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Understanding the Relationship Between Coupon Rates and Duration
Course: Investment PlanningLesson 9: Fixed Income Securities Student Question: There is a question regarding duration that I continue to struggle with.Which of the following are true:1 – Lower coupon bonds are more sensitive to interest rates than high coupon bonds.2 – There is inverse relationship between bond prices and change in interest rates.3 – There is a positive…
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Appropriate Valuation Method
Sam McBuck has an estate of $10 million and would like to leave it to his nephews. Sam assumes he will live for at least 5 more years. The property in Sam’s estate currently includes the following assets: An apartment building in downtown New York that Sam owns with three partners, each of whom wants…
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Is the Stretch IRA Dead for Everyone?
Good to Know The answer posed by the blog title is no. That’s good news. The bad news is that only a short list of beneficiaries is eligible for stretch IRA treatment at the death of the original IRA owner. Only an eligible designated beneficiary can stretch distributions from Traditional IRAs where the original owner…
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Clarifying Tort Liability
Course: Retirement PlanningLesson 2: Qualified Plan Advantages and Disadvantages for Employees and Business Owners Student Question: Hi, I have a few questions regarding tort liability. Negligence is Tort Liability? Why isn’t it contractual? Are all torts criminal in nature? John Instructor Response: Hi John, Good questions here. See below for my response to each. Yes…
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Saving for a Retirement Goal
Erika wants $50,000 a year in today’s dollars in retirement. She anticipates retiring in 10 years and living in retirement for 30 years. Erika can earn 7% on her investments and she expects inflation to average 4%. Approximately how much should Erika have saved by the day she retires to meet this goal? $913,000 $983,000…
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Maximum Employer Contribution to Defined Contribution Plans
Course: Retirement PlanningLesson 2: Qualified Plan Advantages and Disadvantages for Employees and Business Owners Student Question: Hello, If I understand correctly, the maximum an employer can contribute to a defined contribution plan is $58k over the life of the individual’s plan? Austin Instructor Response: Hi Austin, You are directionally correct. The maximum annual employer contribution to a…
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Defined-Benefit Pension Plans – Actuarial Assumptions
Which of the following statements concerning the various actuarial assumptions used in estimating an employer’s contributions to a defined-benefit pension plan is correct? The higher the assumed rate of investment income, the larger the employer’s assumed contribution rate. The higher the employee turnover or termination rate, the larger should be the employer’s assumed contribution rate.…
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Anchoring Risk in Client Investing
Good to Know This blog is the first in a series to identify common psychological influences that can lead clients to financial decision errors. We begin this series with a common influence referred to as Anchoring. Anchoring Defined Anchoring is regarded by some as one of the most powerful psychological influences in the human brain.…
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Phantom Stock
Course: Investment PlanningLesson 5: Fundamental Equity Analysis Student Question: Hello, What is the difference between Stock options and Restricted stock plan or phantom stock? Seems confusing. Mary Instructor Response: Hi Mary, Stock options are contracts between employer and an employee that allow the employe to purchase a specific number of employer shares at a specific price after…
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