Certified Private Wealth Professional (CPWP) Module 2 Free Trial Set Two

The goal of the asset pricing model known as the option pricing model is to determine the value of a call option. This model assumes that the call option is in the European rather than the American style, meaning it can be exercised only on its expiration date.

In the option pricing model, there are four variables: time to maturity, interest rates, the price of the underlying stock, and volatility. The value of a call will typically decrease with an increase in strike price.

Qualifying private charities include: veteran’s organizations, fraternal orders, and certain private nonoperating foundations.

For public charities, there is a 30% ceiling (20% for private charities) on long-term capital gain property.

The standard measure of total risk is variance; this is the measure of the dispersion of returns around the expected return. Semivariance, on the other hand, is a measure of downside risk, the dispersion of returns that occur below a certain target return.

Standard deviation is the measure of the variability of returns of an asset compared with the mean or expected value of that asset. It is a measure of total risk: the larger the dispersion around some mean value, the greater the risk and the larger the standard deviation.

Contrarians will make use of mutual fund cash positions, the investor credit balances in brokerage accounts, investment advisory opinion, and OTC vs. NYSE volume, whereas smart money traders will make use of the Confidence Index, T-bill yields, Eurodollar rates, short sales by specialists, and the margin debit balances in brokerage accounts.

Asset allocation programs are usually marketed in one of five ways: aggressive growth, growth, growth and income, balanced, and fixed income; these are listed above in descending order of return and risk level.

These five companies provide the best ratings of financial strength: A.M. Best; Fitch; Moody’s; Standard and Poor’s; and Weiss.

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.

Covariance, meanwhile, is the degree to which any two variables move together over time. If the two variables move together, they have a positive covariance; if they move apart, they have a negative covariance.

A correlation coefficient of +1 indicates that returns move in the same direction and are perfectly positively correlated; a correlation coefficient of -1 means the returns move oppositely, and are perfectly negatively correlated; a correlation coefficient of zero indicates two uncorrelated returns.

In the first section, Coverage A insures the house and anything attached to it; Coverage B insures any other structures on the property; Coverage C insures the personal property of the owner at actual cash value; Coverage D pays for any loss of use; Coverage E insures against personal liability; and Coverage F insures for any medical payments that need to be paid to other people.

A personal auto policy (PAP) is a package insurance policy that provides both property and liability insurance for the members of a family. A PAP offers four kinds of insurance.

Key employee insurance is insurance taken out on a certain valuable employee. This insurance is owned by the business, which is also considered the beneficiary. The premiums in a policy of this type are not deductible to the business. Death benefits acquired through a policy of this type are tax-free. Generally, key employee insurance is taken out in order to protect the business against the loss of business income and also to ensure that funds will be available to find and train a replacement for the key employee.

The purpose of insurance is threefold: to protect existing assets; to protect income, so that it will not be interrupted by loss; and to protect both income and assets in the case of liabilities or emergency needs.

The Producer Price Index, known as the PPI, is calculated by the United States Department of Labor. It takes a slightly different look at the price of goods by measuring the wholesale cost of a certain set of goods over a determined period of time.

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.

Loading is the portion of the premium that will cover expenses, profit, and margin for contingencies. Mortality and interest are used to calculate the net premium, which is combined with operating expenses to figure gross expenses.

In order for a valid contract to exist, there must be five elements: offer and acceptance, genuine assent, adequate consideration, capacity, and legality.

Budget expenses can be either discretionary or nondiscretionary: discretionary expenses can be changed or timed depending on convenience. Nondiscretionary (fixed) expenses can be changed somewhat, but must be paid at some time.

People can use a number of financing strategies in personal budgeting. One common strategy is to consolidate credit card or student loan debt, so as to lock in a low interest rate. A person may also take a cash-out refinance, in which a first mortgage is renewed and additional cash is disbursed to the mortgager. People also often take out a home equity loan or home equity line of credit. Sometimes, an individual will use the cash value of a life insurance policy for a loan. Another common financing strategy is tapping into a company savings plan. Finally, individuals often use the after-tax money from a Roth IRA; this money can be taken out without any penalty or tax consequences.

The ten leading economic indicators (as compiled by the National Bureau of Economic Research) are: stock prices; average weekly work hours; average unemployment claims; manufacturer’s new consumer goods orders; manufacturers’ new orders for nondefense capital goods; vendor performance; new building permits; the difference in interest rates for ten-year Treasury bonds and the federal funds rate); inflation-adjusted M-2; and consumer expectations as measured by the University of Michigan Research Center.

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 Producer Price Index, known as the PPI, is calculated by the United States Department of Labor.

When selecting a fiduciary, one should look for a person who will most likely outlive the testator, has skills in legal and financial affairs, is familiar with the testator, and is an impartial person with strong integrity.

In contract law, the person to whom an offer is made is called the offeree; the person who makes the offer is called the offeror.

Fixed outflows include such items as monthly auto loans, home mortgages, and property taxes. Variable outflows cover expenses such as monthly food spending, entertainment spending, and other unpredictable expenses.

The most common taxes shown on the income statement are the client’s property taxes, income taxes, self-employment taxes (if any), and FICA taxes. The income statement is useful in helping illustrate to clients whether or not their lifestyle is within their means.

Personal financial planning process
The Code of Ethics and Professional Responsibility defines a number of terms that are essential to the practice of financial planning. The personal financial planning process, sometimes just known as the financial planning process, is the process that includes (but is not necessarily limited to) six basic elements: establishing and defining the client-planner relationship; gathering client data, objectives, and goals; analyzing and evaluating the client’s financial status; developing and presenting financial planning recommendations; implementing the financial planning recommendations; and, finally, monitoring the financial planning recommendations.

The seven principles are qualities that an ethical financial planner will cultivate. They are integrity, objectivity, competence, fairness, confidentiality, professionalism, and diligence. Though these principles in general have the well being of the client in mind, they do not assert that a financial planner should manipulate facts in order to please a potential client. On the contrary, the second principle, objectivity, directly asserts that financial planners should remain objective regarding the achievable goals for each client.