Revocable versus Grantor Trusts

Course: Estate PlanningLesson 9: Income Taxation of Trusts and Estates Student Question: Can you refer me to a comparison (or just write a few notes) on how a grantor trust differs from a revocable trust and how a non-grantor trust differs from an irrevocable trust? They seem synonymous respectively to each other. Thank you! Instructor…

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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: Can you explain #1 and #3? Instructor Response: Thank you for your question.  This can become a bit convoluted. Let’s unpack the word “duration” first.  Duration is nothing more…

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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? Instructor Response: Good questions here. See below for my response to each. Yes Tort law and…

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Annual 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…

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Social Security Widower Benefits

Course: Insurance PlanningLesson 10: Social Security Student Question: When it comes to social security widower’s benefit’s, is the widow eligible to take his/her SS benefit early  (age 62) and then switch over to the deceased spouse’s full benefit at 67? Or would the widow only be eligible for one of the two benefits? Instructor Response: You are directionally correct. Note that a qualifying surviving spouse can generally receive widow or widower’s benefits beginning at age 60, age 50 if disabled, or before age 60 if caring for an eligible child of the deceased worker. Specific to your question, here’s general guidance straight from Social Security: If you [the surviving spouse] are also eligible for retirement benefits (but haven’t applied yet), you have an additional option. You can apply for retirement or survivors benefits now and switch to the other (higher) benefit later. Caveat – like any general guidance, there are exceptions.

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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…

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Skewness versus Kurtosis

Course: Investment PlanningLesson 13: Asset Allocation Student Question: Can you help me understand the difference between Kurtosis and Skewness?  I can’t quite piece it together. Instructor Response: Entire books have been written on this topic but the following summary should get the points for you on the CFP® Board exam when these topics are tested. …

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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…

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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…

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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…

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