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The Psychology of Financial Planning
CFP® Certificants in the News Rational clients seem to make irrational financial decisions to the puzzlement and frustration of financial advisors. Why? One school of thought blames our emotions for our financial miscues. Regrettably, we are not always self-aware of the power wielded by our sub-conscious emotions in the following behaviors and more: The buy-high/sell-low…
Solving for Annual Equivalent Rate
Course: Fundamentals of Financial PlanningLesson 5: Using the Calculator Student Question: I am confused as to how to get the correct answer for number 4. Jackie invests her bonus at the beginning of this calendar year. If she earns 7% compounded monthly, what is the annual equivalent rate? Round your answer to two decimal places. I…
Basis on Sale of Gifted Stock
Tom gave his son, David, a birthday present of Big M stock with a fair market value of $50,000. Tom paid gift tax of $11,700 as Tom had previously given David earlier this year a cash gift equal to the annual gift tax exclusion amount. Tom’s adjusted basis in the stock on the date of…
Prepare for the CFP Board Exam
CFP® Certificants in the News You’re completing or have just completed the coursework required to take the CFP Board exam (the exam). Now what? Here are the potential next steps for you: Respect the exam’s breadth and depth, Budget your study time, Register for the exam, Use CFP Board resources, and Take a review course.…
Interest Rate Risk in a Bond
Course: Investment PlanningLesson 10: Fixed Income Securities Analysis Student Question: I’m not clear why holders of long-term bonds are subject to interest rate risk. If a 20-year bond is purchased at par with a coupon rate of 6.25% ($62.50/year), it seems to me that the investor would still receive $62.50 a year regardless of interest rate changes. What…
Underinsured Dwelling Penalty
Sam carries an H0-3 policy with $500,000 of coverage and a $2,000 deductible. It would cost $700,000 to rebuild Sam’s house. How much will his insurance company pay on a $200,000 claim related to a fire that started in Sam’s kitchen? $176,571 $178,571 $231,235 $198,000 CLICK TO REVEAL ANSWER Expand A is the answer. Frank…
Winners and Losers in the 2022 Inflation Reduction Act
Good to Know Laws enacted by those ladies and gentlemen we send to Congress are seldom a panacea for all. The 2022 Inflation Reduction Act certainly fits that mold, as will be evident as we summarize the winners and losers under the Act. But first, here’s a quick editorial note-as with all of our articles,…
Defining Basis Points
Course: Investment PlanningLesson 15: Fundamentals of Derivatives – Futures and Options Student Question: Can you please explain what Basis points are and how/why they are generally used? Instructor Response: There are 100 basis points in 1%. Basis points are merely a common method of measuring investment fees or returns. An exchanged traded fund may charge a…
Sale of Home by Surviving Spouse
April’s husband Jay died 5 years ago when their home was worth $600,000. Due to the soft real estate market, April kept the house until the housing market recovered. She finally sold the home this year for $950,000. What is the amount of April’s taxable gain or loss if she bought the home jointly with…