1,000

Regarding imputed interest on a gift loan between individuals, if the loan is less than $100,000 and the borrower's net investment income is below this amount then no imputed interest will apply.

The borrower's net investment income.

Regarding imputed interest on a gift loan between individuals, imputed interest cannot exceed what amount?

$10,000

Regarding imputed interest on a gift loan between individuals, no interest is imputed for gift loans less than or equal to what amount?

Lender: Interest Expense Borrower: Interest Deduction

Regarding imputed interest on a gift loan between individuals, the lender may receive _______________ and the borrowed may receive _________________.

Federal Funds Rate

Regarding imputed interest on a gift loan between individuals, which rate is used to calculate imputed interest?

Not income of the recipient nor deductible to the payor. (Before the Tax Cuts & Jobs Act of 2018 this was opposite)

Regarding income and deductions of divorcees, alimony & separate maintenance payments are _________________________.

Stepped-Up FMV Long-Term Capital Gains

Regarding inherited property, the recipient will receive a ______________ basis. Their basis will be the ________ at time of constructive receipt. The sale of inherited property always results in __________________________.

>50%, 750+ hours $25,000, Active & Portfolio Active Participant, >10% $150,000

Regarding rental real estate income, losses are non-passive in real estate activities constitute _____% of annual personal services and ______ hours are devoted therein. This allows part-time real estate brokers to deduct up to $________________ of rental real estate losses against _____________ & ______________ income if two tests are met. The small investor must be an ____________ participant. (They merely must have a role in management). The small real estate investor must also own >____% of the value in all interests of the activity. The $25,000 deduction is lost by $____ for every $____ of AGI >$100,000 (S/J) It is therefore 100% lost if you earn >$_________________ (No matter how you file your taxes).

5%, 25%, 5 months 0.5%, 25% FTF $600; Filing within the 2nd month post-due results in a 10% penalty.

Regarding tax filing penalties, The Failure-To-File (FTF) penalty is _____% per month, up to _____% (____ months). The Failure-To-Pay (FTP) penalty is _____% per month, up to ______% If both tax penalties are assessed then only ______ counts. i.e. John files 39 days late & remits a check for $6,000. How much is he penalized?

Deferred Tax-Free Nondeductible Non-Taxable

Regarding taxation of life insurance policies, Annual cash value increases within the policy are _______. Typically, the death benefit is _____________ For individual policies, premiums are ___________________. If the amount of the dividend is less than your insurance premiums for the year, dividends are considered a return of premium and are _______________. The IRS essentially treats the dividend as a refund for over-payment of premiums through the year. Withdrawals and loans are ___________ to the extent of premiums paid.

Pre-Tax FSA distributions

Regarding the child and dependent care tax credit, Taxpayers may not us _____-tax dollars to pay for child care expenses. (i.e. _____________ )

Federal Reserve Board

Regulatory agency which is independent from the federal government with a chairman and board that controls the money supply of the U.S. economy by setting member bank reserve requirements, controlling the discount rate and buying and selling U.S. Government securities in open-market operations.

Passive Income

Rental real estate income is _______________ income (Except for Realtors and Small Real Estate Investors)

Limit Order

Request to buy or sell a stock at a specified price

Market Order

Request to buy or sell a stock at the current market value.

Straight Life Annuity

Retirement annuity which pays a benefit until death but forgoes any further beneficiary payments or a death benefit. Provides the highest amount of guaranteed income for the annuitant.

Qualified Employer Sponsored Plan

Retirement plan that qualifies for special tax treatment under the Internal Revenue Code such as a 401(k), 403(b) or 457(a). Features immediate tax deductions for employee contributions and employer matching contributions. Interest is deferred until eventual distribution as ordinary income to the employee. Subject to ERISA nondiscrimination rules favoring rank-and-file employees. Can have high administrative costs.

Deferred Nonqualified Annuity

Retirement planning tool with no annual contribution limit which acts as a tax shelter and allows for the deferral of interest taxation.

Expected Return Multiply each of an investment's possible returns by the probability that they will occur and then add together the results.

Return that an investor demands Calculation?

Stock Risk Premium (Market Rate - Risk-Free Rate) x Beta

Returns needed to entice investors towards a stock. Formula?

Guaranteed Minimum Income Benefit Rider (GMIB)

Rider which, once activated, guarantees the owner a minimum amount of recurring income.

Call option holder wants the price of the underlying security to?

Rise

Put option writer wants the price of the underlying security to?

Rise

Monte Carlo Simulation

Risk analysis technique in which probable future events are simulated on a computer via stochastic modeling, generating estimated rates of return and risk indexes

Unsystematic Risk (Asset-Specific Risk)

Risk that affects at most a small number of assets.

Particular Risk

Risk that affects individuals i.e. Robbery, Vandalism

Fundamental Risk

Risk that can affect many people at once i.e. Earthquake, Flood

Systematic Risk (Market Risk)

Risk that influences a large number of assets.

Static Risk

Risk that is measurable and insurable. The risk may be transferred to an insurer. i.e. Fire, Vandalism

Rate of Return / Beta

Risk-Adjusted Return (Formula)

90-Day T-Bill

Risk-Free Rate of Return Proxy

Collateral Source Rule

Rule which states that damages assessed against a negligent party will not be reduced by funds received from an insurance company.

IRS Form 1120S

S corp Income Tax Filing Form

Ordinary Income

S corp income is taxed as

SEC Form ADV Pt. 1

SEC Form used to by RIAs to provide the SEC with an annual notice of investment advising activities such as their business information, ownership, clients, employees, business practices, affiliations, and any disciplinary events of the adviser or its employees.

SEC Form ADV-W

SEC Form used to withdraw registration as a Registered Investment Adviser with the SEC.

Annual Dividends / Current POP

SEC Yield (Formula)

Realized Gain/Loss Amount Realized

Sale Price - Adjusted Basis Money($) and/or Property received

$1,000 200 x 5

Sally uses 200 square feet of her home solely for business purposes. Calculate her available home office deduction using the simple method.

Emergency Fund 3 months, 6 months

Savings account that you can access quickly to pay for unexpected expenses. An emergency fund should contain funds equivalent to at least ____ months of expenses for households with 2 productive wage earners or ____ months in any other circumstance.

Perfect Negative Correlation

-1 (Highest Diversification)

Self-Employment income filed on IRS Form 1040 Schedule C Limited Partner income derived from partnership K-1 distributions and filed on IRS Form 1040 Schedule E. Farm income filed on IRS Form 1040 Schedule F.

3 types of income taxed as self-employment

Accumulated Earnings Tax Personal Service Corporation Tax (PSC) Personal Holding Company Tax (PHC)

3 types of special taxation applicable to C corps

Taxation of Commodity Futures

60% LTCG / 40% STCG

Percentage of REIT underlying assets which must be Real Estate?

75%

Option Expiration Length

9 months

Percentage of Earnings REITs must Pass-Through?

90%

$20

A $1,000. 4% bond would pay how much semiannually?

N = 20 (10 x 2 ) (Pays Semiannually) I/Y = 3 (6/2) PMT = 25 ((0.05 x 1000 / 2) FV = 1000 Cpt PV = $925.62

A 10 year bond features a coupon rate of 5%. If the comparable yield for this quality bond is currently 6%, what is its intrinsic value?

30 days

A CFP must report adverse activity to the CFP board within _____ days, cooperate with investigations and comply with any necessary certifications.

Diligence

A CFPs ability to provide a timely and thorough response to client communications proves their _______________.

Secured Bond

A bond issued with some form of collateral (i.e. real estate, mortgage).

Inverse

A bond's coupon rate and its duration/convexity have what type of relationship?

Incidental, Special Compensation Commissions, Markups or Markdowns

A broker dealer or registered investment advisor is exempt from the Investment Advisor Act of 1940 if any advice they provide is _________________ and if they receive no _______________________ for this service. Therefore, advisors are exempt if they are solely compensated via ____________________.

Central Registration Depository (CRD)

A computerized information system that is maintained by FINRA to provide registration information regarding broker-dealers and registered representatives.

Morale Hazard

A condition of carelessness or indifference that increases the frequency or severity of loss.

Moral Hazard

A condition of morals or habits that increases the probability of a loss from a peril. i.e. Drinking and Driving

Hazard

A condition that increases the frequency or severity of a loss. May be physical, moral or morale related

Voidable Contract

A contract that may be legally avoided at the option of one or both of the parties. i.e. Non-disclosure of material facts, misrepresentation, legal incapacity to enter the contract, premiums not paid.

Warranty

A contractual promise from the proposed insured to the insurer.

Dividends-Received Deduction 70% $950,000; The $50,000 is deductible

A corporate deduction equal to a percentage of dividend income received from other taxable domestic corporations. Limit is ______% of a corporation's taxable income. i.e. MNO corporation is a C corp. with a net annual income of $1M. $50,000 of that income comes from the dividends of a corporation in which MNO is a shareholder. How does this affect their net annual income?

Alternative Depreciation System (ADS) 50%

A cost recovery system that produces a smaller deduction than would be calculated under ACRS or MACRS. The alternative system must be used in certain instances and can be elected in other instances. Usable for property utilized <_____% for business purposes.

Bond

A debt security that represents a promise to repay a fixed amount of funds. Issuer makes fixed periodic interest (coupon) payments and repays the entire principal at maturity.

Deflation

A decrease in the general level of prices

Assumption of Risk

A defense against negligence that can be used when the plaintiff was aware of a danger and voluntarily assumed the risk of injury from that danger. i.e. Hit by foul ball at a baseball game.

Federal Housing Administration (FHA)

A federal agency established to increase home ownership by providing mortgages which require lower minimum credit scores and down payments than most conventional loans and also provide an insurance program to safeguard the lender against the risk of nonpayment.

Bond Laddering

A fixed income investment strategy which involves purchasing several smaller bonds each with a different maturity date spread over months or years rather than one larger bond maturing on a single date. Helps to immunize the portfolio from interest rate risk.

Special Damages

A form of compensatory damages that awards a sum of money for specific, identifiable and measurable expenses associated with the injured person's loss. i.e. Medical Expenses, Lost Wages, Auto Repair

Free Application for Federal Student Aid (FAFSA)

A form that is completed annually by current and prospective college students to determine their eligibility for financial aid Federal Student Aid, a part of the U.S. Department of Education, is the largest provider of student financial aid in the nation, provides grants, loans, and work-study funds for college or career school.

Inflation

A general and progressive increase in prices

Increasing Demand (Quantity Down)

A leftward shift of the demand curve indicates

Decreasing Supply (Quantity Down)

A leftward shift of the supply curve indicates

Joint & Several Liability Entire

A legal concept that makes each partner in a partnership legally liable for all the debts of the partnership. When it comes to filing a joint tax return. Both individuals are responsible for the ____________ tax liability.

Contributory Negligence

A legal defense that may be raised when the defendant feels that the conduct of the plaintiff somehow contributed to any injuries or damages that were sustained by the plaintiff.

1.25% x 12 = 15%

A lender advertises a 1.25% monthly rate. Calculate Nominal APR

Ordinary Life Insurance

A level-premium straight whole policy that provides lifetime protection until age 100. Provides the maximum permanent death benefit per premium dollars.

Guaranteed Insurability Option

A life insurance policy provision that allows the policy owner to purchase additional amounts of insurance at specified dates without evidence of insurability.

Tax-Qualified Long-Term Care Policy

A long-term care insurance policy that qualifies for federal income tax advantages by meeting HIPAA requirements. Insurers can sell both qualified and nonqualified LTC policies. Qualified LTC policy premiums greater than 10% AGI are deductible as a medical expense.

Depression

A long-term economic state characterized by unemployment and low prices and low levels of trade and investment. GDP decreases in 6 consecutive quarters.

Gross Domestic Product (GDP)

A measurement of the total goods and services produced within a country. Geographically Driven

Interest-Adjusted Method

A method of comparing costs of similar life insurance policies that accounts for the time value of money and inflation.

Traditional Net Cost Method

A method of comparing costs of similar life insurance policies that does not take into account the time value of money or inflation. Premiums - (CV + Dividends)

General Damages

A monetary award to compensate a victim for losses, such as pain and suffering, that do not involve specific measurable expenses.

Interest-only mortgage

A mortgage that only requires the payment of interest for a stated term with principal payments to follow. Payments are lower during the term. Therefore, one is able to afford more home early or to invest elsewhere and seek higher returns.

Fixed Outflows

A mortgage, auto loan, insurance premiums and property tax are examples of _______________ outflows.

Credit Union

A nonprofit financial institution that is owned by its members and organized for their benefit to accept deposits, make loans, and provide other financial services. Deposits are protected and insured by the National Credit Union Share Insurance Fund (NCUSF).

Supplemental Executive Retirement Plan (SERP)

A nonqualified deferred compensation plan that allows employers to provide additional retirement income to key, highly compensated employees. It allows employers to provide benefits without regard to IRC Section 415 limits and beyond those of traditional qualified plans, such as 401(k) plans. Typically these are structured as informally funded NQDC plans.

Stagflation

A period of slow economic growth and high unemployment (stagnation) while prices rise (inflation).

Agent

A person who acts or does business for another. Regarding insurance, these are the individuals who represent the insurance company and bind contracts.

Stock Appreciation Rights (SARs)

A plan in which the employer gives an executive or key employee the right to receive compensation equal to the company's share appreciation. Employee is given the choice of when to exercise this right.

Separately Managed Account

A portfolio that is owned by a single investor and managed according to that investor's needs and preferences. Allows for retainment of original cost basis.

Added Value

A positive Jensen's Alpha means that a portfolio manager has

Law of Large Numbers

A principle stating that the larger the number of similar exposure units considered, the more closely the losses reported will equal the underlying probability of loss.

Suicide Clause

A provision stating that if the insured dies by suicide during the first two years the policy is in force, the death benefit will equal the amount of the premium paid.

Incentive stock option (ISO) 10 years $100,000

A qualified stock option for federal tax purposes. Individuals do not recognize the bargain element as income on the exercise of an ISO but it does count as an AMT adjustment item. Employers get no tax deduction on the bargain element since it goes untaxed for the employee. Numerous Internal Revenue Code (IRC) requirements (Special Holding Rules). (1) Must be written plan approved by stockholders. (2) Exercise must be within _____ years of grant date. (3) Max value which may be exercised in 1 year? (4) Shares must be held for 2 years from grant date and 1 year from exercise date before being sold in order to retain favorable tax treatment.

Weighted Average Return

A rate of return that is weighted to take into account the relative proportion of the funds which make up the portfolio.

Disinflation

A reduction in the rate of inflation

Chapter 11 Bankruptcy

A reorganization form of bankruptcy for businesses that allows for continued operation and retention of assets under court supervision while repaying restructured debts.

Chapter 13 Bankruptcy

A reorganization form of bankruptcy for individuals that allows the debtors to keep their property and use their income to pay a portion of their debts over time.

Decreasing Demand (Quantity Up)

A rightward shift of the demand curve indicates

Increasing Supply (Quantity Up)

A rightward shift of the supply curve indicates

Comparative Negligence

A rule in tort law that reduces the plaintiff's recovery in proportion to the plaintiff's degree of fault, rather than barring recovery completely; used in the majority of states.

Transfer-for-Value Rule

A rule that specifies that, subject to certain exceptions, if a life insurance policy is transferred from one owner to another for valuable consideration, the death proceeds will be subject to federal income taxation. The purchaser pays income tax on any benefit above their purchase price plus premiums they've paid.

Flexible Spending Account (FSA)

A salary reduction cafeteria plan that uses employee funds to provide various types of health care benefits. Appropriate for large businesses that have difficulty providing group insurance because of cost and diverse group needs. Only $500 may be rolled over into the next plan year.

Annuity

A series of equal regular deposits

Bridge Loan

A short-term loan for borrowers who need more time to find permanent financing. Seldom used anymore.

Earthquake Insurance

A special coverage transferring risk of earthquake damages. In general, deductibles are high in order to reduce premium costs by allowing the insurer to focus on larger claims.

Stop Limit Order

A stop order that becomes a limit order after the specified stop price has been reached or passed

Risk Retention

A strategy in which an entity sets aside a sum as a protection against a probable loss, instead of transferring the risk by purchasing an insurance policy.

Growth Investing

A strategy whereby an investor seeks out stocks with what they deem good growth potential. Assumes P/E Ratio to be constant near-term. Stock prices increase as prices are realized.

Stafford Loan Six-Month

A student loan that is guaranteed by the U.S. government and has a fixed interest rate lower than private loans. The loan can be either subsidized or unsubsidized (meaning the government does or does not pay the interest will a student is in school), and there are strict eligibility requirements and borrowing limits. Repayment begins at the end of the _____-month grace period after the student leaves school.

Cash Flow Statement

A summary that shows total income and expenses for a given time period.

529 Qualified Tuition Plan $10,000 No control Rollover $75,000

A tax-deferred account that provides tax-free withdrawals to cover qualified educational expenses through non-deductible contributions. Contributions are possible regardless of income level and limits are high and vary by state. Per the 2017 Tax Cuts and Jobs Act, you can now use 529 savings plans to pay up to $____________ per student per year for private, public or religious elementary, middle, and high school tuition. Beneficiaries have ____ control over how funds are invested or dispersed. One ____________ to an eligible family member is permissible annually. A $___________ 5-year accelerated gift may be made to 529 plans. (i.e. x2 possible from both grandparents)

Coverdell Education Savings Account (ESA) $2,000 Age 30, Rollover

A tax-deferred savings account that provides tax-free withdrawals to cover qualified educational expenses and allows annual non-deductible contributions of up to $__________ per year/person. Assets must be used by age _____ and one ____________ to an eligible family member is permissible annually. For a Coverdell ESA the definition of a qualified educational expense is very broad and funds are able to be used for K-12 through post-secondary education.

Zero-Cost Collar

A transaction in which a position in the underlying is protected by buying a put and selling a call with the premium from the sale of the call offsetting the premium from the purchase of the put.

Installment Sale Recognized Immediately Unavailable $30,000; (Profit / Contract Price = Gross Profit Percentage); ($300,000/$500,000 = 60%); (60% x $50,000 = $30,000)

A transaction in which the sales price is paid in two or more installments over two or more years. If the sale meets certain requirements, a taxpayer can postpone reporting such income until future years by paying tax each year only on the proceeds received that year. If the installment sale is cancelled, gifted to the debtor (forgiven), sold to a 3rd party or pledged as collateral on a loan the gains are ______________________________. Installment sales are __________________ for business inventory & exchange traded securities. i.e. Terry purchased a tract of land for investment purchases and paid $200,000. He sold the land many years later for $500,000 in an installment sale, receiving $50,000 as the 1st-year payment. How much gain must he recognize in the year of sale?

Managed Care Plan

A type of health-care plan in which the insurance company contracts with specific doctors, hospitals, and other health-care providers to deliver medical services and preventive care to members at reduced cost. Focus is on preventative care. Primary care physician acts as gatekeeper to specialists.

Re-Entry Term

A type of life insurance in which the insured may reduce their premiums but continuing to provide evidence of insurability.

Survivorship Life Insurance

A type of life insurance policy which insures both spouses under one policy, with the proceeds payable after the second death.

Decreasing Term

A type of life insurance that features a level premium and a death benefit that decreases each year over the duration of the policy. Popularly used to provide coverage for a mortgage.

Whole Life Insurance

A type of life insurance which continues as long as premiums are paid and accumulates cash value. Features level premiums which are higher than equivalent term insurance of equal face amount.

First-to-Die Life Insurance

A type of life insurance which covers multiple insureds and is most often used for business continuation purposes.

Universal Life

A type of life permanent life insurance which features flexible premiums and death benefit. Adjustments are accompanied by new computations for nonforfeiture values. The policy remains active and utilizes cash value if premium payments are skipped. Features administrative expenses & mortality charges.

Limited-Pay Whole Life

A variation of whole life insurance designed so that the premiums for coverage will be completely paid-up well before age 100.

Modified Premium Whole Life

A variation of whole life insurance which is more in the first few years then becomes slightly higher for the remainder of its coverage. Useful for college students or those just starting out in the work world, who cannot initially afford whole life insurance.

Elimination Period

A waiting period that is imposed on the insured from the onset of disability until benefit payments begin. Longer = Cheaper Premiums

Tort

A wrongful act or an infringement of a right leading to civil legal liability.

Equal

A zero-coupon bond's duration and term to maturity are?

Stock Split (Example) Share Value: $60 ($120 x 1) / 2 Number of shares outstanding doubles.

ABC corp has a market value of $120 per share and declares a 2:1 stock split. What will be the new share price and how many shares will be outstanding?

25% 24-20 = 4 $1 Dividend = 1 5/20 = 25%

ABC stock was purchased for $20 & sold for $24. ABC corp paid a $1 dividend. Calculate total return.

Into To Adjustments & Preference Items

AMT Strategies include: - Moving income ________ an AMT year. - Moving deductions ______ a non-AMT year. - Timing the recognition of AMT _______________ & _______________

1-for-4

AMT exemption amount begin to phaseout on a ____________ basis if AGI exceeds certain levels. $510,300 (S), $1,020,600 (J)

Indefinitely Deferral Items

AMT paid may be used as a credit ____________________ against future regular income tax but only to the extent that the AMT is attributable to _________________________.

AMT Exclusion Item

AMT preference items such as the standard deduction, itemized deductions, gains from qualified small business stock (QSBS), tax-exempt interest, depletion (%).

Marketability

Able to sell in a readily definable market.

Depletion Percentage

Above-the-line AGI deduction to recover the cost of exhausting natural resources. Of the two forms of depletion, cost and percentage, which is more aggressive?

Custodial Account Custodian The Minor's SSN At the state defined UTMA age of majority (18 or 21) 20% EFC Kiddie Tax (tax on interest earned by a minor) Limited Portability

Account that is created for a minor, usually at a bank, brokerage firm, or mutual fund. Minors cannot make securities transactions without the approval of the ________________, who manages cash and other property gifted to minors under the UGMA/UTMA acts. Funds are to be used only for the minor's benefit. The account is set up in whose SSN? The child gains full control of the funds when? Child ownership = ______% EFC for FAFSA filing. ____________ Tax is determined by the amount earned. Custodial accounts have limited ___________________ as they are non-transferable.

Accrural-Basis Accounting

Accounting basis where the taxpayer reports income and expenses when they are temporally incurred; not when payment is exchanged.

Cash-Basis Accounting

Accounting basis where the taxpayer reports income when the cash is received and expenses when the cash is paid.

Negligence Penalty 20%

Accuracy-related penalty from underpayment due to unintentional neglect. _____% of the tax underpayment attributable to negligence.

$5,000 Realized (15,000 - 10,000) $3,000 Recognized (15,000 - 12,000)

Achmed owned a business property that was destroyed by fire. His adjusted basis was $10,000 and Al Alham Insurance Co. sent a check for $15,000 to cover the loss. If Achmed buys qualified replacement property for $12,000, what is his realized and recognized gain?

After aggregating the current year situation the taxpayer shows a $1,000 Short-Term Capital Gain & $35,000 Long-Term Capital Loss Carryover. However, a maximum of $3,000 of ordinary income may be offset annually by capital losses. Therefore the taxpayer would recognize $0 taxable gain and maintain a $34,000 Long-Term Capital Loss Carryover

Aggregate Capital Gain / Loss (Example) Short-Term Capital Loss Carryoer: $5,000 Long-Term Capital Loss Carryover: $40,000 Current Year Short-Term Capital Gain: $6,000 Current Year Long-Term Capital Gain: $5,000

0% Money Market 20% Bonds 50% Large Cap Equities 10% Small Cap Equities 20% International Equities

Aggressive Portfolio Asset Allocation (Example%) Money Market Bonds Large Cap Equities Small Cap Equities International Equities

Futures Contract

Agreement to buy or sell a commodity or currency at a specific future date at a predetermined price.

Gross Income Municipal Bond Interest, Life Insurance Proceeds, Disaster Aid

All income from any source. Exclusions?

Legal Capacity

All parties must have the legal ability to enter into a contract in order to fulfill the legal ______________ of the contract. i.e. Non-minors, Corporate Officers

CFP (Trademarked (R)) CERTIFIED FINANCIAL PLANNER certified financial planner NOT > "Certified Financial Planner" or "CFP" w/o trademark

Allowable designations for a CFP include? (3)

Business Cycle

Alternating periods of macroeconomic expansion and contraction which includes fluctuations in economic activity such as employment and production.

Collectibles

Alternative investment beleaguered by market inefficiencies and lack of liquidity.

Natural Resources

Alternative investment such as oil, gas or timber which tends to display a negative correlation with stocks and may offer pass-through deductions for depletion or intangible drilling costs.

Yes Income Test: She has no taxable income Support Test: He provided >50% support (Since S.S. isn't counted) She is a direct ancestor living outside of his home. Alvaro is unmarried on Dec 31 and maintained a qualifying dependent.

Alvaro's great-grandmother Matilda lives in her own home but he provides direct support for her. Mary uses $4,300 of social security income (her only income) for her own support, including Medicare premiums. Alvaro can document that he paid $6,550 in support for Mary during the current tax year. Alvaro is a single tapayer. Can he claim his great-grandmother as a dependent and file head-of-household?

Time Value (Option)

Amount by which the trading value of an option exceeds its intrinsic value. Option MV - Intrinsic Value i.e. MNO is trading at $80. A MNO $76 call trades at $5. (IV = $4) (TV = $1)

Deductible

Amount you must pay before you begin receiving any benefits from your insurance company.

Considerations

Amount, Duration, Risk Tolerance, Disposable Income, Financial Self-Discipline, Attitude, etc. are all ____________________ when recommending life insurance.

U-4 Central Registration Depository (CRD)

An IARs registration with FINRA involves: 1. Association with a Broker Dealer 2. Registration with FINRA through the Broker Dealer 3. Background Check 4. Filing of _______ Form 5. Licensing & Examination 6. Issuance of _________________________ number 7. Continuing education regulatory and firm elements.

January Effect (EMH Anomaly)

An abnormal rise in stock prices from December to January. Possibly due to tax planning.

Accumulation Unit

An accounting measure that represents a contract owner's proportionate unit of interest in a separate account during the period wherein deposits are being made into a variable annuity. An owner in this scenario is continuously purchasing additional accumulation units of fixed value.

Annuity Unit Fixed, Variable

An accounting measure used to determine the amount of each payment during an annuity's distribution stage. The number of annuity units owned becomes __________ when distributions begin. However, their value is _______________.

Veterans Administration (VA)

An agency of the federal government that guarantees residential mortgages made to eligible veterans of the military services. The guarantee protects the lender against loss and thus encourages lenders to make mortgages to veterans.

Peril

An insurable event which can be the cause of loss. i.e. Fire, Flood, Earthquake

Conditional

An insurance policy may be ________________ which provisions which must be met before the insurer pays a benefit.

Endowment Policy Pure Endowment

An insurance product that acts as a savings vehicle and pays out a lump sum after a specified term or if the insured person dies before the end of the term. No longer used because of unfavorable tax treatment. __________ endowment policies which promise to pay the insured a stated sum if they survive a specified period with nothing payable in case of prior death are illegal in the U.S.

Firm Commitment Underwriting

An investment banking firm's promise to an issuing firm that it will sell all of the stock at the offer price and buy any unsold securities that it underwrites.

De Minimis Fringe Benefit

An item provided infrequently by an employer to an employee that is of small value. Never cash equivalents

Out-of-the-Money Option

An option that would not yield a positive payoff if the stock price remained unchanged until expiration. No intrinsic value.

Tombstone Ad

Announcement appearing in financial publications such as the Wall Street Journal announcing a company's Initial Public Offering (IPO).

Effective Annual Rate (EAR)

Annual interest rate after accounting for compounding.

Corporate-Owned Nonqualified Annuity

Annuity contract owned by a non-natural person which is generally not eligible for tax deferral.

Joint and Survivor Annuity

Annuity for couples that continues to make regular payments as long as one spouse lives.

Single Premium Immediate Annuity (SPIA)

Annuity funded with one lump sum in which the annuitant may immediately begin drawing benefits (within a year of the issue date). A retirement plan rollover, savings account balances or CDs, mutual funds, deferred annuity values, or the death proceeds of a life insurance policy might be used to purchase a SPIA.

Guaranteed Minimum Accumulation Rider (GMAB)

Annuity rider which states that if the value is less than initial premiums on a certain date then the issuing company will repopulate the value to its starting amount.

Fixed Annuity

Annuity that guarantees a fixed rate of return based on prevailing interest rates without any market exposure. Low or no cost Secure Principal = Conservative Investment

Variable Annuity

Annuity that has a varying rate of return based on subaccount performance. Variable Interest and Principal = Aggressive Investment

Equity-Indexed Annuity Guaranteed/Secure Capped Participation Rate Spread; 8%

Annuity which allows for stock market appreciation with downside protection. Principal is ________________. Investors receive a guaranteed minimum interest rate and invest in an index. Performance is typically ____________ at a maximum rate of return and participation rates ensure The _________________ rate is the percentage of the index's return the insurance company credits to the annuity. The ____________ is a percentage fee that may be subtracted from the gain in the index linked to the annuity. For example, if an index gained 12% and the spread fee was 4%, then the gain credited to the annuity would be ____%

Life Annuity with Period Certain

Annuity which guarantees lifetime income or payments for a certain length of time. For example, Jack purchased a Life Annuity with 20-Year Certain policy at age 65. The policy is guaranteed to provide him with a steady income stream until death. However, if he dies at age 75 then the policy will continue to pay beneficiaries for another 10 years.

Bonus Annuity

Annuity which offers an up-front addition to initial premium or first year interest rate increase.

Longevity Annuity or Deferred Income Annuity (DIA)

Annuity which provides guaranteed lifetime income starting in the future.

Installment Refund Annuity

Annuity with a provision stating that if the annuitant dies and has not at least received income equivalent to initial premiums then the policy will pay out the difference to beneficiaries in monthly installments

Fringe Benefits

Any additional employee benefits paid for by the employer.

Modified Endowment Contract (MEC)

Any cash value policy that builds cash value faster than a Seven-Pay Whole Life Contract and therefore loses some tax advantages of life insurance. The death benefit remains tax free. However, any interest withdrawn is taxed.

Financial Advice

Any communication that would reasonably be viewed as a recommendation towards a client regarding the development or implementation of a financial plan including the value or advisability of investing, investment strategies, portfolio compensation and recommendations regarding selection of additional financial professionals.

In-the-Money Option

Any option with a positive intrinsic value

At-the-Money Option

Any option with a strike price exactly equal to the underlying security's market value.

Shareholder of Record

Any owner who is listed as such on the record date

Asset Allocation

Apportioning an investment portfolio across broad asset classes.

Asset Allocation

Apportioning portfolio assets according to individual goals, risk tolerance & time horizon in order to balance risk/reward.

Choose FMV or Basis If FMV is chosen then up to 30% for public charities or 20% for private charities. If Basis is chosen then up to 50% for public charities or 20% for private charities.

Appreciated (LTCG) Real Estate property gifted to charities is available as an itemized deduction to up to what percent of a taxpayer's AGI?

Choose FMV or Basis If FMV is chosen then up to 30% for public charities or 20% for private charities. If Basis is chosen then up to 50% for public charities or 20% for private charities.

Appreciated (LTCG) property gifted to charities is available as an itemized deduction to up to what percent of a taxpayer's AGI? Choosing ___________ gives a higher immediate deduction but eliminates carryover.

Dollar Weighted Return (IRR)

Appropriate calculation when attempting to measure the earnings on a client's actual invested dollars.

Certificant, Professional, Practitioner, Certification, Mark, Exam

Approved nouns usable with CFP include?

Sum of Returns / Periods (Non-compounded)

Arithmetic Mean (Formula)

Cashless Exercise 95 shares Nathaniel will have to sell stock to cover the exercise cost of the NQSOs and income taxes resulting from the transaction. 500 x $30/share = $15,000 (Exercise Cost) (40-30) x 500 x 0.24 = $1,200 (Income Tax Liability) $16,200/40 = 405 (Total Cost/FMV) 500 - 405 = 95 shares

Arrangement which allows a holder to exercise stock options without having to come up with the cash to pay the exercise price. Employer stock is sold to satisfy the exercise cost and income taxes. i.e. Nathaniel owns NQSOs to purchase 500 shares of XYZ corp. for $30 per share. He exercises them when the fair market value of XYZ corp is $40 per share and opts to utilize a cashless exercise. He is in a 24% marginal income tax bracket. How many shares will he walk away with?

Guaranteed Investment Contract (GIC)

Arrangement, similar to a CD with banks, in which the insurer (Insurance Company) guarantees a fixed interest rate for a number of years on a lump-sum deposit. Not FDIC insured. Often purchased by employer institutions as an attractive fixed interest option for their retirement plans.

Phantom (Shadow) Stock Arrangements

Arrangements utilized by closely-held corporations which do not want more shareholders but wish to reward key employees. These are structured as fictional deferred compensation accounting entities with base value equaling the corporation's current stock value. The plan variably tracks FMV and makes periodic cash deposits into the key employee's retirement account on employer-controlled exercise dates. At distribution, the employer receives a deduction and the employee receives income.

Coverage <$50,000

As a fringe benefit, Employer provided premiums for group term life insurance are excluded from employee income when?

On the Business' Premesis Only used by the Employee and their Dependents (Not Spouse)

As a fringe benefit, employer provided athletic facilities are excluded from employee income when?

Total cost is <$5,000 per year.

As a fringe benefit, employer provided child and dependent care assistance is excluded from employee income when?

Up to $5,250 of educational expense benefits can be excluded from an employee's compensation. Tuition, Fees, Course Materials

As a fringe benefit, employer provided educational assistance is excluded from employee income when?

On the Business' Premises For the Employer's Convenience

As a fringe benefit, employer provided meals and lodging are excluded from employee income when?

Business-Use Only

As a fringe benefit, employer provided vehicle use is excluded from employee income when?

Tax-Free benefit to employees Tax-Deductible expense of employer

As a fringe benefit, how are employer paid health insurance premiums taxed to the employee?

Risk Tolerance

As a measure of risk, this is an investor's acceptable trade-off between risk and reward.

Risk Capacity

As a measure of risk, this is the amount of risk that an investor is financially able to sustain. "Available Cushion"

Risk Perception

As a measure of risk, this is the risk that an investor believes they are taking.

More Conservative (Lending Portfolio)

As an investor moves on the capital market line from the market portfolio (M) towards the risk-free rate (Rf) they are becoming?

More aggressive (Borrowing Portfolio)

As an investor moves on the capital market line from the risk-free rate (Rf) towards the market portfolio (M) they are becoming?

Section 1231 Property Capital Gains; Ordinary Loss

As classified by Section 1231 (IRC), Depreciable assets and real estate used in trade or business and held long-term for more than one year. Sale of appreciated assets results in ____________________ whereas sale of depreciated assets results in ________________________.

The more convexity, the worse the duration estimate will differ from actual change.

As convexity increases, how will duration be affected?

Itemizable Deduction Ordinary Income Short-Term Capital Loss Totally Worthless

Bad Debts are an ________________________________. Bad business debts are fully deductible as _______________? Non-Business bad debts are considered ____________ and are only deductible if _________________________.

Are Not

Banks, bank holding companies, financial publications & U.S. Government securities advisors are or are not considered to be investment advisors?

:)

Basic tax management techniques include: Conversion of ordinary income to capital gains when possible due to preferential tax rates. Income deferral if a taxpayer expects to be in a lower marginal income tax bracket during retirement. Avoidance of income through investments such as municipal bonds and U.S. treasury securities. Utilization of tax deductions and credits

20%

Beginning in 2018, there is a deduction of pass-through income of _____% allowed to a noncorporate taxpayer, including a trust or estate, who has qualified business income (QBI) from a partnership, S corp or sole proprietorship.

Systematic Risk

Beta measures?

Affinity Bias

Bias attributable to an investor who believes their choice of investment reflects a certain value they hold within themselves.

Status Quo Bias

Bias attributable to an investor's preference to keep things the way they are rather than change.

Illusion of Knowledge Bias

Bias attributable to investors and analysts who think their forecasts are more accurate than the evidence indicates.

Illusion of Control Bias

Bias attributable to investors who believe they are in control when they are not.

Self-Control Bias

Bias attributable to investors who lack self discipline and favor immediate gratification over long term goals.

Recency Bias

Bias attributable to investors who place emphasis on your more recent actions/performances

Endowment Bias

Bias attributable to investors who place greater emotional value on an asset simply because they already own it.

Self-Attribution Bias

Bias attributable to investors who tend to take credit for successes and blame factors out of their control for failures

Outcome Bias

Bias identified as a tendency to assume a process is acceptable if its output is acceptable.

Conservativism Bias

Bias identified as a tendency to revise one's belief insufficiently when presented with new evidence.

Confirmation Bias

Bias identified as a tendency to search for information that supports one's preconceptions and ignores contradictory evidence.

Hindsight Bias

Bias identified as the tendency to believe, after learning an outcome, that one would have foreseen it. "I knew it all along" pheomenon

Framing Bias

Bias identified by the tendency of decision makers to be influenced by the way a situation or problem is presented to them.

Regret-Aversion Bias

Bias in which investors tend to avoid making decisions or taking action out of fear that the results will turn out poorly.

i.e. Recognized Gain is Equal to Realized Gain Bill has a recognized capital gain of $10,000 even though he received boot of $15,000 Bill realized $65,000 gain - $55,000 basis of surrendered property He only realizes $10,000 gain and can therefore only recognize that much.

Bill exchanged investment land with an adjusted basis of $55,000 for another parcel of land from Jack with a fair market value of $50,000. In addition, Bill's land is subject to a $15,000 mortgage which was assumed by Jack as part of the exchange.

$47,000 The business inventory is ordinary income property and therefore he must choose the lesser of his basis or the FMV. ($6,000) The stock is intangible appreciated property and therefore he may choose his basis or the FMV ($40,000) The coin collection is appreciated use-unrelated property and therefore he must choose the lesser of his basis or the FMV ($1,000)

Bill's aGI is $200,000 and he makes the following contributions to qualifying charities Business inventory with a basis of $8,000 and FMV of $6,000 Stock in ABC corp acquired 2 years ago with a basis of $10,000 and FMV of $40,000 Coin Collection acquired 10 years ago with a basis of $1,000 and FMV of $7,000. What is the maximum deduction he may receive?

Original Issue Discount (OID) Bond

Bond issued at a price below its par value. The discount is taxed as income at maturity.

Municipal Bond

Bond issued by a state, local government or municipality to finance improvements such as highways, state buildings, libraries, parks, and schools. Always Federally Tax-Exempt. Tax-exempt to state, local & municipal residents.

Investment Grade Bond

Bond rated at least: BBB- (Standard & Poor's) Baa (Moody's)

Pure Yield Pickup Swap

Bond swapping strategy of moving to higher yield bonds, usually with longer maturities.

Substitution Swap

Bond swapping strategy where an investor exchanges a bond for a like-kind bond that is more attractively priced.

Rate Anticipation Swap

Bond swapping strategy where an investor makes a switch made in response to forecasts of interest rate changes

Tax Swap

Bond swapping strategy where an investor replaces a bond that has a capital loss for a similar security Used to offset a gain generated in another part of an investor's portfolio

Intermarket Spread Swap

Bond swapping strategy where an investor switches from one segment of the bond market to another. i.e. Treasuries to Corporates

Corporate Bond

Bond that a corporation issues to raise money to expand its business. Unsecured and merely backed by the full faith & credit of the issuing company. Considered to be subordinate debentures (last in line of creditors). Pricing varies depending on prevailing interest rates and the corporation's credit rating.

Discount/Premium Bond

Bond whose market price differs from par value.

Interest rates decline. (Issuer Refinancing)

Bonds are called when?

U.S. Government Agency Securities

Bonds issued by various government agencies. Indirectly backed by the federal government Taxed at every levels of government (Federal, State & Local) Provide slightly higher interest than U.S. Government debt securities.

Equivalent

Bonds of the same duration would have ______________ interest rate risk.

Convertible Bonds

Bonds that can be converted into common stock at the bondholder's option. These offer lower interest rates than nonconvertible bonds and lower volatility than stocks.

$380,000 ($600,000 - $220,000)

Brent bought a rental property for $500,000 and made $100,000 of improvements over the years. By the time he sells the property 10 years later, Brent had taken cost-recovery deductions of $220,000. Therefore, his adjusted basis in the rental property is ________________?

Core & Satellite Investment Strategy

Broad market indexes (Core) & higher risk alternatives (Satellite). Core: Domestic Equities, Fixed Income, Developed International Equities Satellite: REITs, Emerging Markets, High-Yield Bonds

Platykurtic

Broad, flattened curve (less peaked). Indicates frequent deviation from mean (aggressive).

Limited Liability Company (LLC)

Buniness structure which offers the limited liability of an S corp without special eligibility requirements as well as the pass-through tax treatment of a partnership. Must file articles of organization with the state. No 100 shareholder restriction. LLCs may choose how they wish to be taxed (S, C SP, Ptnr)

Mutual Funds primarily minimize what type of risk?

Business Risk

Section 197 Assets 15 year $2,000 (30,000 / 15) $3,333 (100,000 / (15 x 12))) = $555.56/mo (555.56 x 6)

Business intangible assets (Section ______ assets) such as goodwill, copyrights, trademarks, patents and covenants not to compete are amortizable over a _____ year useful lifetime. i.e. Mary acquired a business on January 1 of the current year. Included in the purchase price was a copyright valued at $30,000. Therefore, Mary can amortize (deduct) $___________ in the current tax year. i.e.2. When Julia purchased her new business in the current year she also purchased the patent on the process used in manufacturing her product. She has owned the business 6 months by year-end. Th patent represented $100,000 of the purchase price for the business. What amount of amortization of the patent may Julia deduct in her first year of business ownership?

Sole Proprietorship Indefinitely

Business owned and managed by a single individual which operates as a pass-through conduit with all profits and losses flowing through this individual. No formal legal documents are necessary upon formation. The owner may carry forward losses ___________________ per the Net Operating Losses (NOL) provision.

Suitable options transactions if bullish?

Buy Calls or Sell Puts

Protective Put

Buying a stock and a put on the stock to protect the decline of a stock's price.

Risk Transfer

Buying insurance to shift the risk of financial loss to an insurance company

Ethics, Education, Experience, Examination

CFP Board 4 E's

1. Act with honesty, integrity, competence & diligence. 2. Act in the client's best interest. 3. Exercise due care. 4. Avoid or disclose and manage conflicts of interest. 5. Maintain the confidentiality and privacy of client information. 6. Act in a manner which reflects positively on the profession and CFP Board.

CFP Code of Ethics Six Principals

Reasonable

CFP duties when working with additional persons include doing so with _________________ basis, care and proficiency.

Duty to Follow Instructions

CFPs have a Duty to ________________________ of their client when they are reasonable and lawful.

Conflicts of Interest

CFPs have an obligation to disclose and manage _____________________________.

Integrity

CFPs must display attributes of honesty and candor to prove their _______________ to clients.

objectivity

CFPs prove sound and objective professional judgement by refusing to accept any solicitations which may compromise their ___________________.

Tax Liability or Refund

Calculation of taxable income via the progressive tax system after subtraction of nonrefundable tax credits, addition of self-employment tax & early IRA withdrawal penalties and subtraction of refundable tax credits, estimated taxes and withholdings.

Total Return

Calculation that includes annual dividends and capital appreciation/depreciation.

AMT Base Tentative AMT; 26-28% Individual AMT

Calculations: AMTI - Applicable AMT Exemption AMT Base x AMT Rate (________%) Tentative AMT - Regular Income Tax

American Option

Can be exercised on or before its expiration. Exercising early causes loss of time value. Better to sell.

European Option

Can be exercised only on the expiration date.

No

Can portfolios exist above the efficient frontier?

Included; Lower

Capital gains are reported on Schedule D of IRS Form 1040 and are _________________ as taxable income. However, they are taxed at _______________ tax rates.

28%

Capital gains from the sale of collectibles are specially taxed at a maximum _____% or lower marginal income tax bracket.

Negligence

Careless neglect, often resulting in injury. An unintentional tort

To minimize market risk, one could simultaneously diversify among which asset classes

Cash Fixed Income (Bonds) Equities (Stocks) Real Assets

Money Market Mutual Fund

Cash equivalent of an open-end investment company. Not FDIC insured. Provide a modest rate of return, diversification & liquidity. Funds are invested in high quality short-term investments such as T-Bills, Commercial Paper and Negotiable CDs thus making them highly sensitive to the Federal Funds Rate.

Budget

Cash flow document used to estimate income and expenditures.

60% for Public Charities 30% for Private Charities

Cash gifts to charities are available as an itemized deduction to up to what percent of a taxpayer's AGI?

Mental Accounting

Categorizing financial decisions into "accounts" mentally designated for specific consumption transactions, goals, or situations.

Exclusions

Causes of loss, exposures, conditions, etc. listed in the policy for which the benefits will not be paid. i.e. Catastrophic uninsurable events such as Nuclear War

Private Foundations (Private Charity) Rockafeller Foundation, Gates Foundation, Ford Foundation 30%

Charitable organizations that are usually nonprofits that were established with funds from sources such as family or corporate money instead of funding from the general public. Specific Examples include _____________________________________. Contributions, including cash, are deductible up to ________% of the taxpayer's AGI

8.57% (980 - 1050 + 160) / 980

Chase buys a U.S. Treasury Bond for $1,050 and later sells it for $980. He received $160 interest during this time. Calculate his holding period return.

4.06% TVM calculation for FV, then again for I/Y PV = -1000 N = 4 I/Y = 1 Cpt FV = 1,040.60 PV = -1,000 N = 1 FV = 1,040.60 Cpt I/Y = 4.06%

Chase deposits $1,000 in a 4% bond which compounds quarterly. What will be his compound rate of return?

13.09% PV = -1 N = 5 FV = 1.8495 (15.2 x 9.1 x 6.5 x 18.3 x 16.8) Cpt I/Y = 13.09

Chase observes returns of 15.2, 9.1, 6.5, 18.3, 16.8; Calculate the geometric mean.

13.18 15.2 + 9.1 + 6.5 + 18.3 + 16.8 = 65.9 65.9 / 5 = 13.18

Chase observes the following series of returns: 15.2, 9.1, 6.5, 18.3, 16.8; What is the arithmetic mean?

7.35% Tax-Free Yield / (1- Marginal Tax Rate) 0.05 / (1 - 0.32) = 7.35

Chase owns a 5% municipal bond and is in a 32% marginal tax bracket. What is his taxable equivalent yield?

2.42% (( 1.06 / 1.035) - 1) x 100

Chase owns a 6% corporate bond. Annual inflation is 3.5%. What is his real rate of return?

1.14% 6 x (1 - 0.22) = 4.68% (( 1.0468 / 1.035) - 1) x 100

Chase owns a 6% corporate bond. Annual inflation is 3.5%. He is in a 22% tax bracket What is his after-tax real rate of return?

Conversion Price = $40 per share Common Stock FMV = $50 per share Conversion Ratio = Par Value / Conversion Price $1000 / $40 25) Conversion Value = Conversion Ratio x FMV 25 x $50 $1,250

Chase owns a bond which is convertible at $40 per share. FMV of the underlying stock is $50 per share. How much is his bond worth upon conversion?

22.63% Cash Flow Calculation CF0 = -50 CF1 = -61 (4-65) CF2 = 150 (75-2) IRR = 22.63

Chase purchased 1 share of XYZ corp for $50. One year later XYZ corp paid a dividend of $4, and Chase purchased an additional share for $65. At the end of the second year he sold out for $75 per share. No further dividend had been paid. Calculate Chase's internal rate of return over this holding period.

24.15% Cash Flow Calculation CF0 = -15,000 C01 = 500 C02 = 22,500 IRR = 24.15%

Chase purchased 1000 shares of XYZ corp for $15 per share. After 2 years he sells them for $22 per share. His dividends are $0.50 per share. What was his rate of return during this holding period?

4.86% PV = -1,050 FV = 1000 PMT = 30 (.03 x 1000) N = 10 (5 x 2) Cpt I/Y = 2.43 2.43 x 2 = 4.86

Chase's 5 year 6% semiannual bond has a market value of $1,050. Calculate the YTM.

4.97% PV = -1,050 FV = 1,025 PMT = 30 (.03 x 1000) N = 6 (3 x 2) Cpt I/Y = 2.4843 2.4843 x 2 = 4.9685%

Chase's 5 year 6% semiannual bond has a market value of $1,050. The bond is callable in 3 years for $1,025. Calculate the YTC.

3.11% 1000 x 0.03 = 30 30/965

Chase's bond has a coupon of 3% and is trading at $965 What is his bond's current yield?

( 1 + (( 0.1299 / 365)365* - 1

Chase's credit card's nominal APR is 12.99% compounded daily. What is the Effective Annual Rate?

12% Sum of Return / Number of Periods 60 / 5 = 12%

Chase's investment returned 60% over the past 5 years. What was his rate of return?

(END Mode) PV: -13,000 N: 11 I/Y: 7.5 __________________________________ Cpt FV: $28,803

Chris received $13,000 inheritance and want to invest it for 11 years. If he earns 7.5% annually, what will his account be worth at the end of this period?

Personal Service Corporation (PSC) 21%

Closely held corporation owned by individuals who perform services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting Subject to a flat ______% tax rate

Straddle

Combination of a call and a put, each with the same exercise price and expiration date.

Weighted Beta

Combining beta coefficients of multiple investments within a portfolio to ascertain it's beta. i.e. $3,000 Stock A x 0.64 = 1,920 $4,000 Stock B x 1.24 = 4,960 $3,000 Stock C x 0.85 = 2,550 9,430 / 10,000 = 0.9430

Businessowners Policy (BOP)

Commercial package policy specifically designed for small to medium sized retail stores, office buildings, apartment buildings, and similar firms Covers buildings and tangible business property. Provides liability coverage for actions of employees.

Stock Companies Non-participating

Companies owned by the stockholders whose investments provide the capital necessary to establish and operate the insurance company. These companies issue _____________________ policies.

Mutual Fund Company

Company which pools money from many investors and invest those funds in securities. Investors maintain proportional interest in a professionally managed portfolio of securities.

TVM calculation for FV, then again for I/Y

Compound Rate of Return (Formula)

Personal Automobile Policy (PAP) Pedestrian 3 years Filing a claim related to theft or hit-and-run USA, Canada, U.S. Territories

Comprehensive automobile insurance policy designed to be easily understood by the "typical" insurance purchaser. Purchasable for "individually owned autos" such as cars, trucks, motorcycles, snowmobiles, etc. Covers damage to the vehicle, injury to passengers and liability for injury or property damage to others. Part A (Liability) provides coverage up to policy limits for bodily injury and property damage. Part B (Medical Payments) provides coverage for reasonable and necessary medical expenses from accidents involving the insured, family members, those using the vehicle with permission and other occupants. Part B also covers the insured and family members if they are struck as a _____________________. Expenses must be incurred within ____ years of the accident. Part C (Uninsured Motorists) provides coverage for vehicular occupant who are injured by an uninsured motorist and pays what their liability coverage would have. Part C does not cover under-insured motorists. This requires an additional endorsement. Part D (Coverage for Property Damage to Auto) covers insureds via collision (Running into anything except an animal) or comprehensive (everything else). Part E (Duties after Accident or Loss) stipulates that the injured party must file a police report when? Part F (General Provisions) states that geographically coverage only applies where?

Affordable Care Act (ACA) Age 26 50 or more employees

Comprehensive healthcare reform law passed in 2010 and designed to make healthcare affordable to more people by providing subsidies for low income households and to expand Medicaid coverage. (1) No denial of coverage for pre-existing medical conditions. (2) Children are able to stay under their parent's coverage until age _____, even if they are married. (3) Employer Mandate: Employers with _____ or more employees must provide health insurance to their employees.

C Corporation (Regular Corporation) Corporate Taxable Income; Capital Gains; Ordinary Income Double Taxation of Profits Limited liability of shareholders

Corporation that offers limited liability to its owners, who are called stockholders and is recorded as a separate entity for income tax purposes. The business' earnings are taxed at _____________ tax rates. Dividends are _____________________ to shareholders. Qualified dividends are taxed as ___________________ and nonqualified dividends as ______________________. Major Disadvantage? Major Advantage?

Red Herring

Corporation's preliminary prospectus filed with the SEC.

Covariance (Formula)

Correlation Coefficient x SD(1) x SD(2)

Cost Basis; Adjusted Basis

Cost recovery deductions reduce the ________ basis of the investor and the ________________ basis of the asset.

Qualified Domestic Relations Order (QDRO)

Court order that uses pension or retirement benefits to provide alimony or child support, or to divide marital property, at divorce. This special order is necessary to comply with federal law governing retirement pay. Not a taxable event

Child Support Not income to recipient nor deductible to payor.

Court-ordered payments to a former spouse for support of dependent children. Regarding taxation and deductions, such payments are __________________________________.

Correlation Coefficient (Formula)

Covariance / SD(1) x SD(2)

Actual Cash Value

Coverage valuation method in which the payment you receive is based on the replacement cost of an item minus depreciation. This is a particularly poor choice for older properties.

Individual Boat Owner's Policy

Covers liability, physical damage, medical payments caused by uninsured boaters on an open perils basis. Exclusions for wear and tear, deterioration & mechanical breakdown.

Skimming

Crime in which thieves use a handheld device to swipe someone's credit or smart card and then obtain and store account details.

Current assets - Current liabilities >1

Current Ratio (Calculation) A current ratio of _____ is favorable because it means that an individual has enough cash to pay of current debts.

Annual Interest (Sum) / Market Value

Current Yield (Formula)

Convexity

Curvature of the price-yield relationship of a bond

80% ((Insurance Carried / 0.8 x Replacement Cost) x Amount of Loss) - Deductible

_____% of the replacement cost of a property is required to be covered by homeowner's insurance in order to be fully reimbursed for partial losses. If not, then partial loss reimbursement = ?

Above-the-Line Below-the-Line Tax Credits

_________-the-Line deductions are those adjustments which reduce gross income to arrive at adjusted gross income. __________-the-Line expenses are those which reduce adjusted gross income dollar-for-dollar such as the standard deduction or itemized deductions to arrive at taxable income. Tax ___________ may reduce taxable income.

Fixed, Serial

____________ payments are unchanging equal periodic payments whereas ____________ payments increase periodically per inflation.

Short-Term; Long-Term

______________ capital gains are considered before ______________ capital gains.

Renting

_______________ a home, as opposed to buying, offers less overhead and risk.

Material Participation Active, Active 500+, >100, 5-of-10

_______________ participation describes a level of involvement in an income-producing activity which causes such income to be taxed as ordinary income and not passive income. Typically, this describes a business owner's regular, continual, and substantial involvement in the day-to-day operation of an active business. Any loss from that activity is treated as an __________ loss that can be offset against __________ income. Material participation is achieved by meeting any one of seven tests provided in the Regulations. 1. Does the taxpayer complete ______+ hours annually? 2. Does their participation constitute substantially all participation of those involved? 3. Do they participate in >______ hours more than anyone else? 4. Did they complete >100 hours in this activity and >500 hours in related activities? 5. Is this a personal service activity participated in within the last 3 years? 6. Did they materially participate for ____-of-10 previous years? 7. Did the taxpayer participate on a regular, continuous and substantial basis.

Practice Standards (Know Order and that this is how you develop a financial plan)

________________ Standards for the Financial Planning Process 1. Understanding a client's personal and financial circumstances. 2. Identifying and selecting goals. 3. Analyzing current and alternative courses of action. 4. Developing, presenting and implementing financial planning recommendations. 5. Monitoring the progress of and updating the client's financial plan.

Long-Term Care (LTC)

__________________ insurance covers skilled nursing care, intermediate nursing care, custodial care, home health, assisted living, adult day care, hospice.

AMT Adjustments

____________________ made to taxable income in the basis AMT formula may be either positive or negative and are related to timing differences because of regular income tax and AMT tax rules.

Prepaid Legal Services

________________________ is an employer-sponsored fringe benefit making legal services such as bankruptcy, divorce, adoption, legal fees assistance and preparation of estate planning documents available to employees.

2.8% (Calculation is Too Complicated) However, since the bond is trading at a discount you know that it's YTM > Coupon Rate. When YTM increases duration decreases.

a 3-year $1000 ABC corp bond trading at $974.22 with a coupon rate of 7% and YTM pf 8% would have a duration of?

Section 121 Exclusion $250,000, $500,000 2-of-5, Either Both, 2-of-5 2 Living in another property, Using it as a rental property or vacation home. $125,000, $250,000 Beatrice may exclude $250,000 from Capital Gains Pierre may exclude $93,750 from Capital Gains ((9/24) x $250,000)

Section _____ of the IRC allows taxpayers an exclusion on capital gains for the sale of a personal residence up to $_____________ (S), $_____________ (J) depending on certain tested circumstances. Ownership Test: The property must have been owned for at least ____ of the 5 years preceding the sale. ___________ spouse may satisfy this test. Use Test: The property must have been used by ________ individuals as their personal residence for _____ of the 5 years preceding the sale. Partial exclusions are available if the entire 2 years are not satisfied. A Section 121 Exclusion is available for taxpayer use only once every _____ years. Periods of nonqualified use such as ______________ would disqualify a taxpayer from using this exclusion. An exception is available for taxpayers who are forced to sell their home and relocate because of job change. If they have owned and lived in the home for at least 1 year then $________________ (S), $________________ (J) is not taxed as capital gains. i.e. Pierre and Beatrice, a married couple, sell their house for $700,000. Beatrice owns the house and has lived there for 7 years. Pierre has lived there for 9 months. Under Section 121, how much can they exclude from capital gains?

Coverage F: Medical Payments to Others $1,000 3 years

Section of a homeowner's insurance policy which provides "good will" coverage for necessary medical expenses of others because of the insured, their family or pets actions on or off premises. Will pay up to $_______ per person per occurrence regardless of fault. Will pay claims made within ___ years of the date of the accident.

Coverage C: Personal Property 50% Actual Cash Value (ACV) (includes depreciation) T $1,500 $200 Excluded

Section of a homeowner's insurance policy which provides coverage for personal property of a homeowner and their family members. The coverage limit is ____% of Coverage A Coverage is based on the ____________________ per internal company tables. Includes borrowed property? (T/F) Coverage limits apply for certain high-value items such as jewelry, furs, stamps, coins, guns, computers, antiques, artwork, etc. Jewelry loss is commonly limited to $________ Cash loss is commonly limited to $________ Pets, motorcycles, small motorized vehicles (ATV, dirt bike, go-kart, jet ski), room & boarder property and specifically insured items are ____________ from coverage.

Coverage A: Dwelling

Section of a homeowner's insurance policy which provides coverage for replacement or repair of damage to a dwelling and attached structures (i.e. garage, deck).

Coverage B: Other Structures 10%

Section of a homeowner's insurance policy which provides coverage for small detached structures on the property (i.e. shed, barn) The coverage limit is ____% of Coverage A

Coverage E: Personal Liability

Section of a homeowner's insurance policy which provides liability coverage for the homeowner and resident family members for bodily injury and/or property damage occurring on or off the premises due to negligence. Minimum $100,000 but typically $200-500k ONLY applies if found to be liable for the injury.

Coverage D: Loss of Use 20%

Section of a homeowner's insurance policy which provides temporary coverage for additional living expenses if one's home becomes uninhabitable. The coverage limit is ____% of Coverage A

Section 1031

Section of the IRS tax code which allows for the nontaxable exchange of like-kind real business or investment property.

Section 179 50% $1,040,000 $2,550,000 Taxpayer's Taxable Income; Create a Loss $10,000 (They will also have a $10,000 carryover) $10,000 (20,000 - 10,000) $995,000 (1,020,000 - (2,575,000 - 2,550,000)) $1,580,000 (2,575,000 - 995,000)

Section of the Internal Revenue Code (IRC) which allows a taxpayer to elect to expense the entire value of tangible business property dollar-for-dollar w/o reference to any depreciation tables in any one year up to certain limits. i.e. Office equipment and machinery, computers, software, automobiles. The property much be used at least _____% for the business in the first year of service. Maximum allowance is $____________________ for qualifying personal property. If total qualifying property placed in service is >$____________________ then the allowance is reduced dollar-for-dollar thereafter and no carryover is allowed. Deductions cannot exceed ______________________________ from the business or trade and cannot be used to _____________________. i.e. In 2019, ABC corp purchased and placed into service office machinery costing $20,000. Their taxable income is $10,000. How much can ABC corp expense through a Section 179 Election? What will be the resulting tax basis of ABC corp's qualifying property? i.e.2. In 2019, XYZ corp purchased and placed in service office machinery costing $2,575,000. If the taxable income of XYZ corp is $1,020,000, how much cost can the company expense through a Section 179 election? What will be the resulting tax basis of XYZ corp's qualifying property?

Section 1221

Section of the Internal Revenue Code (IRC) which specifically states that inventory or property held primarily for sale to customers is not classified as a capital asset of the trade or business.

Foreign Securities

Securities of internationally headquartered companies. Provide diversification. Increased Exchange Rate and Country Risk.

Efficient Market Hypothesis (EMH)

Securities pricing fully reflects all available information Investors are unable to consistently outperform the market. Passive Investing is most effective Prices adjust quickly and are never far from fair value. Prices can be random.

Common Stock

Security representing ownership in a publicly traded corporation. Shareholders have voting rights via proxy for issues such as board of director elections and dividend approval (not declaration). Held in certificate form or in street name through a broker dealer.

Collateralized Mortgage Obligation (CMO)

Security that customizes the amount of prepayment risk associated with investments in mortgage-backed securities. Creates laddered bonds which are backed by a pool of mortgages or agency Pass-Through Securities. Each bond (Tranche) has a different rate of interest, repayment schedule, and priority level for receiving principal payments. Tranche A: Highest Repayment Priority Tranche Z: Lowers Repayment Priority

Derivative

Security whose value is based on another security's value. (i.e. Options and Futures)

Schedule C

Self-Employment Income is reported where on IRS Form 1040?

Real Estate Mortgage Investment Conduit (REMIC)

Self-liquidating, flow-through entity that issues multiple classes of marketable securities backed by a pool of mortgages.

Suitable options transactions if bearish?

Sell Calls or Buy Puts

Wash Sale

Selling a security at a loss for tax purposes and, within 30 days before or after, purchasing the same or a substantially identical security. The IRS disallows the claimed loss.

Sinking Fund

Separate account established and funded by the issuer to accumulate funds and pay off debt obligations at maturity.

Junior Class Shares

Separate class of common stock where voting rights and dividends are subordinate to the regular class stock of that corporation. They are conditionally convertible to regular class when certain conditions such as performance goals are met. They are taxable as capital gains at sale.

Special Compensation

Separate identifiable charge for advice (Bundled Fees or Fee-Based)

Lognormal Probability Distrubution

Series of observations is skewed left of arithmetic mean. >50% chance that a randomly selected observation will fall left of the mean. Indicates performance that is less than expected.

Compensatory Damages Income Tax-Free, except for cases involving age, sex or racial discrimination.

Settlement of a personal injury lawsuit designed to make an injured party whole. How are they taxed?

Punitive Damages Taxable as ordinary income, except for wrongful death cases.

Settlement of a personal injury lawsuit designed to punish tortfeasor. How are they taxed?

Leptokurtic

Sharply peaked curve. Indicative of infrequent deviation from the mean (conservative).

Consumer Debt

Short-term debt (< 1yr) incurred by purchasing consumer goods. i.e. Credit Card debt

3-6 months

Short-term disability benefits typically last ______ months. Long-term benefits lasts two, five, ten years, or until age 65. Broadly speaking, the shorter the benefit period, the cheaper the disability policy.

U.S. Treasury bills (T-bills)

Short-term marketable debt issued by the U.S. federal government via weekly auction. Only taxed at Federal level. Purchased at a discount but not subject to OID tax rules.

Commercial Paper

Short-term unsecured debt issued by large corporations

Modified Duration (Macaulay Duration)/(1 + Periodic Market Yield)

Similar to Macaulay but takes into account YTM.

Square Feet x 5 Max 300 SF or $1,500

Simple Method Home Office Deduction (Calculation)

Sum of Return / Number of Periods

Simple Rate of Return (Formula)

Self-Employment Income x 0.1413 i.e. Jack has $60,000 of Schedule C self-employment income, $5,000 of dividends & interest, $10,000 of Partnership K-1 income and $20,000 of S corp K-1 income. How much self-employment tax does he owe? $60,000 Sch C + $10,000 Partnership = $70,000 $70,000 x 0.1413 = $9,891

Simple Self-Employment Tax Multiplier

Nominal APR

Simple interest rate for a year (Non-compounded)

Discounted Earning Model V = E / Rd V = Value E = Earnings Rd = Discount Rate

Simplistic way to place a valuation upon a corporation Formula?

Tranche

Single laddered bond created by a Collateralized Mortgage Obligation (CMO) which represents a specific repayment priority.

Section 1244 Stock $50,000(S)/$100,000(J)

Small businesses stock issue classification if profits of the stock issue are less than $1M and stock is exchanged for investor cash or property. Investors are eligible to receive ordinary loss treatment limited to ____________________________ per year. Losses in excess of this receive capital loss treatment. i.e. Bill files MFJ and forms a C corp. He contributes $1M of initial capital in exchange for stock of the same value. He is the sole shareholder. Assuming the business fails, he can recognize a $100,000 ordinary loss when filing his taxes and an additional $3,000 capital loss in the year the business fails. The remaining $897,000 is capital loss.

Social Insurance

Social Security, Medicare, Medicaid and Workman's Compensation are forms of ____________ insurance.

Social Security Disability 5 months At least 1 year

Social insurance which provides disability income assistance for qualifying individuals. To qualify, one must be subject to a mental or physical impairment which entirely prevents them from obtaining substantial gainful income. Elimination period of ____ months How long must the disability be expected to last?

Wind Insurance

Some states may require a separate deductible for ________ insurance even though it is typically a covered peril.

Option Holder

Someone who has bought (is "long") an option contract but has not yet exercised or sold it.

Option Writer

Someone who has sold (is "short") an option contract. i.e. Put option writer contracts to buy shares of stock from the put option buyer by a certain date for a fixed price.

Excess Net Passive Income Tax

Special S corp tax when the corporation has accumulated earnings and profits at the close of its tax year and passive investment income exceeds 25% of gross receipts.

LIFO Recapture Tax

Special tax on the sale of assets by an S corp for a period of 5 years from its date of election.

Bond Laddering

Staggering maturities to minimize interest rate risk.

SEC Yield

Standard yield calculation developed by the Securities and Exchange Commission that allows for fairer comparisons of mutual funds (especially bond funds) and is based on the most recent 30-day period covered by the fund's filing.

Coefficient of Variation (CV) Standard Deviation / Expected Return

Standardized measure of the risk per unit of return. Formula?

$10,000

State and Local Tax Deductions are now limited to $_____________ as an itemizable deduction.

Blue-Sky Laws

State laws that regulate the offering and sale of securities for the protection of the public.

Workers Compensation

State social insurance program that provides benefits to workers who suffer work-related injuries or illnesses, or to their survivors. In a majority of states, employers pay premiums to private insurance companies in order to furnish coverage. The employee never pays or is taxed on anything. Benefits are considered final and non-negotiable.

Representation

Statement made on the application by the proposed insured in response to a query from the insurance company relating to a proposed risk. Representations may be material or immaterial. Material representations must be substantially true, otherwise if material misrepresentations are discovered during the first 2 years of contract issuance (contestability period) they may void the contract. Representations are not promises.

Growth Stock

Stock from a company which has a consistent record of relatively rapid growth and earnings.

Value Stock

Stock from a company which is trading at a low market value considering historical earning records and value of current assets.

Restricted Stock Substantial Risk of Forfeiture Doug is taxed for $40,000 of ordinary income (1,000 x 40) If Doug had made a Section 83(B) election, then he would have been taxed for $10,000 of ordinary income. If he sold the stock after 5 years then he would have $30,000 of long-term capital gains. However, if the restricted stock is forfeited after a Section 83(b) election then there is no adjustment of previously reported income tax.

Stock given to an employee who is prohibited from selling the stock before certain conditions are met. May be forfeited by unsatisfactory performance, leaving the company before a specified time period, leaving to work for a competitor. IRC Section 83 states that the value of a stock will not become income to an individual as long a it is subject to ___________________________. i.e. Doug's employer grants him 1,000 shares of restricted stock worth $10 per share. He must remain with the company for 5 years in order to claim the common stock. After 5 years the shares are no longer restricted and are worth $40 per share. How is Doug taxed once the 5 years are up? An IRC Section 83(b) election allows an employee who receives restricted stock to immediately recognize the grant as income. If Doug had made a Section 83(b) election, how would he have been taxed and what are the risks.

Blue-Chip Stock

Stock of a large, well-established, financially sound and highly regarded company which typically maintains a strong ongoing dividend.

Nonqualified Stock Options (NQSO) aka "Regular Stock Option" Bargain Element, Ordinary Income (W-2) Bargain Element Bargain Element = FMV - Exercise Price

Stock options which do not qualify for special tax treatment. They have no IRC requirements Key employees are taxed on the _________________ as ______________________ income Employer receives a tax deduction for? Bargain Element = __________ - ___________

Russell 2000

Stock prices of 2000 relatively small but actively traded U.S. corporations

Income Stock

Stock that pays consistent higher-than-average dividends compared to other stock issues.

Defensive Stock

Stock which is typically unaffected by negative business cycles.

Cyclical Stock

Stock with market value that tends to reflect the state of the economy.

Small Firm Effect (EMH Anomaly)

Stocks of small firms may exhibit abnormal returns, primarily in January. Possibly due to less available institutional analysis and subsequent inefficient pricing.

Concentrated Portfolios

Strategy involving a high concentration in specific securitie(s). High Unsystematic Risk Common in ESOPs Hedge risk by buying puts

Portfolio Diversification

Strategy of spreading funds among a wide array of investments with low correlation to reduce unsystematic risk and enhance returns.

Normal "Positive" Yield Curve (Ascending)

Structure of Interest Rates which indicates expansion and rising interest rates.

Flat Yield Curve

Structure of Interest Rates which indicates peak and level interest rates.

Inverted Yield Curve

Structure of Interest Rates which indicates recession and falling interest rates.

Inverted Yield Curve (Descending)

Structure of Interest Rates which may lead to Federal Reserve monetary tightening.

Diversification

Structuring an investment portfolio to reduce risk by containing multiple assets with low correlation.

Behavioral Finance

Study of the cognitive processes and biases associated with making financial and economic decisions.

LIFO = Lower Taxable Income

Switching from a FIFO to LIFO inventory method results in _________ taxable income during inflationary periods because high-priced recent inventory is offset by current revenues.

Normal Probability Distribution

Symmetrical probability distribution resembling a "bell-shaped" curve.

Progressive Income Tax System Lower

System in which a taxpayer's tax rate increases as the taxable amount of their income increases. The taxpayer's effective tax rate is therefore ______________ than the marginal tax rate.

Beta measures

Systematic risk

Cash Management Bills

T-Bills issued in variable terms.

Choose FMV or Basis If FMV is chosen then up to 30% for public charities or 20% for private charities. If Basis is chosen then up to 50% for public charities or 20% for private charities. Vehicle or Equipment usable by the charity

Tangible use-related appreciated (LTCG) property gifted to charities is available as an itemized deduction to up to what percent of a taxpayer's AGI? Examples include ___________________________

Lesser of FMV or Basis If FMV is chosen then up to 30% for public charities or 20% for private charities. If Basis is chosen then up to 50% for public charities or 20% for private charities. Coin Collection; Tangible asset unusable by charity.

Tangible use-unrelated appreciated (LTCG) property gifted to charities is available as an itemized deduction to up to what percent of a taxpayer's AGI? Examples include ___________________________

Accrual Method Merchandise from Inventory, $25M

Tax accounting method whereby a taxpayer reports income as earned and expenses as incurred. Required if a business sells ____________________________ and if gross receipts are >$______M

Hybrid Method

Tax accounting method whereby a taxpayer reports income using separate methods depending on goods & services rendered. They may use an accrual method for the sale of inventory and a cash method for income for services. (i.e. Auto Dealer)

Cash Method <$25M for the past 3 years

Tax accounting method whereby a taxpayer reports income when cash is collected (or constructively received) & expenses when payments are made. Common with self-employed individuals & sole proprietors. Allowable to partnerships, C corps & qualified PSCs with annual average gross receipts of <$_____M for the past ____ years.

Foreign Tax Credit

Tax credit available to a company with foreign income that has already been taxed by the foreign jurisdiction. For example, a US company's income derived from its non-US operations typically is included in its tax return to determine the amount of US income tax due. If income from foreign sources has already been subjected to foreign income taxes, the same income is taxed twice. To relieve the effect of double taxation, US tax law grants a US company a tax credit against its total US income tax liability for foreign income taxes paid by the parent and its subsidiaries.

Refundable Tax Credit

Tax credit that can reduce one's income tax liability to below zero with the excess being refunded to the taxpayer.

Nonrefundable Tax Credit No

Tax credit that can reduce one's tax liability only to zero; however, if the credit is more than the tax liability, the excess is not refunded. May the unused amount be carried over to future tax years?

American Opportunity Tax Credit 4 Half-Time 100%; 25%, $2,500 Half-Time Felony Drug Room & Board 40; $1,000

Tax credit usable for the first ____ years of higher education. Eequal to _____% of first $2000 of qualifying expenses and ____% of the next $2000 ($_________ max per year for up to 4 years). Must be enrolled at least _______________. Can be spouse or dependent of the tax payer. No ____________________ Convictions. Does not cover ________________________. Up to ____% or $_____________ is refundable May be used for multiple children simultaneously. Phaseouts

American Opportunity Tax Credit 4 100%, 25%, $2,500 40%, $1,000 Half-Time Felony Drug Room & Board

Tax credit usable for the first ____ years of higher education. Equal to ____% of the first $2000 of qualifying expenses and ____% of the next $2000 ($__________ max per year for up to four years). Up to _____% or $___________ is refundable Must be enrolled at least _____________. Can be used by the spouse of dependent of the tax payer. No __________________ convictions. Does not cover ___________________. May be used for multiple children simultaneously. Phaseouts

Income, Filing Status & Age

Tax filing requirements are determined by?

Business Purpose Doctrine

Tax law doctrine giving the IRS power to disallow business expenses for transactions that don't have a business purpose.

Tax Benefit Doctrine

Tax law doctrine which allows the IRS to convert typically nontaxable receipts into income under certain circumstances. i.e. Taxpayer is reimbursed for previously deducted medical expenses.

Assignment of Income Doctrine "Fruit-of-the-Tree Doctrine"

Tax law doctrine which states that the taxpayer who earned income must be the one to report it and may not reassign it. Aka?

Kiddie Tax Investment Dividends & Interest <19 y/o or <24 y/o (Student) 37%; Estates & Trusts

Tax on a child's unearned income based on the child's parents' marginal rate. Example? Age? Tax at _______% tax bracket applicable to ______________________. Limits income shifting, wherein families are prevented from transferring large amounts of unearned income to children for tax avoidance purposes. Notably relevant in UTMA/UGMA accounts.

Accumulated Earnings Tax $250,000

Tax penalty above regular income tax imposed on corporations that retain earnings beyond reasonable business needs ($_________________) instead of distributing dividends to shareholders.

IRS Form 1040X

Tax return errors can be corrected by filing IRS Form _________.

Prepaid Tuition Plan (Guaranteed Tuition Plan)

Tax-advantaged college savings plan which allows a family to prepay and effectively "lock-in" all or part of the costs of future in-state public university tuition at current prices (restricted enrollment). Conversion to private or out-of-state colleges may be possible. Prices are guaranteed by the state. Room & Board is not covered. No investment options (Only inflation-based performance). Good option for the risk averse investor.

Health Savings Account (HSA) 20%

Tax-advantaged medical savings account available to taxpayers who are enrolled in a high-deductible health plan (HDHP). Contributions are tax deductible and earnings are deferred. Withdrawals are tax-free if used to pay for qualified medical expenses. _____% penalty for nonqualified expenses before age 65 Contribution limits and catch-up provisions apply. Replaced Archer MSAs

529 College Savings Plan

Tax-advantaged savings plan that can be used for any qualified educational expenses. Contributions are post-tax and earnings are tax-free if used for qualified educational expenses. Market based performance per risk tolerance with no guarantees. Open enrollment with broad use.

Criminal Fraud

Tax-evasion resulting in heavy court-appointed fines and/or imprisonment.

Charitable Remainder Trust

Tax-exempt irrevocable trust designed to reduce current taxable income of individuals by first dispersing income to the beneficiaries of the trust for a specified period of time and then donating the remainder of the trust to the designated charity

ABLE account

Tax-preferred savings account for qualified disability expenses.

Tax-Free Yield / (1 - Marginal Tax Rate)

Taxable Equivalent Yield (Formula)

Tax-Exempt Yield / (1 - Marginal Tax Rate) Municipal Yield / (1 - Tax Bracket)

Taxable Equivalent Yield (TEY) (Formula)

AGI, less the greater of itemized deductions or the standard deduction.

Taxable Income

FMV - Basis

Taxable income at sale of capital asset = (_______ - _______)

10% It is included as income in the next tax year.

Taxes such as Income, Real Estate, Sales, Property, etc, are an itemizable deduction up to an aggregate ______% If a taxpayer receives a state or local refund for taxes deducted in a prior year then __________?

Federal Insurance Contributions Act (FICA)

Taxes which fund Social Security and Medicare.

Constructive Receipt Doctrine

Taxpayer must recognize income when it is actually or constructively received.

Qualifying Child 1/2 of the year <19 under normal circumstances; <24 if currently a student; Any age if permanently & totally disabled. > 1/2 annual support Their own dependents, Joint Tax Returns U.S. Citizen, U.S. National, U.S., Canadian or Mexican Resident

Taxpayer's child, stepchild, foster child, brother, sister, step-sibling or descendant that qualifies as a dependent. Must have lived with the taxpayer at least ___________________ Age must be: ____________________ Amount of support which must have been provided? May not claim _________________ or file ____________________________. Residential Status must be: _______________________________

Adjusted Basis

Taxpayer's initial investment ($) + Improvements, Building Permits, Legal Fees, Commissions - Cost Recovery Deductions (Depreciation, Amortization, Depletion). or Original Cost Basis + Cost to Buy + Improvements - Depreciation

Qualifying Relative 1/2 of the year 1/2 Annual Support No $4,300; No (S.S. Benefits do not count against this limit). Yes Direct Ancestor

Taxpayer's parent, in-law, niece/nephew or aunt/uncle that qualifies as a dependent. Must have lived with the taxpayer at least ___________________. Amount of support which must have been provided? May they be a qualifying child of another taxpayer? What is their income limit? Is it affected by Social Security benefits? Claimable if they die inter-year? If they are a __________________________ then they do not have to reside under the same roof.

Capital Assets

Taxpayer-owned assets, including securities and personal residence.

Calendar or Fiscal Year Fiscal Year When they file their initial tax return. They must report their income share in the same year as the business.

Taxpayers may adopt a ___________ or ___________ year accounting period for which they will report annual income to the IRS. The fiscal year accounting period method requires adequate financial records and is used if a taxpayer's tax year ends any month other than December. Many businesses adopt the ________________ accounting period method so that they may properly tax plan around their expected income and expenses. (Especially for seasonal industries) A taxpayer's accounting period is established when? IRS consent is required to change this. If a partner or member of an S corp shareholder has a different tax year than their business entity then they must report their income share in which year?

Charts Trends Volume Supply & Demand Data Moving Average Support & Resistance

Technical Analysis considers:

Trading Patterns

Technical analysts believe that buying opportunities can be identified by studying

Slowly

Technical analysts believe that prices react how to new information?

Rule of 72 Interest Rate Years

Technique for estimating the number of years required to double your money at a given rate of return. 72/__________ = Years to Double ($) 72/ _________ = Interest Rate needed to Double ($)

Phishing

Technique to gain personal information for the purpose of identity theft, usually by means of fraudulent e-mail.

Annual Renewable Term (ART)

Term life insurance in which premiums increase annually but continued evidence of insurability is not required.

Convertible Term

Term life insurance which is able to be converted to permanent insurance at a lower face amount without proving evidence of insurability. Often a provision in group term life insurance.

Level Term

Term life insurance which provides a set death benefit for a fixed premium for a specified number of years.

(END Mode) I/Y: 0.8333 (10/12) PV: 0 PMT: -500 FV: 50,000 ______________________________________ Cpt N: 73.0389 (73.0389 / 12) = 6.09 years

The Browns need $50,000 for a down payment. If they save $500 at the end of each month and earn 10% per year how long will this take?

Duty of Loyalty

The Duty of ________________ states that a CFP must avoid or disclose and manage conflicts of interest.

Principal

The Insurance Company acts as a ______________ and is represented by agents.

Commercial Package Policy (CPP)

The Insurance Services Office (ISO) commercial lines policy that contains 2 or more lines or coverage parts. to provide a broad spectrum of Property and Casualty coverages for businesses. Combines multiple coverages in one policy for a lower premium. In addition to required basic Property and Liability insurance, the insured may add additional Marine, Boiler and Machinery, Glass, Crime, Business Auto or Farm coverages.

Demand Curve Decreases

The ____________ curve is an downward sloping line with price as the y-axis and quantity as the x-axis. It indicates that price ____________ as quantity increases.

Supply Curve Increases

The ____________ curve is an upward sloping line with price as the y-axis and quantity as the x-axis. It indicates that price ____________ as quantity increases.

Lesser; 50%; 30% Business Inventory, Artwork created by taxpayer, Stock held < 1 year, Letter & Manuscripts written by taxpayer.

The _____________ of FMV or basis of Ordinary income (STCG) property gifted to a charity is deductible up to ______% of taxpayer AGI for public charities or _______% for private foundations. Examples include _____________________________________________

Competence

The ability to do something successfully and/or efficiently. Depending on the situation and in order to best serve their clients, CFPs must gain competence, seek assistance from other professionals or limit/terminate the financial planning engagement.

Liquidity

The ability to sell or redeem quickly at a known price without loss.

Moving Expenses Deduction

The above-the-line Moving Expense Deduction has been _____________________ as per the Tax Cuts & Jobs Act of 2018.

Alimony Recapture (Excess Front-Loading Rules) $15,000

The amount of alimony that previously has been included in the gross income of the recipient and deducted by the payor that now is deducted by the recipient and included in the gross income of the payor as the result of front-loading. Complicated congressionaly established rules established to further dissuade the disguising of property settlements as alimony. I there is a >$______________ decrease in alimony payment between any of the first 3 years the alimony recapture will be enacted in the 3rd year. i.e. Alimony payments of $60,000 in 2016, $40,000 in 2017, $20,000 in 2018. There is a $20,000 decrease at one point and therefore alimony recapture applies.

Supply

The amount of goods available.

Current Yield

The amount of interest earned on a bond, expressed as a percentage of the bond's current market price

Book Value (Shareholder Equity / Shares Outstanding)

The amount of stockholders' equity in a firm. Calculation?

Repo Rate

The annualized percentage difference between lender's purchase and sell back price.

Apparent Authority

The authority an agent is believed by third parties to have because of the behavior of the principal.

Express Authority

The authority granted to an agent by means of their written contract with the insurance company.

Geometric Mean (Internal Rate of Return)

The average compounded rate of return.

IRS Form 1040

The basic income tax form that is the basis for calculating personal income tax. Automatically use if: - Income >$100,000 - Itemizing - Self-Employed - Recognizing Income from Sale of Property

April 15th 15th day of the 4th month after fiscal year-end. 15th day of the 3rd month after fiscal year-end. First March 15th after fiscal year-end.

The calendar year filing deadline is ___________________ For sole proprietors utilizing a fiscal year? For corporations utilizing a fiscal year? For partnership utilizing a fiscal year?

Income Effect

The change in consumption resulting from a change in real income. If the price of a good increases consumers will discontinue use unless their income increases as well.

Replacement Cost

The cost to repair or replace property using new materials of like kind and quality with no deduction for depreciation. This is the best coverage valuation for homeowner's insurance and should be chosen in most circumstances.

Risk Tolerance

The degree, amount, or volume of risk that an individual can withstand.

Stock Intrinsic Value

The discounted present value of a stock's future cash flows

Duty of Care

The duty of __________ states that a CFP must use appropriate care and skill to consider client goals, risk tolerance and circumstances.

Fiduciary Duty

The duty to act in a client's best interest over your own is a ________________ duty.

Consideration

The exchange of value necessary to bind an insurance contract. i.e. Paying the first premium

Market Risk Premium (Market Rate - Risk-Free Rate)

The expected return needed to entice investors towards entering the market. The difference between the expected return on a market portfolio and the risk-free rate The slope of the Security Market Line (SML) Formula?

Initial Public Offering (IPO)

The first public offering of a corporation's stock.

Higher

The following can result in _____ auto insurance premiums City Residence, Young Male, Business Use, Being Single

Schedule K-1

The form supplied by a partnership, LLC, or S corporation to owners indicating their proportionate share of income/loss to be reported on their Form 1040 tax returns.

Economic Peak

The highest point between the end of an economic expansion and the start of a contraction in a business cycle. Characterized by high GDP, inflation, output and capacity utilization but low labor productivity and efficiency.

Strict Liability

The legal responsibility for damage or injury even when the defendant was not negligent. i.e. Liability for damages caused by products sold.

Economic Trough

The lowest point between the end of an economic contraction and the start of an expansion in a business cycle. Characterized by low GDP, inflation, output and capacity utilization but high labor productivity and efficiency.

Net Amount at Risk (NAR) DB - CV

The monetary difference between the death benefit paid by a permanent life insurance policy and the accrued cash value. Formula?

Offer & Acceptance

The necessary elements of mutual assent; for example, an agreement of one party to buy and another party to sell. Must be unqualified and in exact terms after underwriting.

Put-Call Parity

The no-arbitrage relationship between premiums of put and call options with the same strike price and expiration date.

Dividend

The non-guaranteed portion of corporate profits paid out to stockholders.

Conversion Ratio

The number of shares of common stock received upon conversion of a convertible bond.

Tangent (Where they only intersect momentarily at one exact opposing point)

The optimal portfolio would lie where on an efficient frontier graph which also displays an investor's indifference curve?

Exclusion Ratio Investment / Expected Return Investment / Life Expectancy $15,840 per year 66% (400,000 / (2,000 x 12 x 25)) $4,444.44 per year (400,000/90)

The percentage of a nonqualified annuity's earnings that is not subject to taxes. Fixed Annuity (Formula) Variable Annuity (Formula) i.e. John invests $400,000 in an annuity at age 65. He begins distributions of $2,000 per month and has a life expectancy of 90. If it was a fixed annuity then his exclusion ratio would be _____% If it was a variable annuity then his exclusion ratio would be?

Coefficient of Determination

The percentage of variance in one variable that is accounted for by the variance in the other variable. For example, the percentage that a portfolio or securities' performance is accounted for by the performance of it's benchmark index. Correlation Coefficient (Squared) https://www.investopedia.com/terms/c/coefficient-of-determination.asp

Risk

The possibility of adverse results from expected desired outcomes

Investment Risk

The possibility that an investment will fail to realize the expected return.

Subrogation

The process by which an insurer can, after it has paid a loss under the policy, recover the amount paid from any party (other than the insured) who caused the loss or is otherwise legally liable for the loss.

Risk Diversification

The process by which risks are shared across many different assets or people, reducing the impact of any particular risk or any one individual. i.e. Investing in a Mutual Fund

Compounding

The process of accumulating interest on an investment over time to earn more interest.

Discounting

The process of finding the present value of a cash flow or a series of cash flows. The reverse of compounding i.e. $110 (FV) discounted @ 10% = $100 (PV)

Carryover

The recipient of appreciated gifted property will receive a _________________ basis.

Stepped-Up

The recipient of appreciated inherited property will receive a ________________ basis free of intervening taxation.

Replacement Cost

The recommended amount of homeowner's insurance coverage is the _________________ cost of the property.

Dynamic Risk

The risk that arises from the continual change in the business environment which cannot be transferred to an insurer. i.e. Economy, Business Cycle, Inflation

Viatical Settlement

The sale of a life insurance policy on the life of a terminally ill insured with a life expectancy of less than 2 years to an investor. The insured receives a portion of the death benefit tax-free. The policy must be past the incontestability period. The investor becomes the beneficiary and picks up premium payments. May be an option for chronically ill individuals who are unable to perform 2+ ADLs but the benefit is only tax-free if it is being used to fund long-term care.

Conversion Price

The share price at which a convertible bond can be exchanged for common stock.

Value Investing

The strategy of selecting stocks that trade for less than their intrinsic values. Assumes P/E Ratio to be below natural level. Therefore, an efficient market will drive up market value.

$2,500 Above-the-Line

The student loan interest deduction lets you deduct up to $_____________ of the interest you paid on a loan for higher education. This is a(n) __________-the-line deduction which is able to be combined with tax credits.

Total Assets Total Liabilities

The sum of current assets, personal use assets and investments. i.e. Cash equivalents with maturities (< 1yr) + Personal Use Assets + Investments The sum of current liabilities and long-term liabilities i.e. Promissory Notes & Consumer Debt (< 1yr) + Mortgages, Lines of Credit and Home Equity Loans.

Net Outflow

The sum of fixed, variable and tax outflows

Alternative Minimum Taxable Income (AMTI)

The tax base for the AMT: regular taxable income increased or decreased by AMT adjustments and increased by AMT tax preference items. Regular taxable income + Positive AMT Adjustments - Negative AMT Adjustments + AMT Preference Items.

Direct

The term length of a bonds and its duration/convexity have what type of relationship?

Social Security Blackout Period

The time during which a surviving spouse is ineligible to receive Social Security survivors benefits. The period begins when the youngest child reaches age 16 and continues until at least age 60 when the spouse would be eligible for survivor benefits.

Self-Employed Tax

The total Social Security and Medicare tax, including employer-matching contributions, paid by people who work for themselves. 15.3% of the first $137,700 net income + 2.9% over that 12.4% Social Security (50% Employee/50% Employer) 2.9% Medicare (50% Employee/50% Employer) 0.9% Additional Medicare Tax (100% Employee) if income exceeds $200,000 (S), $250,000 (J), $125,000 (MFS)

Gross National Product (GNP)

The total value of goods and services, including income received from abroad, produced by the residents of a country within a specific time period, usually one year.

10% of the contract value

The typical amount of annual free withdrawal from an annuity without incurring surrender charges is?

Prohibition of Circumvention

The use of a 3rd party to violate the CFP Code & Standards

Inverse

The yield to maturity of a bond and its duration/convexity have what type of relationship?

Arbitrage Pricing Theory (APT)

Theory of risk-return relationships derived from many unexpected considerations in large capital markets.

Dow Theory

Theory stating that the market is in a basic upward trend if an index such as the DJIA advances above a previous important high, accompanied or followed by a similar advance in the other average. When the averages both dip below previous important lows, this is regarded as a confirmation of a downward trend

Short-Interest Theory

Theory that heavily shorted stocks may be prime candidates for significant price appreciation in the near term, as short sellers buy the stock to cover their short positions.

Liquidity Preference Theory

Theory that investors demand a risk premium on long-term bonds

Odd-Lot Theory

Theory that investors who trades in less than 100-share quantities is usually wrong and that profits can be made by acting contrary to these trading patterns.

Mutual Fund Cash Position Theory

Theory that large cash positions held within mutual funds indicates a bullish signal.

Market Segmentation Theory

Theory that the shape of the term structure of interest rates implies that the rate of interest for a particular maturity is determined solely by demand and supply for a given maturity. This rate is independent of the demand and supply for securities having different maturities.

Unbiased Expectations Theory

Theory that the shape of the term structure of interest rates is determined by an investor's expectations about future interest rates.

Inverse As price increases, quantity purchased decreases.

There is an _____________ relationship between a product's price and the quantity purchased.

Tax Reform Act of 1986

This Act included 2 provisions to limit tax-shelter investments. At-Risk rules first, then Passive Activity rules work together to preclude income ta losses on passive activities.

Adverse Selection

This concept states that a high-risk person benefits more from insurance, so they are more likely to purchase it.

Expected Family Contribution (EFC) Lower, Higher 20%, 5.64%, 50%

This is a number used to determine your eligibility for federal student financial aid based on the parents' and/or student's ability to contribute to post-secondary expenses. In general, the ___________ the EFC, the ___________ the financial aid award from the college may be. Home equity, Primary vehicle, Life Insurance Cash Value and Retirement Assets are not counted. Student assets are assessed at _____% Parental assets assessed at ________% Student income assessed at _______% above $6,420 Parental income assessed at 22-47%

Dilution

This occurs when the number of shares outstanding of a corporation increases.

Additional Standard Deduction > Age 65 and/or Blind

This tax deduction is give to taxpayers who take the sttandard deduction and are __________ and/or __________. x2 if both are true. Reduces AGI.

Nonforfeiture Options

Three options available by law to policyowners that enable them to recover a policy's cash-value upon surrender of that policy. (1) Cash Surrender (2) Reduced Paid-Up Insurance (3) Extended Term Insurance

Life Insurance Settlement Options

Three options available regarding the payout of life insurance policies. (1) Cash Payout - Tax free as a lump sum (2) Interest-Only Payout - Insurer retains and reinvests, Beneficiary gets taxable gains, their beneficiary gets tax-free DB. (3) Lifetime Income

Savings & Loan Association

Thrift institution which functions just like a bank but has a strong emphasis on providing affordable residential mortgages.

Certificate of Deposit (CD)

Time deposit made to a banking institution for a specified period at a fixed interest rate. Early withdrawal penalties apply. These are considered a cash equivalent if the maturity is < 1 year.

Surrender Schedule

Timeframe during which the owner of an annuity would be penalized for selling or withdrawing money.

Take expenses/deductions this year and reduce future income and add-back preference items.

To assist a taxpayer with AMT reduction for their tax next year you should recommend that they:

Exercise NQSOs and recognize more income this year.

To assist a taxpayer with AMT reduction for their tax this year you should recommend that they:

Estimated Payments; 90%

To avoid underpayment penalties a taxpayer should make _______________ payments that are the lesser of ______% of their prior-year's tax liability.

<36% of monthly GROSS income

Total Debt Ratio

Indexing

Tracking an index via Mutual Funds & ETFs

Passive Activities Non-Realtor Real Estate Income & Limited Partner Income

Trade or business in which the taxpayer does not materially participate i.e. __________________ & ____________________

Hedging (Options)

Transaction involving derivatives (including options) to minimize risk.

Professionalism

Treating others with dignity, courtesy and respect.

Option

Two-Party contracts which trade on major exchanges and have standardized exercise (strike) prices an allow the holder/buyer a right but not the obligation to buy (call) or sell (put) shares of an underlying security at a specified price on or before the expiration date. Buyer/Holder pay a premium for the right to exercise the option. Seller/Writer receives the premium and is obligated to buy/sell if the buyer exercises their option. Expiration Length: 9 months

Inland Marine Insurance

Type of business insurance that helps cover products, materials and equipment while they are transported on land, such as by truck or train.

Qualified Longevity Annuity Contract (QLAC) 85

Type of deferred annuity funded by a qualified retirement plan or IRA which provides guaranteed monthly payments until death that are shielded from the downturns of the stock market. The insurer bears interest rate and market risk. Greatest risk is insurer creditworthiness. RMDs may be delayed until as late as age _____ from these contracts. These are

Point of Service Plan (POS)

Type of managed care plan that is a hybrid of HMO and PPO plans. Like an HMO, participants designate an in-network physician to be their primary care provider. But like a PPO, patients may go outside of the provider network for health care services.

Public Charity hospitals& medical research orgs, churches, schools & educational orgs, governmental units American Red Cross, Salvation Army, United Way 50%, 60%

Type of not-for-profit organization that is organized for purposes beneficial to the public. Examples include ____________________________________________________ Specific examples include ________________________________________ Contributions to these organizations are deductible up to _______% of the taxpayer's AGI or _______% for cash.

Appreciated (LTCG)

Type of property matters most when dealing with gifts of ___________________ property.

Treasury STRIPS

U.S. Government Zero-Coupon Bonds. Created by separating the semiannual coupon payments and principal portion of treasury debt securities. Purchasable at deep discount through financial institutions and U.S. Government broker dealers. Suitable when the holder needs to receive a certain amount at a certain date. Interest accrual is taxed pre-maturity. High Interest Rate Risk. No Liquidity, Default or Call Risk.

Eurodollar Bonds

USD-denominated bonds sold outside the United States.

Yankee Bonds

USD-denominated debt securities issued by foreign governments/corporations and traded in U.S. securities markets.

Eurodollars

USD-denominated deposits at foreign banks or foreign branches of American banks. Utilized to settle large international transactions.

Foreign securities correlation to domestic securities?

Uncorrelated or Minimally Correlated

$5,250

Under the Employer Educational Assistance Program, employers may provide up to a $__________ annual tax-free employee benefit for higher education.

Best Efforts Underwriting

Underwriter sells as much of the issue as possible, but can return any unsold shares to the issuer without financial responsibility.

Anomalies

Unexpected contradictions to the Efficient Market Hypothesis are considered to be?

Windfall Income

Unexpected lump sums such as inheritance or lottery proceeds.

Speculative Risk

Uninsurable risk in which either profit or loss is possible. i.e. Market Risk, Gambling

Speculative Risk Gambling, Market Risk

Uninsurable situation in which either profit or loss is possible. i.e. _________________________________

Variable Universal Life

Universal policy where the premiums are invested in variable subaccounts.

Call Option Holder potential Gain/Loss?

Unlimited / Premium

Discretionary Expense

Unnecessary or nonessential expenses are considered to be _____________________ expenses.

25%

Unrecaptured Section 1250 Long-Term Gain is taxed at a maximim ______%

Hedge Fund

Unregistered private investment pools which employ risky strategies and are only open to accredited investors. Exempt from SEC regulation and may lack transparency while pursuing speculative investments including leverage, short sales & alternative investments.

Commercial Paper

Unsecured promissory notes of $100,000+ with maturities in < 270 days.

Precious Metals

Valuable ores such as gold, platinum, and silver which may be traded via commodity futures and tend to display a negative correlation with stocks and provide a hedge against inflation.

PLV corp has an anticipated FCFE of $3 per share and is expected to grow at a constant rate of 3% annually for the foreseeable future. Your client has a required rate of return of 14%. What is the intrinsic value of PLV corp? V = FCFE / r - g V = Intrinsic Value FCFE = Free Cash Flow to Equity r = Required Rate of Return g = Dividend Growth Rate V = 3 / 0.14 - 0.03 $27.27 per share

Valuation of a stock which does not forecast its dividends. (Example)

XYZ stock is currently paying a dividend of $2 per share which will grow at a constant rate of 6% annually. What should the market value of this stock be if the required rate of return is 10%? V = D1 / r - g V = Intrinsic Value D1 = Dividend Paid at the end of the 1st period r = Required Rate of Return g = Dividend Growth Rate V = 2.12 / 0.1 - 0.06 $53 per share

Valuation of stock with constant dividend growth (Example)

KRF corp offers a $100 preferred stock that will always pay a $1.50 potential dividend. If an investor's required rate of return is 12% how much should they pay for KRF? Dividend / Required Rate 1.5 / 12 $12.50 per share

Valuation of stock with constant dividend. (Example)

Forward Pricing

Valuation process for mutual fund shares, whereby an order to purchase or redeem shares is executed at the price determined by the portfolio valuation calculated after the order is received. Portfolio valuations occur at least once per business day after 4pm EST.

Par Value (Face Value)

Value assigned to a share of stock and printed on the stock certificate.

Life Insurance Nonguaranteed Values

Values on a life insurance policy for which the insured is at risk. Often associated with variable contracts.

Life Insurance Guaranteed Values

Values on a life insurance policy for which the insurer is at risk. Typically based around interest rates.

Constant Growth Dividend Discount Model V = D1 / r - g V = Intrinsic Value D1 = Dividend Paid at the end of the 1st period r = Required Rate of Return g = Dividend Growth Rate

Version of the dividend discount model in which dividends grow at a constant rate Formula?

No-Growth (Perpetuity) Dividend Discount Model Dividend / Required Rate

Version of the dividend discount model in which dividends remain constant. Formula?

Macaulay Duration

Weighted average time until all cash flows are paid.

Voluntary Employees Beneficiary Association (VEBA)

Welfare benefit plan into which employers may make deposits to pay specified future employment benefits such as severance pay, vacation or sabbatical. Employer established a tax-exempt trust, makes deductible contributions and maintains funds which grow tax-free.

Registered, Bearer, Book-Entry

What are the 3 common bond forms?

Type of property gifted (Type of Gift) Whether or not the organization is tax-qualified (Type of Charity) If the gift is use-related or use-unrelated (Purpose of Charity Use)

What must be known about property gifted to a charity in order to ensure an accurate deduction is taken?

85% 0% if total income is <$25,000 (S) or <$34,000 (MFJ)

What percentage of Social Security benefits are taxable?

Built-In Gains Tax

When a C corp switches to an S corp unrealized gains are recognized.

Key Employee Life Insurance

When a business applies for, owns, and is the beneficiary of the policy covering the life of a key employee. Premiums are not considered a business expense. (nondeductible)

Cost Recovery Deductions

When a business owning taxpayer purchases real or personal property for business use and takes deductions against ordinary income to recover the original cost through depreciation, amortization or depletion.

Tactical Asset Allocation

When a manager varies from the strategic allocation weights when attractive opportunities are present. Short-term deviations per market conditions.

Concealment

When a proposed insured deliberately tries to hide material information from the insurance company.

Recovery of Capital Doctrine

When a taxable sale or exchange occurs, the seller may be permitted to recover his or her investment (or other adjusted basis) in the property before gain or loss is recognized.

Averaging Down

When an investor buys more of a stock as the price goes down. This makes it so your average purchase price decreases.

Substitution Effect

When consumers react to an increase in a good's price by consuming less of that good and more of other goods. Seeking cheaper alternatives

Read This Aloud

When evaluating long-term disability appropriateness consider it as an income replacement tool. (1) Benefit amount should be appropriate. (2) Term should match the client's work-life expectancy. (3) Covers both sickness & accidents. (4) Has appropriate elimination period considering the client's emergency funds. (5) Is noncancelable or guaranteed renewable. (6) Has reasonable premiums. (7) Does not force the client to rely on Social Security's restrictive definition of disability.

Innocent Spouse Relief

When married filing jointly, spouses are considered 1 taxpayer, and are jointly and severally liable for any taxes owed. In certain cases, where one spouse misfiles taxes without the other spouse having "actual knowledge or reason to know" about the misfiling, the IRS will grant ________________________________ to the unknowing spouse, releasing them from liability for paying back tax, interest, and penalties.

Life: At issue P&C: At issue & time of loss

When must insurable interest be present for life and property & casualty insurance.

Assumption of Liabilities

When one party assumes the debt of another party. i.e. The assumption of another party's mortgage in a like-kind exchange.

Bleh

When performing a TVM calculation using a financial function calculator be sure to read the question of BEG/END mode. Also, when calculating monthly or quarterly payments be sure to divide by I/Y and multiply by N.

Cost Recovery Recapture

When selling real or personal property for use in a business for gain the business owner must look back and recapture all or part of these previous cost-recovery deductions as ordinary income. The amount of CRR depends on the type of business property sold at a gain. Section 1231 property can be subject to 1245/1250 taxation if depreciation is taken.

Net Operating Loss (NOL) Indefinitely, 80% Shareholder S Corps & Partnerships In 2019, 80% of the $60,000 may be offset ($48,000). The will recognize $12,000 NOG and carry over $152,000 NOL. In 2020 80% of the $80,000 may be offset ($64,000). They will recognize $16,000 NOG and carry over $88,000 NOL.

When tax-deductible expenses exceed taxable revenues for the tax year a taxpayer realizes ______________. Taxpayers electing NOL may carryover un-utilized losses ________________ to offset _____% of taxable income reported in subsequent years. Allowed for self-employed individuals, sole proprietors, C corps, estates and trusts. Because of the flow-through treatment of C corp income NOL does not offset _________________ losses. NOL is not allowed for ________________ & ________________ i.e. ABC corp is a small closely-held business with the following tax history: $200,000 NOL in 2018, $60,000 gain in 2019 & $80,000 gain in 2020. How are their gains in 2019 & 2020 taxed?

Negative AMT Adjustments

When the deduction for AMT tax purposes exceeds regular income tax purposes a taxpayer experiences __________________________________.

Positive AMT Adjustments Standard Deduction, Additional Standard Deduction, Income & Property Taxes, Bargain Element of ISOs.

When the deduction for regular income tax purposes exceeds AMT purposes a taxpayer experiences __________________________________. Examples?

Bargain Sale to Charity

When the owner of appreciated property sells the property to the charity at his or her cost basis. The basis is proportionally assigned to the gift and the sale, and the owner must recognize taxable gain on the sale in excess of the assigned basis, but the gains are then reduced to reflect the charitable gift. Allocated Basis = Sale Price / FMV x Basis

Blindness (Both Eyes) Muteness Deafness (Both Ears) Loss of Two Limbs

Which conditions meet the definition of presumptive disability?

Business & Rental

Which of these types of legal fees are deductible? Personal, Business, Investment-Related, Rental

Single Premium Whole Life

Whole life policy which is paid up immediately with one lump sum premium payment.

TMV calculation for I/Y

Yield to Maturity (Calculation)

Taxable Equivalent Yield (TEY)

Yield used to compare taxable and nontaxable bonds.

Business Overhead Insurance Usual and Necessary Business Expenses. Owner's Salary

Insurance policy which pays the __________ of a business who's owner becomes disabled. Does not reimburse ___________________. Premiums are fully deductible as a business expense. Benefit is fully taxable.

Standard Deduction or Itemized Deductions

An individual's AGI is reduced by the greater of the ___________________________ or __________________________.

Risk Avoidance

Avoiding behavior that leads to a risk. i.e. Not Drinking

Perfectly Uncorrelated

0

Additional Medicare Tax

0.9% Medicare tax on wages exceeding: $250,000 (MFJ) $200,000 (HH, QW, S) $125,000 (MFS) Employees are responsible for the entirety of this tax.

Unilateral

Insurance policies are ________________ contracts because only the insurance company has a legal obligation to perform.

Bathing, Continence, Dressing, Eating, Toileting, Transferring (BCDETT)

Activities of Daily Living (ADL)s include?

AMT Preference Items; Positive Private activity municipal bond interest Oil & gas depletion (%) + Excess intangible drilling costs Depreciation (ACRS & MACRS but not straight line)

Add-back items which are added to regular income to calculate ATMI. Always have a ___________________ effect. Examples?

American Jobs Creation Act (2004)

Added IRC Section 409A which applies to non-qualified deferred compensation plans and primarily impacts when the decision to defer income must be made and when the distributions may be taken. Requires all employees who elect to defer compensation to have made the decision before the end of the preceding calendar year. Thus decision to defer compensation are made before the money is earned. The period over which distributions from NQDC plans may be taken are now established via plan document and a 6 month waiting period applies before a key employee who has left a company may begin taking distributions.

Boot

Additional cash, assumption of liabilities or personal property given with the property in a like-kind exchange is considered ________ and is taxable.

$100,000 Salary $5,000 Dividends $10,000 LTCG $13,000 LTCL $8,000 Muni Interest _____________________________ $102,000 AGI

Adjusted Gross Income (Example)

Taxable Income

Adjusted Gross Income - Itemized or Standard Deduction

SEC For ADV Pt. 2 120 days 48 hours

Advisor's Brochure; SEC Form which requires investment advisers disclosure their business practices, fees, conflicts of interest, and disciplinary information. This is the primary disclosure document for investment advisers and must be delivered to advisory clients annually within ______ days of fiscal year end. Must be delivered to client at least ______ hours before entering into an advisory agreement.

(( Tax-Adjusted Coupon Rate / Inflation Rate ) - 1) x 100

After-Tax Inflation-Adjusted Rate of Return (Formula)

Pretax Return / (1 - Tax Bracket)

After-Tax Yield (Formula)

Federal Deposit Insurance Corporation (FDIC) $250,000 Individual, Joint, Retirement, Trust $710,000 Joint: $210,000/$250,000 Individual: $250,000/$250,000 Retirement: $250,000/$250,000

Agency of the federal government which insures customer deposits from bank failure. $_______________ is insured at member firms per asset type and ownership categories. 4 Categories? i.e. How much is this person insured for by the FDIC? Joint savings account w/ brother ($300,000) Individual checking account ($75,000) Individual money market mutual fund ($100,000) Traditional IRA ($275,000) Individual CD ($200,000) Joint CD w/ Niece ($120,000) Variable products including MMMFs are never insured.

Aleatory

Insurance policies are contracts of ________________ because money exchange may be unequal and is determined by chance.

Nonqualified Deferred Compensation Plans (NQDC) Salary Reduction, Salary Continuation

An agreed-upon arrangement between the employer and employee which is sometimes referred to as an "executive compensation" plan wherein the employer accepts to pay the employee sometime in the future. Lack of ERISA non-discrimination rules makes these plans favorable for key employees and executives. These plans are often designed to supplement executive income above their qualified plan limits. Executives often favor NQDC plans since they allow them to defer taxation on future earnings. Less administrative costs and more flexibility. Reporting and disclosure documentation requirements do not apply. Funded via Salary _______________ or Salary ____________________ Salary Reduction, aka Pure Deferred Compensation, uses a portion of the executive's pay to fund the promised retirement benefit. Salary Continuation is employed funded and therefore more favorable for the executive. NQDC plans may be funded or unfunded. Funded NQDC plans consist of funds set aside on behalf of the executive but are uncommon because the executive would lose the benefit of tax deferral. The achievement of tax deferral within a NQDC plan depends on... (1) The absence of constructive receipt. (2) The fact that the Economic Benefit Doctrine does not apply. (Creditors of the employer remain attached to funds) (3) The maintenance of substantial risk of forfeiture. (The NQDC plan is merely a promise to pay and no specific account is funded in the employee's name or SSN) Unfunded NQDC plans are those which remain unvested until retirement. Pure Unfunded NQDC plans are only a promise to pay. Informally Funded NQDC plans are more popular and involve ownership of underlying assets by the employer (which are subject to their creditors). This provides the employee with compensation deferral that is represented by more than a promise to pay. The employer pays taxes annually on the interest. Corporate-Owned Cash Value Life Insurance is often purchased to fund an Informally Funded NQDC plan since the cash value buildup is not currently taxable to the employer. A Rabbi Trust is the most popular funding method for informally funded NQDC plans because the employer funds an irrevocable trust to accept deferred executive compensation. This provides the executive with security against non-payment. Funds remain subject to the employer's creditors. The employer is taxed annually on earning within the trust unless it is funded with corporate owned cash value life insurance. The trust agreement may be structured to pay the benefit in the event of employer mergers and acquisitions. At distribution the employee receives ordinary income and the employer gets a tax deduction. A surety bond may be purchased by the executive as insurance against non-repayment. A Secular Trust is another less common funding method for informally funded NQDC plans. An irrevocable trust is funded for the benefit of the employee but distributions are not subject to the employer's creditors and thus the executive is immediately taxed.

Tax Credit

An amount subtracted directly from the tax owed. or A dollar-for-dollar reduction against income tax liability.

AMT Exemption Amount

An amount that a taxpayer is allowed to deduct from alternative minimum taxable income before calculating the taxpayer's AMT liability. $72,900 (S), $113,400 (J)

Deferred Annuity

An annuity that begins providing income sometime in the future.

Annuity Due Ordinary Due

An annuity that pays at the beginning of each period is utilizing ____________ dues. An annuity that pays at the end of each period is utilizing ____________ dues.

Split Dollar Life Insurance Collateral Endorsement Method Endorsement Method

An arrangement between two parties where life insurance is written on the life of one party who names the beneficiary of the net death benefits (death benefits less cash value), and the other party is assigned the cash value, with both sharing premium payments. The _______________ method of split dollar life insurance involves employee ownership of the policy. If the employee dies, the employer is refunded their loan of premiums with the remainder of the death benefit going to the the employee's beneficiaries. This method is appropriate is the employee is a majority shareholder. The ________________ method of split dollar life insurance involves employer ownership of the policy. If the employee dies, the employer is refunded their loan of premiums with the remainder of the death benefit going to the the employee's beneficiaries. This method is appropriate is the employee is a minority shareholder.

Structured settlement

An arrangement by which the claim is paid in installments rather than in one lump sum.

Reverse Mortgage Does Not 62

An arrangement where the lender agrees to provide tax-free income to an elderly homeowner and to be repaid from the homeowner's equity when he or she dies, sells the home or obtains other financing. Benefits (do or do not) count against Medicaid? Minimum age?

Field Audit

An audit conducted by the IRS on the business premises of the taxpayer or in the office of the tax practitioner representing the taxpayer.

Comprehensive

An auto accident involving an animal is only covered if you have ______________________ coverage.

Nonaccountable Plan

An employer's business expense reimbursement plan that does not meet the requirements regarding business connection, substantiation, and returning excess amounts. Payments made under the plan are included in employees' income.

Appraisal $5,000

An estimate of the current value of the property. Used to substantiate the FMV of donated property which is worth >$_____________.

Nonrecurring Expense

An expense which does not occur on a regular basis is known as a ___________________ expense. i.e. individual consumer purchases, some repair work.

Recurring Expense

An expense which is expected on a regular basis is known as a ___________________ expense. i.e. insurance premiums

Unsystematic Risk

Asset-Specific Risk or Diversifiable Risk affecting only a specific company, country or industry. Cannot be correlated with the overall market.

Net Asset Value (NAV)

Assets - Liabilities / # Shares Outstanding *formula hint: Net Asset Value...first word is in term! (Asset)

At Equilibrium, Undervalued and Overvalued

Assets plotted along, above and below the SML are?

Standard Deviation (Example)

Assume ABC stock has generated the following annual returns: 15%, 8%, 2%, 18%. What is its standard deviation? 2nd Data > X01=15, X02=8, X03=2, XO4=18 2nd Stat > Sx = 7.18%

Semiannual

Assumed Bond Interest Payment Schedule

Binomial Pricing Model

Attempts to derive the price of a call option by assuming that the option's price will change in discreet increments based on changes in the market value of the underlying stock.

Technical Analysis

Attempts to predict the direction of prices on the basis of historic price and trading volume patterns when laid out graphically on charts

Office Audit

Audit conducted at an IRS agent's office which is restricted to certain items.

Correspondence Audit

Audit performed through the mail over a minor disputed tax issue.

Implied Authority

Authority that is not expressed or written into the contract, but which the agent is assumed to have because it is reasonably necessary in order to transact the business of insurance for the principal.

Time-Weighted Return

Average annual return without regard to subsequent cash flows.

Modern Portfolio Theory (Harry Markowitz)

Concept of combining securities in a portfolio to increase diversification and thus optimize expected return per a given level of risk.

30% Money Market 40% Bonds 20% Large Cap Equities 5% Small Cap Equities 5% International Equities

Conservative Portfolio Asset Allocation (Example%) Money Market Bonds Large Cap Equities Small Cap Equities International Equities

< 20% of monthly NET income

Consumer Debt Ratio

Demand

Consumer willingness and ability to buy products at a given price.

Annuity

Contract between an owner and insurance company that promise to pay you regular income either immediately or in the future.

Par Value / Conversion Price

Conversion Ratio (Formula)

Conversion Ratio x Common Stock FMV

Conversion Value (Formula)

Warrant

Corporate issue giving shareholders a long-term call option to buy common stock at a set price for a defined period. At issue of the warrant, Exercise price > Stock CMV Often offered as a sweetener for purchasing other securities. Worth purchasing if optimistic about the company.

Subscription Rights

Corporate issue to raise capital which gives existing shareholders a short-term opportunity to maintain proportionate ownership at a reduced price. Shareholders receive 1 such security per share owned. May be exercised, sold or allowed to expire.

Personal Holding Company 50%; 5; Last 60% 20%

Corporation owned by a small number of individuals that receives taxable income consisting primarily of non-business income such as dividends, interest, rents, and royalties. Corporation will be treated as a personal holding company if it meets 2 tests: The stock ownership test requires that the value of _____% or more of the outstanding stock be owned by not more than ____ individuals during the ______ half of the taxable year. 2) The income test requires that at least _____% of the corporation's AGI must be PHC income such as dividends, interest, rents, and royalties. If a company is classified as a PHC, then it will be subject to a separate _____% tax, in addition to the normal corporate rate for its undistributed income.

S corporation Preferred Stock <100 shareholders IRS Form 1120S Schedule K-1; Passive Income Not Liable

Corporation that avoids double taxation by having its income taxed as if it were a partnership. Shareholders are subject to several restrictions and must be U.S. citizens, U.S. residents, Estates, Certain Trusts or Tax-Exempt Organizations. No ___________________ stock is allowed to be issued by the corporation. The corporation must have <______ shareholders. Must file IRS Form _________ by the 15th day of the 3rd month after the corporation's tax year end. Since S corporations are taxed like a partnership, shareholders receive and report Schedule ______ as ______________ income. Shareholder Basis = Investment Interest + Personal Loans to S Corp Shareholders are _________________ for the S corporation's recourse and nonrecourse debt. i.e. Gary is one of two shareholders in an S corp and has contributed $100,000 toward shareholder interst. If the corporation borrows $500,000 from a bank for ongoing operations then Gary's basis remains unchanged. If the business were a general partnership his basis would have increased to $350,000.

Adhesion

Insurance policies are contracts of ________________ because the policyowner can merely accept or reject but not modify the terms provided by the insurer.

Indemnity

Insurance policies are contracts of ________________ because they provide a benefit only when loss occurs.

Utmost Good Faith

Insurance policies are contracts of ________________ because they rely on full and fair disclosure by both parties.

Legal Form

Insurance policies must be filed and approved with state regulatory agencies in order to fulfill legal ________.

Partnership Long-Term Care Policy

Insurance policy which brings together states and private insurance companies to provide qualified LTC policies which coordinate with Medicaid. Policies provide a specific face amount of dollars which would be protected from Medicaid if an individual exhausts LTC benefits.

Real Rate of Return

Inflation-adjusted rate of return

Annual Payout - (Face Value / Life Expectancy) = Ordinary Income

Installment Benefit Taxation (Formula)

Capitalized

Instead of being expensed, assets subject to cost recovery deductions such as depreciation, amortization or depletion are considered to be ____________________.

Pure Risk

Insurable risk that presents the chance of loss but no opportunity for gain. i.e. Homeowner's, Health, Auto or Life Insurance.

Are

Insurance company advisors, intrastate advisors for unlisted securities, foreign private and private fund advisors, commodity & venture capital advisors and small business investment company (SBIC) advisors are or are not exempt from registration with the SEC under the Investment Advisors Act of 1940?

More letters are better

Insurance company ratings rule of thumb

Noncancelable Policy

Insurance continuation provision under which an insurer cannot increase premium rates and must renew the policy until the insured reaches the age specified in the contract. Recommended Choice

Conditionally Renewable Policy

Insurance continuation provision under which an insurer has the right to decline renewal under conditions specified in the contract. If renewed, premiums may increase on a class basis.

Guaranteed Renewable Policy

Insurance continuation provision under which an insurer must renew the policy but premiums may be increased on a class basis upon renewal.

Long-Term Care Insurance 6 months

Insurance coverage that provides nursing-home care, home-health care, personal or adult day care for individuals age 65 or older or with a chronic or disabling condition that needs constant supervision. For pre-existing conditions the company may not pay benefits for LTC related to that condition for a period after the policy goes into effect, usually ____ months. May be defined period or pool-of-money approach. Group LTC premiums are deductible to the employer. Individual LTC premiums are non-deductible. Benefits from both Group or Individual LTC are tax-free. Group coverage may often be continued post-employment.

Private Insurance

Insurance furnished by nongovernmental insuring organizations.

Mutual Companies Participating

Insurance organizations that have no capital stock, but are owned by the policyholders and issue _________________ policies.

The study of the economy as a whole

Macroeconomics

Negatively Skewed Distribution (Left-Tailed)

Majority of scores on the high end of the scale. Mean is lower than the median score.

Positively Skewed Distribution (Right-Tailed)

Majority of scores on the low end of the scale. Mean is higher than the median score. (Preferred)

$900 + 10% depreciation $9,000 x 0.10

Max maintains a room in his home comprising 10% of the residence's square footage as a home office space. His total home-related expense totaled $9,000 for the year. What is his available home office deduction?

Max should file Head-of-Household and claim the Child & Dependent Care Credit.

Max's mother Lucy is bedridden and lives in his home. Max must pay a caregiver to provide meals and aid during the day so that he can work. He pays $5,000 annually for this service. His mother has no income and he is her sole supporter. How should Max file his taxes and are their any tax benefits available to him?

Amount of Time <15 days, Excluded, Nondeductible, Schedule A 15 days+, Schedule E, 14 days or 10% of rental days, $25,000 Vacation Status, 15+ days, >14 days, 10%, A & E

Many restrictions are in place to prevent taxpayers from using vacation homes to generate deductible rental losses. Relevant tax consequences depend primarily on the ________________ the home is used as a rental property, vacation home or primary residence. A property is labeled "Personal Use" if it is rented out _____ days per year. All rent paid to taxpayer is _____________ from gross income. Rental related expenses are ____________________. Deductions attributable to the home are listed in IRS Form 1040 Schedule _____. A property is labeled "Rental Use" if it is rented out _____ days per year and the taxpayer does not in a year's time reside within the property for _____ days or _____% of rental days. Rental income and related expenses are listed on IRS Form 1040 Schedule ____. Up to $____________ of rental business related loss is deductible annually (subject to income phaseouts). If a property is utilized solely for rental use then any personal expenses must be eliminated. For example, if a taxpayer uses a rental property for personal use for 10 days of the year and total expenses for the property are $5,000 then only $4,863 is deductible ($5,000 x 355/365) A property is labeled "Mixed Use" or "_____________ Status" if it is rented out __________ days and personally resided in by the taxpayer for _____ days or _____% of rental days. Income and expenses must be allocated according to use and are reported separately on IRS Form 1040 Schedules __________.

Rate paid on the last taxable dollar

Marginal Income Tax Rate

Systematic Risk

Market Risk, Nondiversifiable, Inescapable but manageable

Primary Market

Market in which new issues of securities are offered to the public.

S&P 500

Market index of U.S. equities based on the performance of 500 large-cap stocks representing various sectors of the overall equities market.

Treasury Inflation-Protected Securities (TIPS)

Marketable U.S. Treasury issues in which the principal amount is tied to the CPI to hedge inflation. Coupon remains level but payout is partially adjusted for inflation on a semiannual basis.

$12,200; $1,100 $12,200

Mary (age 16 and a dependent) has earned income of $15,000 and interest income of $800. She has a standard deduction of $_________________ for earned income and $_______________ for unearned income. She should elect to offset her total income of $15,800 by $__________________.

Itemizable Deduction On the last day of the year they become totally worthless. i.e. ABC stock is purchased for $2 per share on 6/17 and the shares become completely worthless on 3/18. - Would be considered a long-term capital loss on 12/31/18

Worthless Securities are an _______________________________. Worthless securities are considered capital losses when?

On the last day of the year in which they become worthless.

Worthless securities are considered to be sold when?

Naked (Uncovered) Call Option

Written call not covered by the shares of the underlying security. Unlimited potential loss.

Investment Policy Statement

Written document that spells out the relationship between an investor and his or her financial advisor and guides how the advisor will invest the person's money. It should detail the person's investment philosophy, financial situation, and the risks he or she is willing to take, as well as what tasks the advisor will perform.

Rider or Endorsement

Written form attached to an insurance policy that alters the policy's coverage

Banker's Acceptance

Written order for a bank to pay a private third party a stated amount of money on a specific date. Utilized to finance imports and exports. Secondary Markets.

N = 40 ((25 - 5) x 2) I/Y = 2.375 (4.75/2) PMT = 28.75 (57.50/2) FV = 1000 Cpt PV = $1,128.20

XYZ corp issues bonds with a 25 year maturity and a 5.75% coupon. Five years later a similar bond yields 4.75%. Calculate the market value of these bonds.

TMV calculation for I/Y Same calculation as YTM, except that: Par value = Call Price (FV) Maturity Date = 1st Possible Call Date (N)

YTC (Calculation)