Advanced Investment Strategies (AIS) Practice Questions And Answers

The Federal Reserve has at present set the initial margin requirement at 50%. Stock exchanges and brokerage houses will set a maintenance margin requirement, with maintenance margin being the minimum equity an investor must have for a margin position.

When a stock or portfolio declines a great deal in price, the result will be a margin call. Margin calls indicate that the equity in the account has dropped beneath the margin requirement. Investors will have to increase their equity by either selling assets or depositing cash or securities.

A taxpayer can file as a head of household if he or she was not married at the end of the year, paid more than half of the cost of the house, was a US citizen or resident for the entire year, if the home was the main home for one or more family members.

The at-risk rules are set up to limit the deductible loss a taxpayer claims to the amount that the taxpayer actually risks losing. The at-risk rules may apply to individuals, estates and trusts, partners, shareholders in S corporations, and most C corporations.

Child support payments will be established by the courts, and will be based on a ratio of each parent’s income, the percentage of time the child spends with each parent, and the amount of alimony.

A swap is an investment technique in which bonds are sold and different bonds are purchased with the proceeds. A swap is conducted for the purposes of deriving advantageous tax treatment, yields, maturity structure, or trading profits.

These five companies provide the best ratings of financial strength: A.M. Best; Fitch; Moody’s; Standard and Poor’s; and Weiss. These ratings are typically based on underwriting results, economy of management, adequacy of reserves for undischarged liabilities, adequacy of policyholder’s surplus to absorb shocks, and the soundness of investments.

A call gives the holder of the option the right to buy an asset at a predetermined price; a put gives the holder the right to sell the asset at a predetermined price.

Futures contracts are formal agreements between a buyer, a seller, and a commodity exchange. When purchasing a futures contract, the buyer agrees to accept a specific commodity at a predetermined date.

To determine value in a real estate investment analysis, a financial planner must consider the objectives of the investor, the features of the property (including geographic area, time horizon, and property rights), the determinants of value (supply and demand, the local property transfer process), and the local valuation of property.

Traditional indemnity plans provide a comprehensive medical expense plan. This includes medical, hospital, surgical, and diagnostic service. There may be a limit on the amount of reimbursement that can be received, but patients are allowed to choose their own doctor.

Blue Cross and Blue Shield provide for medical care for prepaying subscribers. Blue Cross plans mainly give coverage for hospital expenses, while Blue Shield plans are mainly used to cover physician’s expenses.

The Health Insurance Portability and Accountability Act (HIPAA) created a definition for long-term care plans. HIPAA grants favorable tax treatment to qualified long-term care insurance contracts.

The Consumer Price Index is calculated using statistics from the Bureau of Labor. This index, commonly known as the CPI, measures the cost of a basket of goods and services over a set time period.

The internal rate of return (IRR) is the rate of return at which the present value of a series of cash inflows will equal the present value of the cost of a project. It can also be described as the rate of return at which the net present value for a project is zero, assuming that all cash flows are reinvested in the internal rate of return.

The accumulation phase is typically the client’s first forty years, during which he or she wants to earn funds to help his or her family avert financial disaster; save money for homes, automobiles, and college; and develop some assets for long-term security. Individuals in the accumulation phase usually are willing to accept some high-risk investments if there is the promise of above-average return.

The marketability of an asset is the ease with which an asset may be bought or sold, while the liquidity of an asset is the ease with which it can be converted into cash with little loss of principal.

There are a few factors consumers should consider before deciding whether to buy or lease a home. Most of the time, people will lease (or rent) when they do not have the requisite funds to make a down payment. Purchasing a home creates a number of tax advantages for the buyer. In addition, creditors tend to give better treatment to homeowners. A purchased home may become an appreciating asset for the owner.

There are three available options when dividing a business and/or house: one spouse may keep the house or business by buying out the other’s interest; both spouses may continue to own the business/home; or the business/home may be sold and the proceeds divided.

In a bilateral contract, both parties make legally enforceable promises to one another.