Solving for Annual Equivalent Rate

Course: Fundamentals of Financial PlanningLesson 5: Using the Calculator Student Question: Hi- 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.…

Read More

Percentage of Completion Method

Course: Income Tax PlanningLesson 10: Recognition of Expenses, Losses, and Deductions Student Question: Hi- Question 5 (below) did not make sense to me. I started out by breaking down by year —  400,000/2,100,000*3,000,000 and so forth, but did not arrive at the correct answer.  So then I tried adding up 3 year —  400+650+700/2100000*3,000,000.  That…

Read More

Annual Return and Compounding

Course: Fundamentals of Financial PlanningLesson 5: Using the Calculator Student Question: Hi- 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…

Read More

Investments Held by Exchange Traded Funds

Course: Insurance PlanningLesson 19: Immediate Annuities – A Tax-Advantaged Income Planning Tool Student Question: Hi- The text on this page says the annuities don’t hold mutual funds or ETFs.  What are they holding to provide an S&P “type return?” The text goes on to discuss components that sound a lot like ETFs (mid value, large…

Read More

Real Estate Income and IRA Contributions

Course: Retirement PlanningLesson 1: Using IRAs to Build and Distribute More Retirement Income Student Question: Good morning! This page states that rental income is not included in the definition of earned income.  If the client is a professional real estate developer whose income is derived mainly from rental income, would they be able to contribute…

Read More

Distributable Net Income Application

Course: Estate PlanningLesson 9: Income Taxation of Trusts and Estates Student Question: Hi Bruce When a Trust has an income accumulation year, must the Trust pay taxes on that accumulation of DNI in the year of accumulation? If so, why do that – why would a Trust hold income at the confiscatory Trust income tax…

Read More

Loan Impact on Basis in a Modified Endowment Contract

Course: Insurance PlanningLesson 15: Income Taxation of Life Insurance Student Question: Hello, Can you help me better understand the difference between policy basis in a normal policy and policy basis on a modified endowment contract. From the Coursework: But for MEC purposes, the basis is increased by any portion of loans that were considered taxable…

Read More

Net Unrealized Appreciation

Course: Retirement PlanningLesson 7: Income Distribution Planning for Qualified Plans Student Question: Regarding net unrealized appreciation, the value of company shares at the time of distribution would be considered the client’s cost basis in that any earnings in excess of that amount could be subject to short-term cap gains if sold within a year of…

Read More

Qualified Plans – Parties in Interest

Course: Retirement PlanningLesson 6: Matching Business Owner Needs to the Right Qualified Plan Student Question: How is “connection to the plan” defined in regards to a “party in interest” when talking about qualified plans?  Would a plan participant count as someone with a connection to the plan? From the Coursework: A party in interest is…

Read More

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…

Read More