FINANCE 390 FINANCE 341 Midterm Study Guide (FINANCE390)

Exam (elaborations) FINANCE 390 FINANCE 341 Midterm Study Guide (FINANCE390) Financial Planning and Insurance Study Guide 1. A good financial planning report must include an analysis of all of the following EXCEPT: a. Where you are now b. Where you want to be c. Why you failed previously d. How to reach your goals 2. The five steps in the financial management process outlined by the authors include the following EXCEPT: a. Establish goals b. Collect data c. Measure performance d. Establish living wills 3. Match the terms in column A with the description in column B. A B a. Risk management 1. Boosts investment return by deferring taxes b. Marketability of borrowing 2. Earning rate of return greater than the cost c. Liquidity 3. Protecting ground gained without giving up much in return d. Tax leverage 4. Irrevocable life insurance trust e. Estate freeze 5. Ability to turn investment quickly into cash with little or no loss f. Estate tax-free wealth transfer 6. Ability to quickly dispose of an investment g. Leverage 7. Transfer asset growth to next generation 4. Which of the following is NOT part of the definition of an Investment Advisor as defined by the Investment Advisers Act of 1940 (the Act)? a. provides advice regarding securities b. is in the business of providing advice c. holds a CFP® or series 7 license d. receives compensation for advice FINANCE 390 FINANCE 341 Midterm Study Guide 5. The Act defines compensation as a. Commission only b. Fees only c. Receipt of any economic benefit d. 12(b) 1 fees only. 6. Which of the following is NOT exempt from the definition of an investment advisor? a. Publisher of the local newspaper, the Daily Beagle b. Insurance agent who advises clients about no load mutual funds c. Those who advise clients solely about U.S. treasury obligations d. Local attorney who occasionally advises clients about setting up investment accounts for their jury awards 7. The “brochure rule” requires that the investment adviser do which of the following? a. Provide the client with an audited financial statement of the adviser’s net worth. b. Deliver a written disclosure document (such as part II of form ADV) to each client c. Provide a copy of part I of form ADV to each client d. Provide clients with copies of the adviser’s marketing brochure. 8. The anti-fraud provisions of the Act applies to: a. All investment advisors, even those who are exempt from registration b. Only those who must register with the SEC or the states c. Only situations where security transactions take place. d. Only advisors of pension plans 9. Which of the following statements about the definition of “security” under the Investment Advisor Act is CORRECT? a. The act defines the term “security” in the broadest possible fashion b. The act defines the term narrowly, to include only stocks, bonds and certificates of deposit c. The SEC periodically holds hearings to define the term d. The definition is left to the NASD 10. Financial advisor John Smith manages investment accounts for clients mostly in his home state of Ohio. He should register with the Ohio division of securities if: a. He has any clients outside Ohio b. The assets under his management exceed 30 million c. Assets under his management are less than 25 million d. He is not a CFP® certificant 11. If John Smith is registered as an investment advisor with the SEC, which of the following designations is permitted under the Act? a. John Smith, RIA b. John Smith, certified RIA c. John Smith, Investment Counsel d. John Smith, Registered Investment Advisor 12. Recent rules issued by the SEC require investment advisors to do the following EXCEPT: a. Adopt a code of ethics b. Designate a chief compliance officer c. Adopt policies for disaster recovery d. Accept only U.S. citizens as clients 13. The following are the disciplinary actions that the CFP Board may take against a financial advisor who is in violation of the Code of Ethics EXCEPT: a. Private censure b Lawsuit against the advisor in Federal Court c. Public letter of admonition d. Suspension 14. Which of the following uses of the CFP® marks are PROHIBITED by the CFP Board? a. Jane Smith is a CFP® graduate b. Jane Smith is a CFP® c. Jane Smith has a CFP® d. All of the above 15. Which of the following are PROHIBITED uses of the CFP® marks? a. www. CFP A b. CFP Advisors, Inc. c. All Star CFPs, Inc. d. All of the above 16. Under the CFP Board’s Code of Conduct and Professional Responsibility, a financial planner who has reason to suspect illegal conduct in his or her organization must: a. Disclose the information to his or her supervisor b. Alert regulatory authorities if the organization does not take suitable action to remedy the situation c. Not use the process to harass another planner d. All of the above 17. An important requirement that is common to the SEC rules for investment advisors and the CFP Board’s Code of Ethics is: a. Full Disclosure of all material information to clients b. A ban on accepting commissions c. A ban on “soft dollars” d. Rules for custody of assets under management 18. Under the Code of Ethics and Professional Responsibility, a CFP® practitioner may not generally disclosed confidential information obtained from a client. A CFP® practitioner may, however, disclose such information in the following situations EXCEPT: a. The client sues the practitioner b. The client files a complaint against the practitioner with the NASD or the CFP Board c. The client consents to the disclosure d. The client’s bank requests information in connection with a mortgage application 19. According to the Code of Ethics and Professional Responsibility, a CFP® practitioner who gives a brochure to clients disclosing information about his or her firm must include all of the following EXCEPT: a. The identity of insurance companies that the firm represents and any commission arrangements with those companies b. A statement of whether the firm’s compensation will include commissions or fees only c. Resumes of the firm’s employees who will provide financial planning services to the client d. The identity of the bank or other institution where the firm maintains a checking account 20. The Principle of Objectivity in the Code of Ethics and Professional Responsibility of the CFP Board of Standards requires that a CFP® practitioner a. Must disclose in writing any conflicts of interest that might compromise the adviser’s objectivity or independence prior to establishing a relationship with the client. b. Has the burden of proving, by clear and strong evidence that any business transactions with or for the client are arms-length transactions c. Shall act with prudent professional judgment and in the best interest of the client d. All of the above 21. The CFP Board Financial Planning Standards are designed to accomplish all of the following EXCEPT: a. Advance professionalism in financial planning b. Facilitate the weeding out of incompetent financial advisors c. Enhance the value of the financial planning process d. Establish certain norms of practice for CFP® practitioners 22. Tuition at the Home State University is currently $10,000 per year, increasing on the average of 6% per year. What is the lump sum needed at the beginning of the freshman year of college to fund an 8-year old child’s college education for 4 years starting at age 18, if the investment return is expected to be 4%? a. $65,778 b. $67,706 c. $73,727 d. $69,502 23. What is the (constant) annual payment needed to fund the above lump sum, if the parents start investing now, and continue until the beginning of the freshman year, and the annual investment return is 8%? a. $5,905 b. $4,712 c. $5,277 d. $6,565 24. The Hope Scholarship Credit is characterized by all of the following EXCEPT: a. It can be claimed only for the first two years of a post-secondary education b. There is no requirement that the student pursue a degree c. The maximum annual credit amount is $1,650 per student d. The credit is phased out between income ranges of $40,000 to $50,000 as indexed (single) and between $80,000 to $100,000 as indexed (joint) 25. The following statements about “529 plans” for funding college educational expenses are true EXCEPT: a. Withdrawals from 529 plans for qualified educational expenses are tax-free b. Parents can retain some control over the funds,