Exam 1 Review

What is the formula for "combined income" when determining whether a client's SS income will be taxed, and how much it might be taxed?

"combined income" (AGI + foreign income + tax exempt income + ½ of Social Security benefits)

What is the maximum rental loss deduction permitted to a property owner above the line if that person's income is below $100,000?

$25,000

Which of the following plan types aggregate contributions with one another? 403b SIMPLE 401k SEP 401k

401k and 403b share the 19.5 limitation i.e. if 10k into 401k, limited to 9.5k in 403b

How are traditional and Roth IRA distributions for college expenses treated in regard to taxes and early withdrawal penalties?

-both are penalty free - only Roth is tax free

How much would 1 point cost if you are mortgaging or refinancing $185,000?

.01 x 185,000 = $1,850 this amount is often rolled into the amount being financed or refinanced and becomes part of the loan

How long is the waiting period to begin receiving SSDI?

5 month delay (must wait until month 6)

Regarding COBRA elections, how long is an EE covered after a reduction in hours or normal termination (rather than termination for gross misconduct)?

18 months

What range does A.M. Best's rate?

A++ to D

What range does Standard and Poor's rate?

AAA to CC

What range does Moody's rate?

Aaa to Caa Includes Aa1/Aa2

How do you structure an options collar and when is it useful?

Buy a put and sell a call. Locks in a price. Earns income. A collar is created by selling a call and buying a put. The collar is used typically when an investor wants to lock in a price and does not expect the stock to move much higher. The investor locks in the gain by purchasing the put, and the investor gains premium income from selling the call.

If Michael withdrawals $1,000 from his HSA to pay for a repair bill at the mechanic, what will be the tax consequences?

If he is under 65, the $1,000 will be subject to income tax and a 20% nonqual penalty If he is 65+, the $1,000 will be subject to income tax but the 20% penalty will not apply

What are the three kinds of structures communication in financial planning?

Interviewing Advising counseling

Are qualified distributions from a 529 savings plan considered income for the FAFSA?

NO. Not for the parent or the child

Which is not the main function of the CFP Board's Code of Ethics and Standards of Conduct? To create liability for misconduct To benefit customers To prescribe a standard of conduct to be provided To establish a fiduciary standard

The correct answer is A. The mission of the CFP Board is to benefit the public through its activities of enforcing education, experience, and ethics requirements for CFP® certificants. The Code of Ethics and Standards of Conduct benefits the consumer by setting standards for planner conduct. Topic 1; Domain 8

What types of retirement plans prohibit loans?

SEPS and SIMPLE IRAs

If Sandy were to exercise the 10,000 stock options that expire next year, what would be the income tax consequences? No income tax consequences on exercise Nothing under regular taxes, but a $150,000 AMT adjustment $150,000 ordinary income $150,000 ordinary income and a $170,000 AMT adjustment *You don't have all of the info, just read the back of this card to get the rationale

Since these are ISOs, there is no regular tax at exercise, but there is an AMT adjustment on the bargain element of $15 per share ($32 current price - $17 exercise price). The total AMT adjustment is $15 × 10,000 shares = $150,000. (Topic 57; Domain 6)

Which of the following types of ownership avoid probate? TIC TE JTWROS

TE and JTWROS

Which of the following types of ownership allow for fractional interests and for owners to separate from their interests without the approval of other owners? TIC TE JTWROS

TIC

Paul Michael, CFP®, is a registered representative at an independent broker-dealer who just concluded FINRA arbitration hearings in which he was found to have made unsuitable recommendations and product placements for three clients. He was fined $20,000 and suspended from investment activities for three months. Which of the following is correct? Paul must notify CFP Board within 30 days of the initial notification from FINRA. There is no requirement for Paul to notify CFP Board as to the FINRA action. Paul will be required to divulge the FINRA event only at the time he renews his certification online. Due to the suspension, Paul must voluntarily suspend use of his CFP® marks for an equivalent time period.

The correct answer is A. A certificant who has received a professional suspension must notify CFP Board within 30 calendar days after the date on which the certificant has been named a subject of, or whose conduct is mentioned adversely in, a Regulatory Investigation or Regulatory Action alleging failure to comply with the laws, rules, or regulations governing Professional Services Topic 3; Domain 8

Carl Unger has been meeting with a CFP® professional to provide information for a budget and investment planning. Carl is 38 years of age and a self-employed salesperson. Carl and the CFP® professional discuss whether Carl might be able to reduce his expenses by deducting the expenses of a home office. The CFP® professional wants to advise Carl on the conditions required for Carl to take this deduction. Which of the following conditions is required for Carl to be able to deduct the expenses of a home office? The office area must be used exclusively for Carl's business. Carl must see clients in the home office. Carl may be provided with another fixed place where quotes and sales presentations may be put together. The majority of Carl's time must be spent in the home office.

The correct answer is A. A self-employed taxpayer can deduct the expenses of a home office when it is the principal place of business for the taxpayer. This includes a place where a substantial amount of administrative or preparation work takes place, even if income is not directly generated at that place or clients are not seen there. The taxpayer must not have another fixed location available for these functions and must use the home office exclusively for business. There is no requirement that the majority of the salesperson's time be spent there. Topic 34 TCJA suspended itemized deductions subject to the 2% floor, which suspended employees from deducting home office expenses (not self-employed).

A client is concerned about losing health care coverage at the time he changes jobs. The CFP® professional can advise the client that under COBRA, an employer will not be required to provide continued health insurance coverage for all qualified beneficiaries under the plan in which of the following circumstances? The employee fails to pay 102% of the cost of coverage. The employee becomes entitled to Medicare benefits. The employee's child ceases to be a dependent under the plan. The employee becomes insured under another medical care plan that excludes preexisting conditions.

The correct answer is A. An employer can require a former employee or beneficiary to pay 102% of the cost of the coverage. If the employee or beneficiary fails to pay the premium, coverage can be terminated. Coverage can also be terminated when an employee or beneficiary becomes covered under another plan unless the new plan excludes preexisting conditions. In that case, the employee must be permitted to continue coverage for the period provided under COBRA. A child ceasing to be a dependent is one of the qualifying events that triggers COBRA coverage for qualified beneficiaries. Another qualifying event is an employee becoming entitled to Medicare benefits. Topic 24; Domain 3 *D is not correct b/c if the new plan EXCLUDES PREEXISTING conditions, then the EE may continue their COBRA coverage

Harold Schmidt is 50 years of age and has a good electrical business that he has developed over the past 20 years. Harold has taken his son Ted into the business and has been grooming his son to take over when Harold is ready to retire. Harold has consulted a CFP® professional for advice on his business continuation planning. Which of the following approaches would be the most appropriate recommendation for Harold? Installment sale to son at retirement Installment sale to son over 15 years until Harold retires Private annuity sale to son Gift to son at retirement

The correct answer is A. An installment sale at retirement will provide payments so Harold will have money to live on during retirement. An installment sale now will mean that the son will become the owner of the business and have control over it before Harold is ready for retirement. The preferred approach for Harold would be to make the installment sale at the time he is retiring. The private annuity similarly gives the son ownership immediately. A gift to the son of the business at retirement will not provide Harold with any retirement cash flow. Topic 70; Domain 4 *because of the timing

Foster Damon is 70 years of age and has assets of approximately $15 million. He has decided to embark on a program of gifts for his three children and seven grandchildren. He wants to give each of them the annual exclusion amount so he can reduce his estate, without incurring significant transfer costs. Since Damon is in the top marginal income tax bracket, he would also like to reduce his income taxes, but without causing substantial increases in income tax for his children and grandchildren. Which of the following property interests owned by Foster would be preferred for gifts? Corporate bonds with a basis of $700,000 and fair market value of $1 million Common stock with a basis of $400,000 and fair market value of $1 million Municipal bonds with a basis of $800,000 and fair market value of $1 million Residential real estate with a basis of $600,000 and fair market value of $1 million

The correct answer is A. For Foster, the preferred property interest to use for gifts is the corporate bonds. The municipal bonds provide income that is free of federal income tax, so Foster should retain these bonds to provide himself with tax-free income. The corporate bonds yield taxable income, so giving these bonds to the children and grandchildren will reduce Foster's income taxes. The children and grandchildren will receive taxable interest income from the bonds, but they will pay income tax at a lower rate than Foster. The common stock and real estate are not preferred for gifts because these interests have a lower cost basis, and the low cost basis will be carried over to the donees. When the donees sell the stock or real estate, they will have substantial capital gains tax. If Foster retains these interests, they will receive a step-up in basis at his death. In addition, Foster can continue to depreciate the real estate and thus reduce his income taxes. Topics 64 and 70; Domain 4 *when you answered this before you chose the stock because you were thinking of assets with highest potential for appreciation - in this case, the income producing assets are better (explained above)

Steven Myers, age 47, is married and has two children and is President of Myers Associates, Inc., a graphic arts design company. Steven has consulted a CFP® professional for comprehensive financial planning. The CFP® professional has obtained documents from Steven concerning his employee salary and benefits at his company. The Myers company has a disability income plan which provides long-term disability coverage for its employees. Under the plan, the company pays half of the premium, and the employee pays half. Steven Myers, who has an annual income of $90,000, is insured under the plan for replacement of one-half of his monthly income. If Steven Myers is disabled and receives Social Security disability benefits of $12,000 during the year, how much of this $12,000 will be includible in Steven's gross income for federal income tax purposes? None 0-50% 50-85% 50-100%

The correct answer is A. Generally, for a taxpayer who files a joint return and whose "combined income" (AGI + foreign income + tax exempt income + ½ of Social Security benefits) is above $32,000, up to 50% of Social Security benefits are included in income. If a MFJ taxpayer's combined income exceeds $44,000, up to 85% of Social Security benefits may be subject to taxation. In this case, Steven Myers will have to report one-half of the $45,000 he will receive as disability income insurance benefits because his employer paid one-half of the premiums. Since his combined income will be only $22,500 + $6,000 (which is ½ of his Social Security benefit), for a total combined income of $28,500, he will be below the $32,000 minimum and none of the Social Security benefits will be included in his gross income. Topic 53; Domains 3 and 6 *You missed their trick first time around. The $90k was his annual income before he became disabled. Now he receives half of that (45k) from his disability policy. Half of that (22.5k) is taxable to him because his ER paid half of the premium. Add that 22.5k to 6k (half of his SSDI benefit), for a total income of 28.5k. This is less than the 32k minimum, so he pays no tax.

Charles Train is 28 years of age and works for an employer that has a 401(k) plan. Charles also works for another employer, which has a 403(b) plan. Charles participates in both plans. What is the limit for contributions that Charles can make under the two plans? $19,500 total for both plans $19,500 for each plan $57,000 or 100% of income, total, for both plans $57,000 or 100% of income for each plan

The correct answer is A. If an employee participates in a 401(k) and a 403(b) plan, the elective contributions are aggregated when applying the $19,500 (in 2020) limit on salary deferral. Topic 57; Domain 3

Steven Myers, age 47, is married and has two children and is President of Myers Associates, Inc., a graphic arts design company. Steven has consulted a CFP® professional for comprehensive financial planning. The CFP® professional has obtained documents from Steven concerning his employee salary and benefits at his company. The Myers company has a disability income plan which provides long-term disability coverage for its employees. Under the plan, the company pays half of the premium, and the employee pays half. Steven Myers, who has an annual income of $90,000, is insured under the plan for replacement of one-half of his monthly income. Which of the following statements concerning the Myers company disability income plan is correct? The company could provide the disability income plan for its executive employees only and pay the entire premium for each executive. If Steven Myers is totally and permanently disabled, he will receive a tax credit to reduce the impact of taxes on the disability income. If Steven Myers is totally and permanently disabled and receives benefits under the company disability plan, the benefit payments will be fully taxable income. If Steven Myers is totally and permanently disabled in an accident, he will receive benefits equal to his monthly income.

The correct answer is A. Long-term disability income plans are not subject to nondiscrimination rules, so such plans may be provided for only a select group of executives. The tax credit for disabled persons is available only for persons of low income. Steven Myers has income over the maximum for this credit. If Steven Myers receives disability benefits, they will be one-half taxable income because the employer pays half of the premium. Steven's plan will only pay him 50% of his monthly salary if he should become disabled for any reason. Topic 25; Domain 2 or 3

A CFP® professional is reviewing tax documents provided by a client for her various business interests. The CFP® professional would expect to find estimated tax payments reported for all of the following, EXCEPT: Partnership Sole proprietor Corporation Trust

The correct answer is A. Partnerships are not taxpaying entities and pass through their income and losses to the partners. The partners file individual estimated tax reports and make individual estimated payments. Sole proprietors file individual estimated taxes, and corporations, trusts, and estates must pay estimated taxes. Topic 44; Domain 2 *the partnership itself is not a tax paying entity and does not file a tax return, therefore it does pay estimated taxes. The partners of the partnership do.

Joy Linowitz is 72 years of age and has obtained financial planning from a CFP® professional who has recommended that she sell some of her bond portfolio for her current expenses. Which of the following transactions will result in the most interest income for Joy? Cash in the Series EE bonds she has held for 25 years Sell the corporate bonds she has held for 25 years Sell Series HH bonds she obtained from exchange of Series EE bonds purchased 25 years ago Sell U.S. Treasury bonds she has held for 25 years

The correct answer is A. The Series EE bonds accumulate interest until the bonds are cashed in, so the 25 years of interest will be received at the time the bonds are cashed. The corporate bonds, Series HH bonds, and U.S. Treasury bonds pay interest semiannually, so the amount of income received at the time of sale is only a part of a semiannual interest payment. Consequently, the income from the Series EE bonds will be much greater. Topic 33; Domains 4 and 6 *B may provide the highest coupon payment, but this question is asking for the greatest interest income at the time of the sale.

If The Blue Elf adopted a money-purchase pension plan in 2020, what is the maximum deductible contribution that could be made for Dennis? He earns $58k/yr. $10,780 $11,600 $14,500 $18,000

The correct answer is A. The limit on employer contributions to a money-purchase plan is 25% of compensation or $57,000 (2020), but for an owner-employee, the maximum money-purchase plan contribution to a Keogh plan is 20% of net earnings. The adjustment to the percentage is computed by the formula: Plan contribution %/1 + Plan contribution % OR 25/1.25 = .20 or 20% The earnings for Dennis from the Blue Elf are $58,000 of Schedule E income from the partnership. To compute the self-employment tax on Schedule SE for Dennis, multiply the self-employment earnings by .9235, to arrive at the new earnings of $53,563. This amount is multiplied by the 15.3% self-employment tax, and the tax is $8,195. The deduction for self-employment tax is one-half of this amount, or $4,098. After the deduction, the amount of income from which contributions can be made is: $58,000 - $4,098 = $53,902 The contribution can be 20% of this amount, or (.2) × ($53,902) = $10,780 Topic 55; Domain 3

Peter Piper established a revocable living trust which provides for income to be paid annually to his wife Pat for life, and at her death, the corpus will be paid to their three children per stirpes. Peter's will was written before the trust was created and provided for a credit bypass trust with the residue going into a marital trust. Peter transferred to the revocable trust the title to three investment properties valued at $250,000 each and his $400,000 stock brokerage account. In addition, four years before he died, Peter transferred a $500,000 life insurance policy to the revocable trust and kept his wife as the designated beneficiary. Peter's home with his wife, valued at $300,000, was titled in tenancy by the entireties. Peter's account balance in a defined-contribution retirement plan through his employer was $400,000. Peter's wife is named as the beneficiary. Peter also had bank CDs with a combined value of $50,000, and he had a joint checking account worth $10,000 with his wife. Which of the following statements is correct if Peter dies today and his wife dies 10 months later? All assets passing under Peter's will go to the credit bypass trust. Peter's use of the revocable trust will help reduce his estate taxes. Peter's estate will avoid probate due to the revocable trust. Peter's life insurance policy will not be included in his gross estate since he transferred it four years before his death.

The correct answer is A. The only assets passing under the will are the CDs. Since they are less than the unified credit equivalent, Peter's entire estate passing under the will goes to the credit bypass trust. These CDs will require the probate process, so Peter's estate will not be able to avoid probate entirely. The $50,000 from the CDs will be the only assets to fund the credit shelter trust. These assets are passing to the children, subject only to a life estate in Peter's wife, so these assets do not qualify for the marital deduction. The revocable trust is, in effect, a bypass trust. The revocable trust does not reduce Peter's estate taxes because the assets are includible in Peter's gross estate. Revocable trusts are not used to reduce estate taxes, but to avoid probate. The life insurance policy will be included in Peter's gross estate because he transferred the policy to a revocable trust, rather than to an irrevocable trust. Topics 66 and 68; Domain 3

Harold and Sarah Chang are sending their first child to college this Fall and are considering their options for paying the tuition expense of $18,000. They set up an UGMA account for the child that contains $20,000, and the child's grandparents have funded and are the custodian of a 529 plan that now holds $15,000. Harold and Sarah expect their AGI to be $75,000 this year and next. Harold has an investment account that holds $20,000 invested in stocks, bonds, and mutual funds. How should the Changs pay for the first year of their child's education? The parents should pay $4,000, and the remainder should be paid from the UGMA account. The 529 plan should pay $6,000, the parents should pay $6,000, and the child should pay $6,000. The UGMA account should be used to pay $18,000. The 529 plan should pay $14,000, and the parents should pay $4,000.

The correct answer is A. The parents should pay $4,000, so they will qualify for the American Opportunity Tax Credit; moreover, the UGMA account should be used to pay the remainder in order to reduce the amount of assets held in the child's name. The reduction in assets in the child's name will help to qualify the child for financial aid. The assets in the 529 plan are owned by the grandparents so they do not appear on the FAFSA. If the assets in the 529 plan are distributed to pay the tuition, the amounts will be treated as income on the FAFSA for the following year. Topic 21 *Pay out of the UGMA to decrease assets in the child's name so they may qualify for more financial aid.

A CFP® professional is working with a sophisticated investor who holds numerous types of investments. The client has inquired about what types of securities he might own that were not obligated to follow the registration requirements of the Securities Act of 1933. All of the following are exempt from the Act of '33, EXCEPT: Open-end companies Rule 144 securities Sales to accredited investors Securities of municipal, state, and federal governments

The correct answer is A. The securities of open-end investment companies (commonly called mutual funds) must be registered under the '33 Act. The other securities are exempt. Topic 5, Domain 8 *Rule 144 are restricted securities *Accredited investors include natural high net worth individuals (HNWI), banks, insurance companies, brokers and trusts. $200k income (S), $300k income (MFJ)

A CFP® professional wants to present a financial plan to her client with an explanation of the selection of the optimal asset allocation for the client. Which of the following statements can the CFP® professional use in explaining the differences between the security market line (SML) and the capital market line (CML)? The SML shows the relationship between risk and return for a particular asset, whereas the CML shows that relationship for efficient portfolios of assets. In the SML, risk is measured by the beta coefficient; whereas in the CML, risk is measured by the standard deviation. The risk-free rate of return is an element of the SML, whereas the risk-free rate of return is not an element of the CML. (1) only (1) and (2) only (1) and (3) only (2) and (3) only

The correct answer is B. (3) is not a correct statement because the risk-free rate of return is an element of both the SML and the CML. Topic 35; Domain 5 * review this topic a little more. CML vs. SML. You were correct, but struggled to get to the right answer.

A client is unsure whether his employer provides a 401(k) plan or a 403(b) plan for employees. The CFP® professional can advise the client that all of the following organizations are eligible to adopt a 403(b) plan for employees, EXCEPT: State hospital Federal government Private school Public school

The correct answer is B. A 403(b) plan may be adopted by an employer that is a tax-exempt organization or that is a public school system. Organizations that are wholly owned by a state or local government are usually not eligible employers, but a state hospital organized as a separate 501(c)(3) organization will be eligible. Also eligible is an agency of a state that is part of a public school system and an educational organization, such as a college or private school. Topic 57; Domain 2 *403b is for tax exempt entities, but not governments

Assume for this question that the family maximum for retirement and survivor benefits under OASDI is $1,800 per month and that a worker retired at age 65 with a PIA of $1,300. If the worker later died at age 66, leaving a spouse, age 55; a dependent, unmarried child, age 17; and another dependent, unmarried child, age 15, what will be the spouse's monthly Social Security survivor benefits? $375 $600 $975 $1,300

The correct answer is B. A surviving spouse under 60 years of age, who is caring for a child under age 16, is entitled to Social Security survivor's benefit equal to 75% of the deceased worker's PIA. In this case, 75% of $1,300 is $975. Each dependent, unmarried child under age 18 is also entitled to 75% of the worker's PIA. Since the deceased is survived by two dependent, unmarried children under 18 years of age, there are three family members who are entitled to a $975 monthly benefit. Their combined monthly benefit would total $2,925, which would exceed the maximum family benefit of $1,800 by $1,125. Therefore, the total excess is divided by 3, to calculate the amount by which each family member's benefit must be reduced, to stay within the limit, or $1,125/3 = $375. The monthly benefit for the spouse and each dependent child is $975 - $375 = $600, for a total of $1,800 in benefits for the family per month. Topic 53; Domain 3

A CFP® professional has contacted the Golden Fleece Insurance Company for a quote for insuring a client's home. The Golden Fleece Insurance Company has been given an A+ rating by A.M. Best Company. What can the CFP® professional properly tell the client about the insurance company? A+ is the highest rating given by A.M. Best, so this company is one of the safest. A+ is the second highest rating given by A.M. Best, so this company is very safe. A+ is a standard rating given by A.M. Best, so this company has adequate overall performance. A+ is a rating based only on adequacy of loss reserves and surplus, and this rating means the company is financially stable.

The correct answer is B. A+ is the second highest rating given by A.M. Best Company, so the insurer has demonstrated superior overall performance and a very strong ability to meet obligations to policyholders. The highest rating is A++. The criteria used are both quantitative and qualitative, and ratings are based on the insurer's overall performance, competitive market position, and ability to meet obligations to policyholders. Topic 31; Domain 6

Derek Bogart has consulted a CFP® professional for financial planning, and they have discussed education planning for Derek's 5 year old son. Derek wants to save for his son's college education but feels he cannot select a particular school to use for estimating costs. Instead, he has selected an amount that he wants to have available when his son is ready to start college at age 18. Derek thinks $200,000 will be a good education fund to set for a goal because he can supplement it, if necessary, out of current income or loans when his son is in college. Derek plans to invest the money in conservative investments that will earn about 6% annually and will not be taxable. The CFP® professional explains to Derek that while inflation might run about 3%, education costs are probably going to continue increasing at about 6% annually. Approximately what amount will Derek need to save each year for his son's college education fund? $9,900 $10,600 $12,900 $15,400

The correct answer is B. Derek's son will start in 13 years, Derek can earn 6% on the money while invested, and he wants a fund of $200,000. He is choosing to save a flat amount and states he will supplement as necessary at the time he starts school. The keystrokes on a financial calculator are: 13, N 6, i 0, PV 200,000, FV Then, press PMT and the calculator will display 10,592. Topic 17 *You did your math correctly on this one, and approached it properly - just watch for whether the question says "in today's dollars." In this case it did not, so you needed to use the nominal rate (6%) not the inflation adjusted rate (0%).

A CFP® professional has been reviewing income tax returns that a client has provided during their meetings. The CFP® professional observed that the client has in some years been required to pay AMT and appears likely to incur additional AMT in the future. In order to suggest ways that the client might avoid AMT in the future, the CFP® professional has selected ways that the client has been able to reduce the AMT in the past. Which of the following methods has the client been able to use to reduce the AMT that otherwise might have been required? Exercise ISOs Make charitable contributions Pay state income tax in advance Invest in private activity municipal bonds

The correct answer is B. Gifts to charity are deductible for both the regular income tax and the AMT, so charitable contributions will reduce the client's taxes even when AMT may otherwise be required. For example, state income taxes and real estate taxes will be added back, and miscellaneous itemized deductions are all added back. The payment of state income tax in advance, therefore, will not reduce AMT because the state taxes are added back. Exercising ISOs will result in additional AMT to the extent of the bargain element. Interest on private activity municipal bonds is taxable for AMT purposes. Topic 46; Domain 3

During the year, Mr. Chambliss paid $1,800 in margin interest on his brokerage account. His brokerage records show that he realized $5,450 in long-term capital losses during the year, earned $2,400 in municipal bond interest, and had taxable interest income of $950. These were his only investment activities. His AGI was $85,000, and he had itemized deductions of $13,500 before considering his investment activities. How much investment interest can Mr. Chambliss deduct on his return? $0 $950 $1,450 $1,800

The correct answer is B. He can deduct the interest paid, to the extent of his investment income. That includes his taxable interest income of $950, but not his nontaxable municipal bond interest. Topic 43; Domain 3

Rita Caruso made use of an investment counselor who advised her on investments for her retirement account. The counselor failed to reallocate when the market turned down, so she lost a substantial amount of value in her account. Rita is disillusioned with the investment counselor and has consulted a CFP® professional to advise her on her financial planning. What is the first action that the CFP® professional should take? Discuss the differences between investment counselors and CFP® professionals Discuss the services that will be provided by the CFP® professional Discuss investment strategies for maximizing returns for a given level of risk tolerance Discuss the possibility of restricting the scope of the engagement to matters for which sufficient information can be made available.

The correct answer is B. Initially, the CFP® professional and client need to agree on the services to be provided. They must mutually define the scope of the engagement. Until there is agreement on the engagement and the services to be provided, any discussion of investment strategies will be premature. A discussion of the differences between investment counselors and CFP® professionals is not necessary or relevant to describing the services to be provided by the CFP® professional, and it is not helpful to reaching a mutual definition of the scope of the engagement. Whether the scope of the engagement needs to be restricted will depend on the information provided during the data gathering stage. Topic 8; Domain 1

A CFP® certificant has provided a client with financial planning services, including investments and income tax planning. The CFP® certificant is preparing an income tax return as part of the on-going services for the client and has been provided with the client's tax information. The client is single and has a salary of $55,000. The client has received dividends of $3,000 and has capital gains of $2,500. In addition, the client has a $35,000 loss on a residential rental unit that he owns and manages. What is the client's AGI? $25,500 $35,500 $55,000 $60,500

The correct answer is B. The AGI will include the client's salary, the dividends, and the capital gains. The client can also deduct above the line the amount of the loss on the residential rental unit but only up to a maximum of $25,000. The client can deduct the full $25,000 because the client's AGI is below $100,000. The client's AGI, therefore, will be $55,000 + $3,000 + $2,500 - $25,000 = $35,500. Topic 43 and 49

Harry Thomas bought a newly issued six-year zero-coupon, 11% annual bond with a par value of $1,000. He paid $534.64 for the bond. How much income must Harry report for federal income tax purposes during the second year of this bond's life? $42.09 $65.28 $79.78 $86.11

The correct answer is B. The bond's imputed value will grow by 11% per year, as follows: End of Year Imputed Value1$534.64 × 1.11 =$593.452$593.45 × 1.11 =$658.733$658.73 × 1.11 =$731.194$731.19 × 1.11 =$811.625$811.62 × 1.11 =$900.906$900.90 × 1.11 =$1,000.00 (The imputed value is the present value of the $1,000 face amount, discounted at 11% per year, for the remaining number of years of the bond's life.) In Year two, the imputed value rose by $65.28 ($658.73 - $593.45). That amount, though not received in cash, is taxable income to the bondholder. Topic 33; Domain 6 or 7 *this is very straight forward but it tripped you and cost you time, you returned to it and figured it out. Pay attention and remember this. Easy point!

A CFP® certificant is helping a client with budgeting and is trying to help reduce expenses. The CFP® wants to show the client the amount of interest that he can save from refinancing a mortgage. The client currently has a 30 year mortgage with a 6% interest rate that was originally in the amount of $150,000, and it has 21 years left. The client can refinance the home with a 15 year mortgage at a 3.5% interest rate with no points. How much interest will the client save by refinancing? $36,900 $61,040 $136,850 $173,750

The correct answer is B. The calculation of the interest that will be saved by refinancing the 30 year mortgage to a 15 year mortgage requires two calculations using the amortization function of a financial calculator. First, we calculate the amount of the remaining balance on the original 30 year mortgage. This calculation requires us to input the data needed to determine the amount of the current mortgage payment and without clearing the calculator, we use the amortization keys. On an HP 10bII, the keystrokes are as follows: 360, n (because there are 360 months of payments on a 30 year mortgage) 6/12, = , I/YR 150,000, PV 0, FV then press PMT to calculate the monthly payment which is 899.33 Without clearing the calculator, then enter the following keystrokes on the HP 10bII: 1, INPUT, 108 Gold Shift, AMORT The calculator will display the Per 1 - 108, so we press "=" to display the amount of principal paid over the first 108 months (9 years) of the mortgage which is 21,314.75. Next, by pressing the "=" key again, we get the amount of interest paid. We need to write down this amount which is 75,812. By pressing the "=" key once again, we get the amount of the remaining balance which is 128,685.25. We need to write this amount down to be used in the calculation for the 15 year mortgage. Before leaving this first calculation, however, we also want to find out the total interest that would be paid if the 30 year mortgage were not refinanced at his time, so we enter the following keystrokes: 109, INPUT, 360 Gold Shift, AMORT The calculator will display the Per 109- 360, so we press "=" to display the amount of interest paid from year 9 to year 30 of the mortgage which will be $97,944.84. If you are using an HP 12c, the keystrokes are as follows: 360, n (because there are 360 months of payments on a 30 year mortgage) 6, ENTER, 12, ÷, i 150,000, PV 0, FV then press PMT to calculate the monthly payment which is 899.33 Without clearing the calculator, then enter the following keystrokes: 108, Yellow f, AMORT The calculator will display -75,812.44 which is the amount of interest paid over the first 108 months. Then, we press the "exchange × and Y" key (4th key from the left in the third row down) to display the principal paid. Then we press the RCL key and then the PV key to display the remaining balance on the mortgage of 128,685.25. We need to write this amount down to be used later in the calculation for the 15 year mortgage. Before leaving this first calculation, however, we also want to find out the total interest that would be paid if the 30 year mortgage were not refinanced, so we enter again the following keystrokes: 360, n (because there are 360 months of payments on a 30 year mortgage) 6, ENTER, 12, ÷, i 150,000, PV 0, FV then press PMT to calculate the monthly payment which is 899.33 Without clearing the calculator, then enter the following keystrokes: 360, Yellow f, AMORT The calculator will display -173,757.28, which is the amount of interest paid over the 360 months (30 years) of the mortgage. To find the amount of interest that will be paid from year 9 to year 30, we subtract the $75,812.44 from $173,757.28 and the result is $97,944.84. Now, the second calculation will be to find the total interest that will be paid on the 15 year mortgage. We have to begin by calculating the payment required on the mortgage and then using the amortization function calculate the total interest that will be paid. On an HP 10bII, the keystrokes are as follows: 180, n (there are 180 months of payments on a 15 year mortgage) 3.5/12, = , I/YR 128,685.25, PV (this number is the remaining balance on the 30 year mortgage calculated above) 0, FV then press PMT to calculate the monthly payment, which is $919.95. Without clearing the calculator, enter the following keystrokes: 1, INPUT, 180 Gold Shift, AMORT The calculator will display the Per 1 - 180, so we now press "=" to display the interest paid over the 15 years as $36,905.46

David Legend, CFP® is a registered representative and Investment Advisory Representative at an independent broker/dealer, and operates on a fee-based basis. A client recently decided to implement various recommendations David had made in the comprehensive financial plan. The client had been provided David's disclosure document that indicated generally commissions are payable to David for various transactions. In this regard, which of the following is correct? If the client asks for the dollar amount to be paid to David on a transaction, David is not required to provide that information. Assuming that the client asks what percentage commission David will earn on a transaction, he must divulge it. Because David had provided his disclosure document at the inception of the engagement, he is not required to disclose the percentage or dollar amount of commissions when asked. When the client asks about David's commissions, he must supply the contractual document from the financial product provider to demonstrate the calculation methodology.

The correct answer is B. The certificant is generally not required to disclose the dollar amount or percentage commission unless the client specifically asks, in which case the certificant must then make the disclosure. He is not required to supply the contractual document with the product provider. Topics 1 and 2; Domain 8 *if a client requests to know, you must divulge the dollar amount and/or percentage you are earning

If Sandy's employer wanted to make a profit-sharing contribution to her qualified plan account in order to be sure that she receives the maximum possible contribution and the employer still gets a tax deduction, what additional amount could the employer contribute? $14,275 $35,025 $37,250 $57,000Sandy participates in her employers 401(k) plan and contributes $14,000 per year. Sandy employer matches the first 4% of her salary dollar-for-dollar, and the next 3% at 50 cents on the dollar, with a 6-year graded vesting schedule. The plan also allows for the purchase of incidental whole life insurance. In addition, Sandy has been offered a non-qualified deferred-compensation agreement by her employer. The proposed agreement will provide Sandy $30,000 per year of retirement income upon separation from service, as long as she remains employed in a full-time capacity until at least age 65. If Sandy dies before age 65, Julian is to receive a $300,000 preretirement death benefit. Sandy is considering the agreement, but is concerned that if the company is merged or acquired, she will not receive the promised benefits.

The correct answer is B. The maximum contribution for any participant's account in a defined-contribution plan is $57,000 (2020). Since Sandy defers $14,000 and the employer matches $7,975, the maximum addition that can be contributed on her behalf is $35,025. C is 25% of Sandy's compensation; this is incorrect because the 25% limitation for employer deductibility is based on aggregate compensation, not per participant. A assumes that the maximum contribution for her is 25% of her salary and reduces it by the 401(k) contribution and match. This is incorrect because the maximum contribution per participant is $57,0000, not limited to 25% of salary. (Topic 55; Domain 4)

A CFP® professional met with Roger and Jan Trombowski who are 67 years of age and who retired two years ago after selling their business. At the time that they retired, the CFP® professional prepared a financial plan for the Trombowskis and helped them with their retirement income planning. Their expectation was that they would live to approximately age 85. The Trombowskis and the CFP® professional determined that they needed $90,000 annually during retirement. They are currently receiving $25,000 annually from Social Security. During the past two years, their assets have declined in value and now total $675,000. They feel that they can obtain 4% on their investments. How long can the Trombowskis maintain their present life style at the current rate of expenditure? 8.5 years 11 years 13 years 15 years

The correct answer is C. On a financial calculator, the keystrokes will be as follows: On a 10bII (in BEGIN mode): 4, I/YR, 675,000, PV, 65,000, (+/-), PMT, 0, FV, then compute N. * Make sure you are entering the PMT as a negative number representing that it is an outflow. That's why you got it wrong before.

Assume that an annual dividend of $2.00 per share was paid yesterday on Alpha Corp. common stock. Your client is considering investing in this stock, but she needs at least a 15% return to induce her to take on the riskiness of Alpha stock. If the dividend growth rate was expected to be 7% per year for the next five years, followed by 3% per year thereafter, what would be the maximum price you should tell your client to pay? $11.99 $12.12 $20.09 $24.12

The correct answer is C. A faster, alternative way to determine the total PV of the dividends for the first 5 years is to use the NPV calculator function: YearDividend AmountDividend Cash Flow Received0$2.00$0 (you did not buy it yet so you do not get this dividend)1$2.00 × 1.07 = $2.14$2.142$2.14 × 1.07 = $2.29$2.293$2.29 × 1.07 = $2.45$2.454$2.45 × 1.07 = $2.62$2.625$2.62 × 1.07 = $2.81$2.81 By using the dividend discount model on the future dividend of $2.81. The dividend is growing by 7% for 5 years and then 3% there after, so in year 5 the dividend is $2.81, you plug that into the formula using the required rate of return of 15% and a 3% growth rate. 2.81 x 1.03 / .15 - .03 = $24.12 Then you add that to the dividend of 2.81 for a cash flow of $26.92 in year 5. Solve for NPV: 0 CFo 2.14 CFj 2.29 CFj 2.45 CFj 2.62 CFj 26.92 CFj15 i fNPV = $20.09 * You spent nearly 10 minutes on this on the exam and then got it wrong. You actually changed it from the correct answer. Point is, mark for review, skip, and return later unless you get a good handle on it. * it is pretty straightforward, so you should be able to get a handle on it

Joseph and Florence Seltzer are 67 years of age and are retired. They have consulted a CFP® professional previously for retirement planning and want her assistance in arranging an investment for their son. The Seltzers' son is starting a business, and they want to help him by investing in the business. They will not be involved in the operation of the business, and their son will run the business. The business is projected to have losses for the first three years before becoming profitable. The Seltzers have some money in an investment fund that they can invest in the new business and have income from pensions, IRAs, Social Security, and other investments that will be sufficient for their needs. Which of the following forms of business should the CFP® professional recommend to the Seltzers? Corporation Partnership LLC Limited partnership

The correct answer is C. A limited liability company (LLC) will provide both the Seltzers and their son with the protection of limited exposure to liability losses and will allow for tax losses to flow through to them in the first three years of operations. The Seltzers will be able to take deductions for the losses on their income tax returns just as they would with a partnership or limited partnership (They may be subject to passive activity rules). The corporation form of business does not offer the flow through of losses to investors. The partnership form does not offer limited liability protection for the Seltzers or their son. The limited partnership form would provide protection from liability to the Seltzers but not to their son. Topic 44; Domain 4 *partnership - all are GP * Limited partnership - GP and LPs

The Martins have a beach house in Florida, in addition to their principal residence in New Hampshire. Their AGI, without considering their beach house, is $90,000. The Martins will pay $6,500 in mortgage interest, $1,200 in property taxes, $400 in insurance, and $2,200 for repairs, maintenance, and general upkeep on their beach house. The house cost $115,000, excluding land, in 1998, when the Martins purchased it. Under MACRS, residential real estate is classified as 27.5 year property, and nonresidential real estate is 39 year property. Which of the following statements concerning the Martins' second home is correct? If the Martins rented out their beach house for less than 20 days during the year, they would not have to report the income from the rental on their tax return. If the Martins rented out the beach house for 25 days, for a total income of $5,000, and used it personally for 15 days, they could receive a partial deduction for depreciation against their rental income. If the Martins used the beach house for 10 days and showed an intention to produce income by receiving $10,000 in rent and actively participating in decisions regarding the property, their AGI would be less than $90,000. The Martins will receive a deduction for interest, property taxes, and insurance, whether or not they rented out their beach house.

The correct answer is C. According to tax Regulations, no income on the rental of a vacation home for less than 15 days is included in gross income. However, when the home is rented out for 15 or more days and the taxpayer uses it less than 15 days or 10% of the rental (whichever is more), then the home is not considered a residence. In addition, if an intention to produce income is shown, the taxpayer can treat the home as a rental property and deduct all costs associated with the property, even to the extent of creating a loss. In this case, the expenses, including depreciation (27.5 years), would be $14,482 and would create a loss of $4,482, which would offset other income because the Martins' AGI is not high enough to trigger limitations on rental losses and because they qualify for active participation, with regard to the beach house. When personal use exceeds 14 days, expenses are allocated between personal and rental use, and expenses are only deductible to the extent of income (no loss can be created). In calculating the expenses that can be used, depreciation is the last available, and the portion of the other expenses already allocated against the rental income would have reduced the income to zero. The depreciation cannot be used to create a loss, so it is not deductible. Finally, only mortgage interest and property taxes are deductible as itemized deductions, regardless of rental income. Topic 49

A CFP® professional is helping William Schmidt with his retirement planning and is gathering information about his expected retirement. William turned 70½ on July 22, 2019 and has continued to work at the advertising firm where he has worked for 25 years. William wants to work until he is 74 and the employer is willing for him to continue working. William has a 401(k) plan in which he has a balance of $450,000 plus he has a 3.5% interest in his employer's stock through an ESOP. The current market value of the interest in the employer stock is approximately $200,000. William also has a traditional IRA to which he made deductible contributions and which is now worth $150,000. When must William begin to take distributions from his 401(k) and from the IRA? April 1, 2020 for both April 1, 2020 for the 401(k) and April 1, 2024 for the IRA April 1, 2020 for the IRA and April 1, 2024 for the 401(k) April 1, 2024 for both

The correct answer is C. Distributions from qualified plans must begin by April 1 of the year following the later of either (1) the year in which the employee turned 70½ if by 12/31/2019 or age 72 post 12/31/2019 (2) the year the employee retires if the employee is not a 5% owner. In this question, the employee is a 3.5% owner so the distributions can be delayed until April 1 of the year following the year of retirement. The IRA distributions, however, must begin by April 1 of the year following the year in which the employee turns 70½. Since William was 70½ in 2019, his distributions from the IRA must begin April 1, 2020. William will retire when he is 74 in 2023, so the distributions from the 401(k) must begin April 1, 2024. Topic 60; Domains 2 and 3

Clarence Dowd purchased a deferred single-life annuity for $50,000. In eleven years, when Clarence retires at age 65, the annuity will pay him $1,000 per month for life (expected to be 20 years). Approximately what amount will Clarence have to report as income from the annuity in the third year of payments? $0 $8,500 $9,120 $9,500

The correct answer is D. Clarence will receive $12,000 annually, and his life expectancy at age 65 is 20 years. His expected return, therefore, is $240,000. His investment was $50,000, so his exclusion ratio is $50,000/$240,000 = 0.208, or 20.8%. He must include in income 79.2% of the $12,000, or $9,504 ($9,500 rounded). Topic 27; Domain 4 or 7

Virginia Shotsky is 60 years of age and has worked with a CFP® professional to prepare a plan for retirement. Virginia had expected to retire at age 62, but she learned recently that she has pancreatic cancer and is expected to live no more than 24 months. Virginia has a substantial estate and is divorced. She has one daughter age 26. What actions can the CFP® professional recommend to reduce Virginia's estate? Give a cash value life insurance policy to charity Transfer a cash value life insurance policy to a trust for her daughter Set up an ILIT Make gifts to charity and to her daughter of marketable securities (1) and (3) only (2) and (4) only (4) only (1), (2), (3), and (4)

The correct answer is C. Gifts to charity of marketable securities will reduce the assets that will be included in Virginia's gross estate. Virginia will also be able to take an income tax deduction in the year of the gift to charity. The gifts to her daughter of marketable securities will not be brought back into the gross estate even though the taxable gifts are added back to the tentative tax base. The gifts of life insurance whether to charity or to her daughter will be brought back into the estate if Virginia dies within 3 years of the gifts, so those gifts are not likely to reduce her estate. The gift of life insurance to the charity will result in a tax deduction for the proceeds passing to the charity, so Virginia's taxable estate will be reduced. Since the same result can be accomplished simply by naming the charity or her daughter as the beneficiaries of these policies, there does not appear to be a good reason to transfer ownership of the policies for estate tax purposes. The ILIT is also unlikely to reduce Virginia's estate because any life insurance policy transferred to the trust within 3 years of death will be included in the gross estate. Virginia is unlikely to be able to get a new policy issued insuring her after having received the diagnosis of pancreatic cancer so she will not be able to set up an ILIT with a new policy. Topics 66 and 67; Domain 4 * all of the life insurance stuff doesn't work basically b/c she is terminal and not likely to outlive the 3 year rule

A CFP® professional is explaining how Section 303 can assist in estate planning. She wants to explain to the client some of the requirements for the application of Section 303. The CFP® professional can tell the client that a Sec. 303 redemption will be appropriate for all of the following estates, EXCEPT: At his death, the decedent owned stock of a closely held corporation in joint tenancy WROS with his wife. Before his death, the decedent had transferred his stock in a closely held corporation to a revocable trust. By will, the decedent bequeathed his stock in a closely held corporation to his daughter and provided for estate and death taxes to be paid by the residue. Before his death, the decedent's adjusted basis in his closely held stock was almost zero.

The correct answer is C. If stock is included in the decedent's gross estate, it can be redeemed under Sec. 303. One-half of the jointly owned stock will be included in the decedent's gross estate, so some of this stock can be redeemed from the wife to the extent that it bears a portion of estate taxes. Similarly, stock that was transferred to the revocable trust can be redeemed from the trustee to the extent that it bears a portion of estate taxes. A Sec. 303 redemption cannot occur where the stock has been transferred by a specific bequest and will not bear any of the taxes. A decedent's stock receives a step-up in basis at death, so a Sec. 303 redemption is appropriate when the basis was near zero before death. The estate can sell the stock at no capital gain. Topic 71; Domain 5

Arthur Bayeux has consulted a CFP® professional for financial planning and especially for advice on estate planning and investments. The CFP® professional has prepared a financial plan for the client and has presented it with his recommendations. The recommendations include the preparation of a revocable trust for the client. Arthur has accepted the CFP® professional's recommendations but does not want to spend the time or money on a revocable trust. The CFP® professional has estimated that Arthur will leave an estate of approximately $22 million and believes that Arthur's estate and heirs will benefit greatly from a revocable trust. What should the CFP® professional do next in this situation? He should set up a meeting for Arthur with an estate attorney. He should go online and find a form for a revocable trust that the client can use. He should educate Arthur on the benefits of a revocable trust. He should document Arthur's refusal to adopt the trust.

The correct answer is C. In order to convince a client to implement the recommendations, a planner may need to spend some time educating the client on the benefits of the proposed action. The CFP® professional needs to demonstrate the importance of the revocable trust in Arthur's estate plan. The CFP® professional should not set up the meeting with an estate attorney without Arthur's consent. He should not take any similar actions such as talking to heirs or others without the client's knowledge or agreement. The CFP® professional also should not go online to find a form for Arthur to use because this action is tantamount to unauthorized practice of law. Finally, the CFP® professional should at some point write a letter to Arthur describing the reasons for the revocable trust and Arthur's refusal, and a copy of the letter should be placed in the file. The CFP® professional needs to document the refusal but that should be after trying to educate him on the benefits. Topic 8, Domain 5

You have been working with Sue Peters for a number of years, primarily in the areas of retirement, insurance, and investments. Sue is 52 years old, happily single and plans to stay that way. When you last met with Sue a year ago she had just received a $200,000 inheritance from her mother and was uncertain about what to do with it. You have projected that, if she continues to work to age 66, Social Security, her small pension from work, and income from her 401(k) and other taxable investments should be adequate for her needs; however, should she need long-term care, her assets could be depleted rather quickly. During the last meeting you mentioned that Sue could use income generated from the inheritance to purchase LTC insurance or life insurance with an LTC rider, but she was too distraught over her mother's death to make a decision. You and Sue agreed to place the inheritance money in a money market account until Sue was ready to make a decision. Today, Sue has come in all excited about an investment opportunity that she "ran into". She met a gentleman at the coffee shop last week who owns several apartments in Sue's neighborhood and is looking to sell one of them for $200,000. Which of the following identifies the most important information you need to help Sue make a decision regarding the purchase of the rental property? You need no additional information. Sue has no experience with owning rental properties and should not invest in additional real estate in the same neighborhood where she owns her home. Her main priority should be purchasing long-term care insurance. Gross rental income and the cost of property taxes and insurance. Gross rental income; the cost of property taxes, insurance, and other routine expenses paid for the property; estimate of any repairs needed in the near future; vacancy rate; and appropriate discount rate. You should obtain information regarding the average return on equity REITs and real estate limited partnerships, both of which would provide Sue with greater diversification and relieve her of the day-to-day management responsibilities of direct-ownership of real estate.

The correct answer is C. In order to evaluate the rental property Sue is considering, the first step is to divide Net Operating Income (NOI) by the appropriate capitalization rate to determine the amount she should be willing to pay for the property in order to achieve the desired rate of return. NOI is found by computing the gross rental receipts, plus nonrental income, minus vacancy and collection losses, and minus cash operating expenses (including an allowance for periodic replacement of leasehold improvements). NOI should be calculated as an average over several years. The capitalization rate is subjective, but should represent an appropriate return given the level of risk. If the results of this evaluation are favorable, the planner may choose to also educate the client regarding other alternatives for real estate investing (answer choice D), but the question asks which is most important. The client's wishes should be given priority until they are proven to be unfavorable. Topic 33

A CFP® professional has reviewed information provided by a client during data gathering on investments, income tax returns, and retirement accounts. The client is 50 years of age, married, and has two children. The client and wife have a modified AGI of $130,000 and file a joint income tax return. The CFP® professional observed that the client has invested in a real estate limited partnership that has generated losses of $8,000 last year, and the client has not taken any deduction for the losses. The client also owns an investment in residential real estate that the client manages and rents out. This investment produced losses of $12,000 last year. The client did not deduct those losses. What action should the CFP® professional recommend for the client? File an amended return and seek a refund for an additional $20,000 in deductions for losses. File an amended return and seek a refund for an additional $12,000 in deductions for losses. File an amended return and seek a refund for an additional $10,000 in deductions for losses. File an amended return and seek a refund for an additional $8,000 in deductions for losses.

The correct answer is C. Losses from the real estate limited partnership are passive losses that cannot be deducted against the client's active income. The losses from the residential real estate rented by the client can be deducted in part due to the real estate exception for active participation. The maximum deduction is $25,000 but this maximum is reduced by one dollar for every two dollars that the client's modified AGI exceeds $100,000. Since the client's modified AGI is $130,000, the maximum deduction is reduced by ½ × $30,000 = $15,000. The client can deduct $25,000 - $15,000 = $10,000. Topic 49. *rental loss maximum is $25k, and is deducted by $1 for every $2 above $100k in AGI

A CFP® professional has been advising Paul Innugati who is 51 years of age and married with two children. The CFP® professional has reviewed the education planning for Paul's older son Kallik, who is 15 years of age and in his sophomore year of high school. Kallik wants to apply to an engineering school to begin studies after he graduates from high school. Paul would like to qualify for as much financial aid as possible. Paul set up an UTMA account for Kallik several years ago and contributed some stock that has grown in value by $3,000. Paul's father-in-law set up a 529 plan for Kallik and has invested it in mutual funds that have appreciated in value from $10,000 to $14,000 (Paul is the custodian). Paul has a whole life insurance policy that has cash value of $30,000, and he has an IRA with $30,000. Paul's brokerage account has securities that have increased in value from $40,000 to $50,000. What should the CFP® professional recommend that Paul do first? Sell the stock in the UTMA account Borrow from the life insurance policy Sell the securities in the brokerage account Take a withdrawal from the IRA

The correct answer is C. The CFP® professional should recommend selling the securities in the brokerage account because the gains will increase income reported on the FAFSA if sold during Kallik's junior year or later. By selling in the sophomore year instead of the junior year, the income can be kept lower in Kallik's junior year when the financial aid is determined for college. The UTMA account should then be used as early as possible because student assets have more impact on financial aid then parent assets, and Kallick may qualify in later years if the UTMA account is spent. There is no reason to borrow from the life insurance or take a withdrawal from the IRA until after the UTMA account is used. Life insurance and IRAs are not countable assets in the financial aid formula. (Topic 21)

What level annual amount would the Loudons need to invest each year to reach their goal of buying the vacation home? $5,804 $6,006 $7,089 $7,657 The Loudons would like to begin saving now for their vacation home. The type of home they would like to buy costs about $100,000 now, but the price of comparable vacation homes seems to be rising approximately 5 percent per year. The Loudons want to buy the vacation home in 15 years. They assume an investment return of 8%/yr.

The correct answer is C. The target amount the Loudons need to reach is $207,893 (that is, $100,000 is the PV, 15 is the N, and 5% is the I/YR). To reach that target would require a payment of $7,089 at the start of each year. Enter $207,893 as the FV, 8% as the I/YR, and 15 as the N. Solve for the beginning-of-period payment, which is $7,089. The problem uses begin mode since the Loudons want to start saving now. Topic 13; Domain 6

Next year, Tom Traxler is planning to sell the commercial property on which he operated his business to his daughter Sally, for $300,000. Tom's adjusted basis in the property will be $100,000. The sale will be structured as an installment sale, with Sally to make a down payment of $60,000 and make installment payments annually for 12 years. Sally will pay 10% interest on any unpaid balance. Tom wants to know what will happen if he died after Sally had made the second installment payment. Tom's will leaves his estate to his wife. Which of the following statements concerning the estate tax treatment of the installment payments due after Tom's death is correct? The unpaid installments will not be included in Tom's gross estate. The unpaid installments will be included in Tom's gross estate at their face value of $200,000. The present value of the unpaid installments will be included in Tom's gross estate. The unpaid installments plus the interest payable on the balances will be included in Tom's gross estate.

The correct answer is C. The unpaid installments should be included in Tom's gross estate, discounted to present value, using the Sec. 7520 interest rate for the month of Tom's death. Topics 66 and 70; Domain 3

A CFP® professional is reviewing the property and casualty insurance coverage for his clients Dale and Louisa Luongo. The Luongos have been married for 24 years and have a daughter who is in college and another daughter in high school. The Luongos have insured their home for $250,000 and the policy provides $125,000 of coverage for personal property. Dale and Louisa have estimated their personal property to be valued at $100,000, plus Louisa has jewelry worth $12,000 and furs valued at $5,000. Dale has a stamp collection that he values at $4,000, and their daughter has a stereo worth $1,500 that she has taken to college. Which of these items should the CFP® professional recommend to the Luongos for obtaining additional coverage? Jewelry Jewelry and furs Jewelry, furs, and stamp collection Jewelry, furs, stamp collection, and stereo

The correct answer is C. Under homeowners coverage, jewelry and furs are subject to a special limit for loss by theft of $1,500, and stamps are also subject to a separate special limit for loss by theft of $1,500. The stereo is covered worldwide under personal property coverage, and the special limits do not apply to this electronic equipment. Topic 32; Domain 3

Ted Hughes is 38 years of age and is a manager at the marketing firm where he has worked for 5 years. Ted has not married and is active in charitable activities. He would like to benefit a charity in the event of his death and has considered giving some of his life insurance to charity. Among the benefits that Ted receives at work is group term life insurance in a face amount that is twice his salary. He would like to give the amount of life insurance above $50,000 to charity by naming the charity as his beneficiary. Ted has consulted his CFP® professional about the income and estate consequences of this action. Which of the following statements are appropriate for the CFP® professional to tell Ted? Naming the charity as beneficiary will not provide Ted with an income tax deduction but the policy proceeds above $50,000 will be included in his gross estate. Ted can exclude from income those premiums attributable to the coverage for the charity, and the policy proceeds above $50,000 will not be included in his gross estate. Ted can exclude from income premiums attributable to the coverage for the charity, and the policy proceeds above $50,000 will be included in his gross estate. Ted cannot exclude from income premiums attributable to the coverage for the charity, and the policy proceeds above $50,000 will not be included in his gross estate.

The correct answer is C. While only naming a charity as a beneficiary of a life insurance policy will generally not permit an income tax deduction, there is an exception for an employee who names a charity as the beneficiary of the death benefit above the $50,000 amount in a group term life plan (or the charity may be named beneficiary of all of the death benefit under the plan). Ted can exclude from income premiums attributable to the coverage for the charity, and the policy proceeds above $50,000 will be included in his gross estate. Ted's estate will be able to take a charitable deduction for the death benefit paid to the charity. Topics 51, 66, and 67; Domains 4 and 5

For which of the following reasons may a CFP® certificant reveal information about a client under the Rules relating to Confidentiality and Privacy in the CFP Board's Code of Ethics and Standards of Conduct for CFP® Professionals? To carry out a transaction for the client To comply with legal requirements To defend the CFP® professional in a civil dispute with the client To defend the CFP® professional against charges of wrongdoing (1) and (2) only (2) and (3) only (2) and (4) only (1), (2), (3), and (4)

The correct answer is D. A CFP® professional is allowed to reveal information about a client for all four of the listed reasons. Topic 1; Domain 8

Sheldon is evaluating several stocks that he is thinking about adding to his portfolio. When plotted on a graph with the Security Market Line (SML), the graph looks as follows. According to CAPM, which of the following statements are true? Dots above the line are over-valued portfolios Dots below the line are under-valued portfolios Dots on the line at the lower end is better Dots on the line at the middle is better I and II only I, II, and III IV only None of the statements are true

The correct answer is D. Dots below the line are over-valued, because the security is not providing the amount of return that it should be yielding if correctly priced. Dots above the line are under-valued because they are yielding more than they should according CAPM. Dots on the line are all priced correctly, according to their level of risk. Also note that the slope of the line is determined by the market risk premium. Topic 35 * Below are over Michael Jackson to low to get over, to high to get under

A $1,000 par value bond with four years remaining to maturity has a 7% annual coupon rate. If bonds of comparable riskiness are now yielding 8%, what is this bond's duration? (Note: Assume that the bond's interest is paid annually, rather than semiannually.) 2.11 years 2.83 years 3.49 years 3.62 years

The correct answer is D. Duration is found by dividing the aggregate present value of the bond's cash inflows, weighted by the year in which each cash flow occurs, by the price (intrinsic value) of the bond. In the present case, the bond's price, or intrinsic value, is $966.88 (that is, FV = $1,000, N = 4, PMT = $70, and I/YR = 8). The weighted value of the cash flows, discounted at 8%, is: Cash Weighted Present Flow Weight Cash Flow Value $ 70 1 $ 70 $ 64.81 70 2 140 120.03 70 3 210 166.70 1,070 4 4,280 3,145.93 Total $3,497.47 The duration is $3,497.47 ÷ $966.88 = 3.62 years. A shortcut to calculate the present value of the weighted cash flows is to use the cash flow keys on a financial calculator. You just need to input the following cash flows: 0, 70, 140, 210, and 4,280; input 8% as the interest rate; and solve for NPV, which is $3,497.47. Topic 38; Domain 2 and 3 *this one was a time sink because you tried using the NPV method and couldn't remember how, then got it correct using the formula. Practice the NPV method, because it can be quicker, but resort to the formula if you're struggling.

Ben Patel placed $5,000 in an UGMA account for his son soon after birth and then several years later invested the money in a 529 plan. Ben's parents have also contributed to a 529 plan for Ben's son. Ben has consulted a CFP® professional to advise him on the 529 plans. Ben would like his son to be eligible for financial aid and is not familiar with the effect of 529 plans on eligibility. Ben's son will be applying for college in 5 years and earns some money in the summers and has been saving for college. Which of the following statements will be appropriate for the CFP® professional to make to Ben concerning the impact of 529 savings plans on financial aid? A 529 savings plan owned by grandparents is treated as assets of the student on the FAFSA. Qualified distributions from a 529 savings plan owned by the student are countable income on the FAFSA. Qualified distributions from a 529 savings plan owned by the grandparents are not countable income on the FAFSA. A 529 savings plan purchased by the student's UGMA is treated as assets of the parent on the FAFSA.

The correct answer is D. Even though the student's UGMA or UTMA is used to fund a 529 savings plan, the assets are treated as parent assets on the FAFSA. A 529 savings plan owned by grandparents is not treated as assets of the student or parent on the FAFSA, but qualified distributions will be treated as income of the student. Qualified distributions from a 529 savings plan owned by the student or parent are not countable income on the FAFSA. (Topics 18 and 21) * You got this correct, but it is a weak area. Review FAFSA and student aid stuff.

Next year, Tom Traxler is planning to sell the commercial property on which he operated his business to his daughter Sally, for $300,000. Tom's adjusted basis in the property will be $100,000. The sale will be structured as an installment sale, with Sally to make a down payment of $60,000 and make installment payments annually for 12 years. Sally will pay 10% interest on any unpaid balance. Tom wants to know what will happen if he died after Sally had made the second installment payment. Tom's will leaves his estate to his wife. If the installment note were given to Sally under a codicil to Tom Traxler's will, which of the following statements would be correct? Sally must recognize gain on the remaining installments. Sally must report the remaining installments as income in respect of a decedent. The remaining installments receive a step-up in basis. Tom's estate must recognize gain on the remaining installments.

The correct answer is D. If the installment note were bequeathed to Sally, Tom's estate must recognize the remaining gain immediately. The estate is treated as making a disposition of the note. There is no step-up in basis. Sally will not have to report the installments as income in respect of a decedent because she is now the obligor and owner of the note. Topics 66 and 70; Domain 7

Leroy Heart is 52 years of age and has worked for his current employer for 7 years. Heart wants to withdraw some money from his retirement plan, but he is not certain what kind of plan his employer has. A CFP® professional can tell Heart that a loan may be permitted if Heart's employer maintains any of the following plans, EXCEPT: Profit-sharing plan 401(k) plan SIMPLE 401(k) plan SEP

The correct answer is D. Loans are permitted from all types of retirement plans (if the plan documents allows for loans) except SEPs and SIMPLE IRA plans. Topics 56 and 57; Domain 2

Roland Chaffey has been investing in a fund by making annual contributions over the past five years. The purchases and annual results have been as follows: Purchases$1,000$2,000$1,500$2,500$2,500End of year values1,1002,9004,7507,10012,150 What can the CFP® professional tell Roland are his dollar-weighted return (DWR) and his time-weighted return (TWR)? DWR 6.33%, TWR 7.26% DWR 7.14%, TWR 6.09% DWR 8.26%, TWR 6.22 % DWR 9.49%, TWR 6.55%

The correct answer is D. The dollar-weighted return is the easier of the two calculations so we perform that calculation first. We use the purchases as the cash flows and the last end of year value for the final cash flow. The keystrokes on the HP 10BII are as follows: 1,000, +/-, CFj 2,000, +/-, CFj 1,500, +/-, CFj 2,500, +/-, CFj 2,500, +/-, CFj 12,150, CFj Shift, IRR, and the result displayed is 9.487 The keystrokes on the HP 12c are as follows: 1,000, CHS, g, CFo 2,000, CHS, g, CFj 1,500, CHS, g, CFj 2,500, CHS, g, CFj 2,500, CHS, g, CFj 12,150, g, CFj f, IRR, and the result displayed is 9.487 For the time-weighted return, we have to determine the returns for each year. The first year return is $100/$1,000 = .10. The second year return is -200/3,100 = -.0645. The third year return is 350/4,400 = .0795. The fourth year return is -150/7,250 = -.0207. The fifth year return is 2550/9600 = .2656 Starting ValueEnding ValueIncrease or DecreaseIncrease or Decrease divided by Starting Value = Return for the YearYear 1$1,000$1,100+ $100.10Year 2$1,100 + $2,000 = $3,100$2,900- $200-.0645Year 3$2,900 + $1,500 = $4,400$4,750+ $350.0795Year 4$4,750 + $2,500 = $7,250$7,100- $150-.0207Year 5$7,100 + $2,500 = $9,600$12,150+ $2,550.2656 We add 1.0 to each of these returns and then multiply the results: 1.10 × .9355 × 1.0795 × .9793 × 1.2625, then you take the fifth root and subtract 1. The keystrokes on the HP 10BII are as follows: 1.10, ×, .9355, ×, 1.0795, ×, .9793, ×, 1.2656, =, Shift, yx, .2, =, -, 1, = and the result displayed is .0660 On the HP 12c, the keystrokes are as follows: 1.10, ENTER, .9355, ×, 1.0795, ×, .9793, ×, 1.2656, ×, ENTER, .2, yx, 1, - and the result displayed is .0660

Martha Gault, a single mother, is employed as a teacher and receives a salary of $58,000 annually. Martha's school insures her for disability, and she was out of work for two months. Martha also receives $18,000 in alimony from her 2009 divorce, and $6,000 in child support from her ex-husband. A CFP® professional is helping Martha to do some income tax planning. How should the CFP® professional calculate Martha's adjusted gross income, based on the following information: Salary $58,000 Alimony received 18,000 Child support 6,000 Interest income 2,000 403(b) contributions 7,000 529 plan contribution 500 Disability income 8,000 IRA contribution 1,000 Medical expenses 2,000 Health insurance 4,000 Child care 1,200 State and local taxes 2,200 $60,000 $69,000 $70,000 $79,000

The correct answer is D. Martha Gault is not self-employed, so she is not entitled to adjustments for self-employment tax or self-employed health insurance. She is also not entitled to an IRA deduction because her income is above the threshold for persons who are active participants in an employer-sponsored retirement plan. She is an active participant because she contributes to a 403(b) plan. The deduction is completely phased out for single persons who are active participants with income of $75,000 (2020) or more. Child support received is not income for Martha. The other expenditures similarly do not provide adjustments. Martha will have gross income of $86,000 from salary, disability income, alimony, and interest income. She will reduce her income by the $7,000 in contributions to the 403(b) plan, so her AGI will be $79,000. Topic 43 TCJA of 2017 changed alimony inclusion in income/deductions for divorces finalized after 12/31/18. * You got this correct, but it took you 5.5 minutes and you were far less certain than you should have been. Practice questions like this.

Peter and Marcella Kilko are 67 years of age and have been retired for two years. They obtained assistance from a financial planner on determining their retirement income and investments. After two years, however, they find that their assets and investments have declined substantially, and they are worried about a reduction in their retirement income. They expect to live for at least another 20 years in retirement and want to be sure they do not run out of money. They have consulted a different planner, who is a CFP® professional, to help them with reviewing and revising their retirement income planning. What is the first priority for action by the CFP® professional? Provide client disclosures to the Kilkos. Describe the investment strategies that could be used to increase income. Explore with the Kilkos their financial goals, needs, and priorities. Explain the scope of services the CFP® professional offers.

The correct answer is D. The CFP® professional needs to explain the scope of services that he or she offers so the clients will know what the engagement will be. They need to know from the CFP® professional what they are entering into for an engagement. After this explanation is made, the planner will define the scope of the engagement and then provide the client disclosures. There would be no reason to provide the disclosures before there is an explanation of the services that the CFP® professional is providing. The first step of the financial planning process is establishing and defining the client-planner relationship. After this step is completed, then the planner will proceed to the active financial planning steps; gathering of information, including exploration of the clients' financial goals, needs, and priorities. The description of investment strategies will be a later step of the financial planning process after the data gathering is completed. Topic 8; Domain 1

Phil is a 30% owner/employee of an S-corporation. The corporation just implemented a group disability policy for employees last year. Phil is very happy to be covered under this plan because he has no individual disability protection. It is now February and Phil has arrived at your office with his income tax information, as you normally include tax preparation services as part of his fee. While reviewing his W-2, Phil has become concerned about an error on it because his salary is $75,000 but the W-2 shows income of $78, 800. You correctly advise him that: Since there is an error on the W-2, he should wait to file his taxes until an amended form is sent to him. He should file his taxes using the information from his final pay stub for the year instead of the W-2. The extra income is due to the S-Corp. "sting Tax". The extra income is due to the cost of the disability policy for him.

The correct answer is D. The IRS treats sole proprietors, partners, and >2% S-Corporation stockholders as owners rather than employees for fringe benefit purposes. This means that if the S-Corporation pays for insurance premiums on Phil's behalf he does not get the tax advantage of tax-free premium payments that employees get; instead, as an owner, the cost of the premium will be taxable income to him. This is not necessarily a bad situation, because it means that since he paid after-tax dollars for the premiums he can get tax-free benefits if he has a claim. (Topics 25 and 44)

Assume Dennis and his brothers are all in their 50s. If Dennis and his brothers wish to adopt a qualified retirement plan for The Blue Elf, which of the following plans would allow the maximum contributions for the owners, with the least contribution expense for the other employees? SEP SIMPLE 401(k) plan Defined-benefit plan *You don't have all of the info here, but the rationale in the answer here is helpful.

The correct answer is D. The SEP and SIMPLE may require contributions for the part-time employees. The part-time employees can be excluded under the defined-benefit and 401(k) plans. The defined-benefit plan will allow greater contributions than the 25% and $57,000 (2020) limitation of a 401(k). The defined-benefit plan will permit funding for past service, and the owners have greater past service than do other employees. The owners are also older than the other employees who will be eligible for the contributions. Greater contributions can be made for older employees. The limitation on a compensation base of $285,000 (in 2020) will not be a factor because all of the earnings are far below this amount. Topics 47 and 48; Domain 4

What investments should a CFP® professional recommend for clients when interest rates have stopped falling and leveled off, unemployment is falling, and capital spending has leveled and started to rise? Sell long-term bonds and preferred stock, buy real estate Sell stocks and buy short-term bonds or money markets, sell real estate Buy long-term bonds, preferred stock, and common stock, sell real estate Buy short-term bonds and common stocks, buy real estate

The correct answer is D. The economy is moving from the trough to expansion because interest rates have fallen and leveled off, unemployment is falling and capital spending is starting to rise. In this period of the business cycle, the CFP® professional should recommend buying short-term bonds and common stocks, and clients should consider buying real estate. Topic 12, Domain 7 *the wording is a little tricky, but "unemployment falling" means employment is rising... that's a good thing.

The McGurk family has consulted a CFP® professional concerning financial planning for their daughter, Carson McGurk, age 12, a child actor who has acted and sung on Broadway. Carson's parents have placed her earnings in custodial accounts with mutual funds and banks. This year, the custodial bank accounts are expected to produce taxable income of $5,000, and the mutual funds are expected to produce taxable income of $4,000. Carson's parents have already earned enough income to place them in the 32% tax bracket for this year. Carson is expected to earn enough to put her in the 35% income tax bracket this year, as a result of her acting, but her parents have decided that next year, she will not be in any more shows. Assume that the custodial accounts will earn the same amount, both this year and next. Which of the following statements will be appropriate for the CFP® professional to tell the McGurks concerning the federal income taxes on the earnings from Carson's custodial accounts? The maximum income tax rate will be 32%, both this year and next. The maximum income tax rate will be 35%, both this year and next. The maximum income tax rate will be 32% this year and 12% next year. The maximum income tax rate will be 35% this year and 32% next year.

The correct answer is D. The kiddie tax will not apply to Carson this year because she has earned income that will bring all of her unearned income into at least the 35% bracket. The kiddie tax applies only when the parents' income tax bracket will be higher than the child's. Next year, Carson will have no earned income, so the kiddie tax will apply. Carson's unearned income over $2,200 next year will be taxed at the parent's income tax rates. Her unearned income will, therefore, be taxed at a maximum rate of 32%. Topic 43

Assume a four-stock portfolio with the following characteristics: Stock Percentage of Total Beta Rate of Return F 20% .9 -3.6% G 25% 1.2 7.0% H 30% 1.4 9.0% I 25% 1.5 -2.2% What is the standard deviation of the above portfolio? 3.11 6.37 6.92 Answer cannot be determined from the information given.

The correct answer is D. The standard deviation of a portfolio cannot be known without information on the degree of correlation among the returns on the stocks making up the portfolio. The provided formula sheet does provide the formula to calculate the standard deviation of a two-asset portfolio, and a look at that formula reveals the need for information regarding the covariance (or correlation coefficient) between the assets. To calculate the standard deviation of the portfolio in this question, you would need to know the covariance between each and every asset (what is the covariance between Stock F and G, between F and H, between, F and I, between G and H, etc.). Had the question simply provided historical returns for a single security, the simplified calculation using the ∑+ key on the calculator could be utilized to determine the standard deviation of that security. Topic 35; Domain 3 * You thought you were so slick ha. You were correct in your method if you were calculating the SD for a single security. Do that on your calc. Use the formula for a two asset portfolio. Anything other than that you cannot do for the purposes of the exam. * They key thing here is that you do not have the COV or correlation coefficient between each of the assets

A CFP® professional meets with a married couple who want advice on what to do with the assets in a 401(k) plan. The husband has worked for his employer for 25 years and has accumulated an account balance of $802,000. This retirement account contains $620,000 worth of appreciated employer stock. The couple is planning to retire and would like to know whether they should sell the employer stock. What should the CFP® professional recommend to these clients? Roll over the account balance to a Roth IRA Roll over the account balance to an IRA to take advantage of the NUA tax rules Roll over the account balance to an IRA and reduce the employer stock to 15% Roll over some of the employer stock and all of the other assets to an IRA and sell the employer stock in the IRA.

The correct answer is D. Under the NUA rules, the husband will not be taxed on the net unrealized appreciation contained in the employer stock that is distributed in a lump-sum to him. This NUA will be taxed at long-term capital gains rates. If the stock is rolled over to an IRA then the benefits of the NUA rules will be lost because all distributions from the IRA will be ordinary income. The husband will want to have some of the employer stock distributed to him so it can be retained in a taxable account, such as his brokerage account; therefore, the capital gains can be deferred. The adverse consequences are that the husband will have ordinary income to the extent of the original cost of the stock when contributed to his account. The employer stock that is rolled over to an IRA can be sold to allow for diversification. The tax on gains from these sales of employer stock will be deferred until it is distributed to the couple. The rollover to the Roth IRA would not afford tax deferral because the assets would be subject to tax at the time of the rollover. Keep in mind, as long as the entire balance leaves the qualified plan, the employer stock can be split between the IRA and a taxable account and utilize NUA on the portion rolled to the taxable account. Assets cannot be left in the qualified plan to utilize NUA. Topic 60; Domain 4

A client is discussing a buy-sell agreement with three other owners of the business. During the data gathering for his financial plan, the client asks the CFP® professional about the advantages of the different kinds of buy-sell agreements. The CFP® professional could recommend the cross-purchase agreement as compared to the entity agreement for which of the following reasons? Fewer insurance policies are required. Premiums are deductible. Premium payments are more assured. Survivors will get an increased basis.

The correct answer is D. With a cross-purchase plan, the insurance death benefit is used to buy the business interest of the deceased owner, and the surviving owners will make purchase payments for the interest. These purchase payments increase the basis of the survivors in their interests in the business. The cross-purchase agreement will require more insurance policies than the entity agreement because each owner must buy life insurance on every other owner. The entity agreement only requires the business entity to buy a policy on each owner. Premiums for a buy-sell agreement are not deductible. Premium payments for the life insurance funding the buy-sell agreement are more assured when the entity makes the premium payments under an entity agreement. Sometimes an owner may forget to make the premium payment or may skip a payment due to cash flow problems. The entity is not as likely to skip payments. Topics 29 and 67; Domain 2

During what stage of the financial planning process is is best to address personal and financial issues such as behavioral finance?

When developing the financial planning recommendation

Which of the following increase the basis of the surviving owners? entity agreement cross purchase buy/sell

cross purchase; the surviving owners get a step up in basis equal to their portion of the deceased owner's interest

COBRA elections, what could happen that would cause an EE to be covered for 36 months?

death, divorce, legal separation, Medicare eligibility, loss of dependent status

What EEs are included in the calculation when an ER elects the 20% rule for determining # of HCs?

only those EEs who are eligible to participate! be careful not to count everyone on the census, check and exclude whoever is ineligible

What type of income limits the amount of interest deduction permitted to be taken by an investor?

taxable investment income in other words, margin interest expense deduction is limited to the extent of taxable investment gains

What could happen that would deem an EE not eligible for COBRA coverage?

termination due to gross misconduct

When is Beta used to measure risk in a portfolio?

when the portfolio IS diversified

When is the treynor ratio an appropriate risk adjusted measure to use?

when the portfolio IS diversified