Questions and Answers of Personal Financial Planning

Rendering a legal decision on the meaning of policy terms in an insurance contract is a function of which of the following?A. National Association of Insurance Commissioners.B. SEC C. State
Chocolate Cake, Inc. is going to have its initial public offering. Which of the following securities acts applies?A. Securities Act of 1933.B. Securities Exchange Act of 1934.C. Insider Trading Act
The provisions of the Securities Act of 1933 applies to which of the following?A. Issuance of initial public offerings.B. Regulation of securities on the secondary market.C. Trading of securities on
Kimberly is a personal financial planner who provides integrated financial planning with an emphasis on income tax planning. She is registered with the SEC as an investment adviser. Kimberly wants to
Which of the following is correct under the Investment Advisers Act of 1940?A. Allows for assignment of advisory contracts with a client’s consent.B. Applies only to advisers registered with the
Thomas Wade, CPA/PFS provides Form ADV Part II (Brochure Rule) to all potential clients. Which of the following items of information does not have to appear in the brochure?A. Educational
Which of the following must be accomplished in order to register as an investment adviser with the SEC?I. File with FINRA.II. File with the state department of insurance.III. File Form ADV Part I.IV.
The Investment Advisers Act of 1940 exempts certain entities and individuals from registration as an investment adviser. Which of the following is not excluded?A. Bank.B. Bank holding company.C. Bank
The SEC enforces all of the following except A. Investment Advisers Act of 1940.B. McCarran-Ferguson Act of 1945.C. Sarbanes-Oxley Act of 2002.D. Securities Act of 1933.
FINRA is a I. Governmental agency.II. Not-for-profit organization.III. Nongovernmental organization.IV. Self-regulatory organization.A. I, II, IV.B. I, III, IV.C. II, III, IV.D. IV.
What personal financial planning resources does FINRA make available to investors?
Download the SEC report Regulation of Investment Advisers by the U.S. Securities and Exchange Commission (March 2013). Other than typical accounting records, what additional records does the SEC
What are your state’s registration requirements to become an investment adviser firm or an investment adviser representative? What examinations or credentials are required to register?
Download the GAO report Regulatory Coverage Generally Exists for Financial Planners, but Consumer Protection Issues Remain (January 2011). What are the key findings?
What information is available from the Insurance Information Institute on insurance company distribution channels?
Visit your state’s department of insurance, often referred to as the Office of Insurance and Safety Fire Commissioner, and look up your insurance agent. What insurance licenses does your agent have?
When is an employee able to participate in a SEP?A. In the current year, if employee attains age 18 by December B. If the employee performed services for the employer in at least 3 of any 5
Mr. Robert Andrews and Ms. Michelle Stevens are founders and co-owners of Social Media, Inc. Social Media is a C corporation. They each contributed $$50,000$ to the venture when they began 10 years
Bob Newton is a key employee of Information Solutions, Inc. (IS). Bob has been with IS since 1984 and is about to retire. IS has a very large key employee life insurance contract on Bob, and now that
Vicki Wilson owns Vicki’s Vettes (VV), an S corporation. VV is an automobile restoration business working exclusively with pre-1968 Chevrolet Corvettes. Her business overhead is $30,000 per month.
Buck and Pat Johnson purchased their principal residence over 10 years ago for $$200,000.$ They have decided to downsize and sell the place this year for $$750,000.$ The Johnsons used the
If a married couple occupied a principal residence for two out of the past five years and then rented it for three of those five years, are they still able to obtain Section 121 exclusion?A. Yes,
Which of the following items qualify as alimony payments pursuant to a separate maintenance decree or a written separation agreement?I. Payments for a mortgage on property owned by the payor spouse
Alice Walters was recently divorced from Juan. Juan has custody of their two children, Anjelica and Pete. Alice was ordered to pay $3,000 per month to Juan until their youngest child, Pete, reaches
Greg Watkins owns 100 percent of Speedy Plus Car Wash, Inc. Speedy holds a significant amount of stock of other corporations, mostly other car washes. The other car washes are paying dividends to
Nate and Tom Williams are brothers. They both enjoy cooking, and all of their friends say that they should open a restaurant. Of course, both will materially participate in the business. They have
On which form or forms would the owner-employee of a C corporation receive notice of taxable income?I. Form 1099-DIV.II. Form W-2.III. Schedule C.IV. Schedule K-1.A. I.B. I, II.C. III.D. III, IV.
Mr. Roberts wants to achieve financial independence in 20 years. He has guessed that he needs an additional $$500,000$ to fund this goal. He anticipates 7 percent after-tax return on any potential
The general rise in the level of prices of goods and services is A. An economy.B. The CPI.C. The CPI-U.D. Inflation.
The annuity provides the highest income stream to the individual.A. Installment refund annuity.B. Joint and survivor annuity.C. Period certain.D. Single life annuity.
The key to successful planning for financial independence is to A. Accurately estimate an inheritance.B. Accurately estimate lifestyle needs.C. Accurately estimate the Consumer Price Index.D.
Which are true regarding an annuity?I. It is a contractual obligation to make periodic payments.II. The payments may be paid at some future date.III. The payments must begin immediately.IV. The
All of the following are correct as to how the PBGC is financed except A. Assets of defined benefit plans which have been taken over.B. Insurance premiums paid by plan participants.C. PBGC
Which of the following is a probability analysis?A. Historic returns.B. Monte Carlo.C. Straight-line returns.D. Stress testing.
If a personal financial plan’s assumed rate of return is 7 percent and the assumed inflation rate during financial independence is 6 percent, what is the inflation-adjusted return for the plan?A.
Which of the following models projects the likelihood of the client achieving a goal of financial independence?A. Historic return.B. Probability analysis.C. Straight-line return.D. Stress-tested
Which federal agency was created by the ERISA?A. Bureau of Labor Statistics.B. Department of Labor.C. Pension Benefit Guaranty Corporation.D. Social Security Administration.
Which of the following is not a characteristic of a defined benefit plan?A. A guaranteed retirement benefit.B. Risk of preretirement inflation assumed by employer.C. Benefits based upon the
Which of the following is true about cash balance plans?I. Past service credit is available.II. Employer guarantees a minimum rate of return.III. Participants direct investments in hypothetical
Which is an advantage to an employee who participates in a profit-sharing plan?A. Employee does not have to make investment decisions.B. Graded vesting schedule.C. Older employees receive the
An SEP has which characteristic?A. Loans and hardship withdrawals are available.B. Age-weighting or cross-testing is permitted.C. Social Security integration is permitted.D. Employer matching is
Which of the following is a defined benefit plan?A. 403(b).B. 412(i).C. 457(b).D. 457(f).
Which of the following is true regarding a SIMPLE IRA plan?A. The employer must have 100 or more employees.B. Participant loans are allowed.C. It can be combined with a money purchase plan.D. An
Which type of funding vehicle is not approved for 403(b)plans?A. Mutual fund.B. Variable annuity contract.C. Individual securities.D. Fixed annuity contract.
Which of the following entities may not sponsor a 403(b)program?A. State of Florida.B. 501(c)(3) organizations.C. Clergy.D. A for-profit hospital.
Which of the following types of business cannot establishan ESOP?A. Closely held C corporations.B. C corporation.C. Partnerships.D. S corporations
According to Section 7702B—Treatment of qualified long-term care insurance, which of the following is not an activity of daily living (ADL):A. Bathing.B. Dressing.C. Transferring.D. Walking.
Which of the following statements are correct concerning Medicare and long-term care?I. Medicare admission to a certified nursing facility requires three days of prior hospitalization.II. Medicare
Which of the following is not a type of reverse mortgage?A. Amortization reverse mortgage.B. Home equity conversion mortgage.C. Proprietary reverse mortgage.D. Single-purpose reverse mortgage.
Which of the following powers may not be granted to an agent?A. Change a beneficiary for an employer-sponsored retirement plan.B. Engage in litigation.C. Execute a living will.D. Sell real estate.
Generally, which of the following is not eligible for a Schedule A itemized deduction?A. Long-term care insurance premium.B. Medicare Part B premium.C. Medigap premium.D. Rent paid to an assisted
Which of the following household employees must have Social Security taxes withheld?A. Child under age18B. Individuals under age 18 whose household work is their principal occupation.C. Parent.D.
The goal of palliative care is A. To improve quality of life for the patient.B. To improve quality of life for the patient and family.C. To facilitate medical treatment.D. To fulfill the Medicare
Which of the following is true regarding Medicare benefits for a long-term care facility?I. Benefits are only provided for 20 days.II. Benefits are only provided for 100 days.III. No benefits are
The driver of an automobile was severely injured in an automobile accident. The driver is___________ .A. Incapacitated.B. Incompetent.C. Injured.D. Unfortunate.
Ralph, 55, has worked for Johnson Plastics, Inc. for 60 days and has now qualified to enroll in the company’s group benefit plan. One of the employee benefits provided is group long-term care
A is a program established by a state or an eligible educational institution that allows taxpayers to contribute to either a fund that prepays qualified educational expenses or a savings account for
Assets held in retirement plans reported on the FAFSA. Elective deferrals reported on the FAFSA and are counted as untaxed income.A. Are, are not.B. Are, are.C. Are not, are.D. Are not, are not.
Which of the following tax credits is applied per eligible student?A. American Opportunity Tax Credit (AOTC).B. Child tax credit.C. Earned income tax credit.D. Lifetime learning credit (LLC).
Angie and Pat Rice want to begin funding for their daughter Ashley’s education. Ashley is in pre-K at the Wilson School. She will need a computer when she begins first grade in two years. How
Which of the following is correct about a Coverdell ESA?A. All earnings must be paid out at age 18.B. Contributions may only be made by a parent.C. Contributions to the ESA are tax-deductible.D.
For purposes of financial aid for a dependent, a prepaid tuition plan is counted as the asset of the A. Educational institution.B. Donor.C. Parent.D. Student.
Mr. and Mrs. Wilson want to establish QTPs for Dennis and their three other grandchildren, all of whom are under age11.What is the maximum amount they can contribute in one year without making a
Which of the following is not correct regarding a Coverdell ESA?A. Account earnings are income tax-free if the funds are used for qualified education expenses.B. Contributions are considered to be a
Madge and Brent Jones want to establish an education account for their minor child, Tahoe. The Joneses do not want to incur the expense of establishing a trust and they want to gift parcels of real
Which of the following are examples of income in respect of a decedent?I. Dividends declared but not received at the time of death.II. Medical expenses accrued prior to the time of death.III. Salary
Mr. Waters is age 70; which one of the following is a skip person for him?A. His certified public accountant, age45.B. His granddaughter, whose parents died in an automobile accident.C. His
Mr. Able Nord is a 50 percent owner with Ms. Beatrice Wilson of the AB Bottling Company, Inc. They are considering a funded cross-purchase buy-sell agreement.How should the life insurance contract on
Pat and Angie McDonald are married and, by every measure, considered very wealthy. Six weeks ago, Pat passed away unexpectedly. In meeting with their estate attorney, Angie discovers that the bypass
Which of the following statements about self-canceling installment notes is not correct?A. Buyer pays a premium for the seller taking on the mortality risk.B. Buyer’s remaining payments are
Which of the following is not an incident of ownership in a life insurance policy?A. Right to assign.B. Right to make premium payments.C. Right to name beneficiaries.D. Right to terminate the policy.
Which of the following is another name for a marital trust?A. A Trust.B. B Trust.C. Revocable Trust.D. Portability Trust.
The Suffolk family owns a large ranching operation in Texas. It has been in the family for generations. Hal Suffolk, Sr. owns 25 percent of the ranch, and his interest represents 75 percent of his
Mrs. Adams, owner of a large cosmetics manufacturing company, transfers a portion of her stock into a GRAT with a five-year term. One year after granting the trust, she dies in a skiing accident in
Mr. Watson transferred the following life insurance contracts within three years of his death. Which of the following policies is not included in his gross estate?A. A life insurance contract on his
Which of the following resources may be used to pay for a long-term care stay in a nursing home that exceeds 100 days?A. Medicaid.B. Medicare.C. Medicare supplement insurance.D. Medigap insurance.
Paul Baker is a more-than-2 percent shareholder of Gemstone Brokers, Inc., an S Corporation. The corporation pays the premium for Paul Baker’s personally owned disability income insurance contract.
Who of the following is eligible to establish a health savings account?A. An individual participating in a high-deductible health plan.B. An individual eligible for Medicare.C. An individual claimed
Which of the following is not an essential health benefit under the Affordable Care Act (ACA)?A. Ambulatory patient services.B. Laboratory services.C. Maternity and newborn care.D. Vision care.
Under the employer shared responsibility provision of the ACA, which of the following is correct?A. Employers with 50 or more full-time employees who offer health insurance coverage, and have at
Susan Jones, owner of HyperTech, LLC decided that her storefront windows need to be washed in order to attract more foot traffic. The business sells iDevices, which are visible from the windows on
An insurance payment in excess of the adjusted basis of destroyed property will result in a___________ .A. Current gain.B. Gain.C. Tax free gain.D. Taxable gain.
Workers’ compensation is an example of which of the following types of liability?A. Absolute liability.B. Joint liability.C. Strict liability.D. Vicarious liability.
A few years ago, Mr. Steed purchased a deferred annuity for $$150,000.$ It is currently worth $$200,000.$ He has decided to retire and begin periodic payments. His life expectancy is 16 years. If
What is the function of the National Association of Insurance Commissioners?I. Enact legislation for regulation of the insurance industry.II. Oversee state accreditation programs.III. Promote law and
What type of investment risk is associated with an S&P index fund?A. Diversifiable risk.B. Nondiversifiable risk.C. Nonmarket risk.D. Nonsystematic risk.
A self-assessed risk-averse client wants to accumulate wealth. Of the following, which is the most critical action the personal financial planner should accomplish to assist the client in the
Components of an investment policy statement include all of the following except:A. Asset allocation strategy.B. Client constraints.C. Duties and responsibilities of the client and the personal
Susan Adams’s marginal tax rate is 25 percent. She is contemplating the purchase of either a corporate bond that has a 3.5 percent coupon or a newly issued tax-exempt municipal bond paying2.5
Hunter Martin is considering the purchase of a bond to round out the asset allocation for his investment portfolio.Hunter is in the 25 percent marginal tax bracket. Which bond provides the highest
What is the investment objective for Elizabeth and Charles Wilson?A. Education funding.B. Growth.C. Liquidity.D. Tax minimization.
Alternative investments are obtained through the use of A. Commodities.B. Exchange traded funds.C. Hedge funds.D. Mutual funds.
Which are performance benchmarks for the IPS of Elizabeth and Charles Wilson?I. Barclay’s aggregate.II. CPI – U + 2 percent.III. MSCI ACWI ex-US.IV. S&P 1500.A. III, IV.B. I, III, IV.C. IV.D. I,
Who is the investment manager for Ann Marie’s 529 college savings plan?A. Hometown Wealth Management, LLC.B. Paraklete® Financial, Inc.C. T. Rowe Price.D. Vanguard.
Which accounts are managed by Hometown Wealth Management, LLC for Charles L. Wilson?I. Rollover IRA.II. Roth IRA.III. SEP.IV. Traditional IRA.A. I, II.B. II, III.C. II, IV.D. III, IV.
Which of the following factors least affects a defined contribution plan participant’s account balance?A. Investment return.B. Inflation.C. Employer contributions.D. Life expectancy.
Alice Jones is a participant in Shield, Inc.’s ESOP. Over the years, Shield, Inc. has contributed stock with a cost basis of $$100,000$ to Alice’s account. Alice is planning to retire, and the
Pat’s 58-year-old husband Dennis recently died. He was employed by FastFood, Inc. at the time of his death. She brings Dennis’ retirement plan summary description to you for review. The
Which of the following retirement plans will qualify for NUA lump-sum treatment?I. Profit-sharing 401(k) plan.II. SEP/IRA.III. 403(b).IV. ESOP.A. All of the above.B. I, III, IV.C. I, II, IV.D. I, IV.
What is an exception to the tax penalty for the modification of a series of substantially and equal periodic payments within 5 years of the date of the first payment or, if later, age 59½?A.

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