Posts by Dan Madden, CFP®
Correlation of a Portfolio
An investor owns two mutual funds. Fund A has an expected return of 8% and a standard deviation of 10%; Fund B has an expected return of 12% and a standard deviation of 20%. The correlation between the funds is 0.4. Which of the following statements is most accurate? Combining the two funds will not…
Read MoreClarifying Tort Liability
Course: Retirement PlanningLesson 2: Qualified Plan Advantages and Disadvantages for Employees and Business Owners Student Question: I have a few questions regarding tort liability. Instructor Response: Good questions here. See below for my response to each.
Read MoreMaximum Employee Contribution to 401(k)
A participant age 52 wants to contribute the maximum elective deferral to her 401(k) plan in 2025. What is the maximum employee contribution, including any catch-up? $23,000 $24,000 $30,500 $34,500 CLICK TO REVEAL ANSWER Expand C is the answer. For 2025, the 401(k) elective deferral limit is $23,000 plus a $7,500 catch-up for those age…
Read MoreCorrelation Coefficient and Diversification
Course: Investment PlanningLesson 13: Asset Allocation Student Question: In the attached concept question, wouldn’t Option (1) – a correlation coefficient of 0 – be the most diversified since there is no correlation? A correlation of -.25 would indicate a slight negative correlation. Instructor Response: Good to hear from you again! Hope all is going well.…
Read MoreDetermining Gross Income
In 2025, Jordan, a single taxpayer, has $80,000 in wages, $3,000 of qualified dividends, and $2,000 of tax-exempt municipal bond interest. What is Jordan’s gross income? $80,000 $83,000 $85,000 $82,000 CLICK TO REVEAL ANSWER Expand B is the answer. Gross income includes wages and taxable dividends but excludes tax-exempt municipal bond interest. $80,000 + $3,000 =…
Read MoreLike-Kind Exchange of Multiple Properties
Course: Fundamentals of Financial PlanningLesson 5: Using the Calculator Student Question: Does the like kind 1031 exchange defer taxes if I exchange two properties for one like-kind property? For example, I am selling an investment house and with the proceedings I am purchasing two like-kind investment houses. Instructor Response: Absolutely. So long as you are…
Read MoreInsurance Risk Exposure
Olivia is a 25-year old single mother with twin girls who just turned three. Olivia has worked for the last 5 years as an administrative assistant for a local law firm. Olivia’s firm provides her with a basic medical insurance policy and a split definition disability. Which of the following is the biggest risk exposure…
Read MoreAnnual Return and Compounding
Course: Fundamentals of Financial PlanningLesson 5: Using the Calculator Student Question: My question relates to being able to clearly distinguish when the CFP Board exam will require an annual, or other period for the answer. Question 5(b) asks: “What is the rate of return on Investment 2 using daily compounding?” What is the annual rate…
Read MoreTax Saving Strategies
Dan and Karen Burles have 2 children, Coy (age 12, student) and Roger (age 21, student). Dan and Karen own a security equipment sales and installation business, an LLC. Dan and Karen are in the highest income tax bracket. They have a portfolio with $130,000 of municipal bonds (annual income $5,200), $80,000 of corporate bonds…
Read MoreMeeting Retirement Plan Objectives
Maria owns a small consulting firm with 12 employees. She wants to establish a retirement plan that is easy to administer, has low costs, and requires minimal annual reporting. She also wants employees to be able to contribute to the plan through salary deferrals. Which of the following options would best meet Maria’s objectives? 401(k)…
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