Posts by Dan Madden, CFP®

Interest Rate Risk

Which of the following correctly describes interest rate risk? Interest payments will have less purchasing power in the future. Bond prices decrease as interest rates increase. Interest payments may not be paid if the issuer goes bankrupt. The bond may be called because interest rates have decreased. CLICK TO REVEAL ANSWER Expand B is the…

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Maxing Out Defined Benefit Plans

Course: Retirement Planning Lesson 8: Fitting Deferred Compensation into the Retirement Plan Student Question: Curious as to why the net result is $525,000.00 and not $500,000.00. Wouldn’t 100% of her current year compensation be $500,000.00? Is it just that the Board decided to max out the limits of the DBP and the NQEBP so that’s…

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Odd Lot Theory

Which of the following tells the investor that the Odd Lot Theory indicates a bull market? The ratio of odd lot purchases to sales is constant. Odd lot sales exceed odd lot purchases. The ratio of odd lot purchases to sales reaches the resistance point. Odd lot purchases exceed odd lot sales. CLICK TO REVEAL…

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SIPC Reimbursement

Course: Investment Planning Lesson 2: Securities Markets and the Fed Student Question: The coursework states that the SIPC will pay claims up to $500,000, but in Example 2, they only gave Bruce $350,000. Why is that? Thanks. Wesley Example 2 Bruce had $400,000 in cash and $100,000 in securities in his brokerage account. His broker/dealer…

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Practice Question: Correlation between International Stocks and T-Bills

What is the correlation in returns between international stocks and Treasury bills? Low Moderate High Perfectly negative CLICK TO REVEAL ANSWER Expand A is the answer. The correlation in returns between international stocks and Treasury bills is typically slightly negative (slightly below zero), meaning the correlation in returns is low and often they will move…

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Practice Question: What is a spread?

Which of the following combinations correctly describes a spread?  A combination of a short sale and a purchase of a call for the same stock  A combination of buying and selling calls on the same stock with different expiration dates and exercise prices  A combination of a put and a call on the same stock…

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Practice Question: Sharpe vs Treynor Index

Which of the following statements are correct about Fund 1 and 2 given the following information? Fund 1 Fund 2 Return on portfolio 13% 17% Beta .95 1.02 Standard deviation .18 .22 Risk free rate of return is 7% Market return is 15% (1) Fund 1 was more efficient under the Sharpe performance index (2)…

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Self-Employment Deduction Calculation

Course: Income Tax Planning Lesson 7: Arriving at Adjusted Gross Income Student Question: Dan, can you help me with the below question? While I know a self-employed person can reduce AGI by 50%, I still couldn’t seem to come up with an answer that matched any of the choices. QUESTION Scott is a self-employed financial…

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Practice Question: Efficient Market Hypothesis

Which of the following correctly states an implication of the efficient market hypothesis? Security prices adjust slowly to new information. The strong form asserts that technical analysis can produce superior performance. An investor will earn a risk-adjusted return consistent with the market. It is difficult to produce superior performance in nonfinancial markets. CLICK TO REVEAL…

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Power Exercisable with Consent of Another – Include in Estate?

Course: Estate Planning Lesson 6: Transfer Taxation III Student Question: For “Power exercisable with consent of another”, can you explain  why the assets WOULD be included in John’s estate? Since he has  power to appoint property, wouldn’t that be adverse to Betty and  her ability to enjoy the property? The example is below. EXAMPLE Albert…

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