The Cantrell Case
AN INVESTMENT PLANNING MINI-CASE
Case Questions
1. How much total § 79 income (rounded) for the year must the Cantrells report for tax purposes?
a. $0
b. $6
c. $29
d. $32
e. $35
2. Which of the following is true?
a. Interest earned by the Cantrells adds to their level of discretionary cash flow.
b. § 79 income earned by the Cantrells adds to their level of discretionary cash flow.
c. Contributions to Gabe's 401(k) plan reduce discretionary cash flow.
d. All of the above are true.
e. A and b only are true.
3. The Cantrells are eligible for which of the following tax credits?
I. income tax credit.
H. Child and dependent care tax credit.
arned ti 'Id tax credit.
IV. Low-income housing tax credit.
a. I and II only
b. II and IR only
c. III and IV only
d. II, HI, and TV only
4. The Cantrells' current net worth situation can best be described as
a. A positive $78,356
b. A negative $2,900
c. A positive $116,094
d. A negative $113,194
e. A positive $194,950
5. When completing their tax return, the Cantrells should
a. file married filing separately.
b. claim a deduction from AGI for retirement plan contributions.
c. use the sales tax deduction when calculating the amount they can claim for itemized deductions.
d. claim Anystate income taxes as a tax credit.
6. Which of the following strategies can the Cantrells use to improve their discretionary cash flow situation?
I. Refinance their first mortgage using a 15-year loan.
II. Pay off some or all credit card debt with financial assets.
Ill. Reduce the amount being withheld for federal taxes.
IV. Increase the amount of reinvested interest earned on investments.
a. I and Ill only
b. II and 11.1 only
c. II and W only
d. II, HI, and IV only
7. The Cantrells' current level of discretionary cash flow is enough to
a. fund this year's savings need for one child's college education.
b. fund both children's savings need for college education this year.
c. pay off credit card debts within one year.
d. fund both a and c.
8. Which of the following statements is true?
a. The Cantrells need to save an additional $3,700 per year to meet their retirement goal.
b. The Cantrells will fall short of their retirement goal by more than $1.5 million using their current retirement planning strategy.
c. The Cantrells must reduce their life expectancy in retirement to retire at age 67.
d. Both a and c.
e. None of the above.
9. Which of the following is true regarding the Cantrells estate situation?
I. The value of Gabe's group life insurance policy will be excluded from his gross estate.
II. The full value of jointly held liabilities can be deducted as an expense from the gross estate at the passing of the first spouse.
III. If Gabe and Sarah establish § 529 plans for their children by contributing $5,000, the assets held in the accounts will be excluded from Gabe and Sarah's gross estate.
IV. The Cantrells should begin a gifting strategy to reduce their taxable estate.
a. I only
b. M only
c. I and if only
d. IIandlllonly
e. I, III, and IV only
10. All of the following are examples of tax-advantaged education savings alternatives appropriate for use by the Cantrells except:
a. A § 529 plan.
b. A Coverdell savings plan.
c. EE savings bonds.
d. An immediate annuity.
11. Sarah's grandmother has decided to gift Gabe and Sarah $150,000. Which of the following strategies can the Cantrells fund with this gift?
I. Fully prefund their children's college education costs.
II. Earmark the gift as a source of emergency funds.
III. Use the gift to fully offset Gabe's need for additional life insurance.
a. I only
b. III only
c. Iandionly
d. 11 and III only
12. Rank the following funds in terms of their total portfolio risk (volatility), highest to lowest:
I. Maxi Fund
II. Software Fund
III. Image Fund W. Clinical Fund
a. I,II,IV,andIII
b. I, II, III, and IV
c. HA IV, and DI
d. II, I, III, and IV
13. Which fund's expected rate of return, as measured by CAPM, is the lowest?
a. Super Big Fund
b. Efficacy Fund
c. Image Fund
d. Measures Fund
14. Rank the following funds based on the Sharpe ratio (highest to lowest):
I. Thumb Fund
II. Germain Fund
Multivariate Fund
IV Super Big Fund
a. I, II, TV, and III
b. I,II,III,andIV
c. II, I, IV, and III
d. II, I, HI, and W
15. Rank the following funds based on the Treynor index (highest to lowest):
I. Clinical Fund
II. Image Fund
III. Measures Fund
IV Thumb Fund
a. L il, IV, and ill
b. 1, II, III, and W
c. II, I, IV, and III
d. II, I, III, and TV
16. Rank the following funds based on the Sharpe ratio (highest to lowest):
I Germain Fund
II. Image Fund
IR. Multivariate Fund
IV. Thumb Fund
a. 1,11, INT, and Ill
b. I, II, Ill, and IV
c. II, I, IV, and In
d. IV, I, III, and II
17. Rank the following funds based on the Treynor index (highest to lowest):
I. Germain Fund
II. Image Fund
M. Multivariate Fund
IV. Thumb Fund
a. 1, II, IV and M
b. I, 11, III, and IV
c. 11,1V, I, and III
d. IV, I, IR, and II
18. Which of the following funds has the highest alpha?
a. Super Big Fund
b. Thumb Fund
c. Germain Fund
d. Factors Fund
19. Assume that the correlation and standard deviation data for the bond funds are linked to the bond market index. Which bond fund has the highest alpha?
a. Mobile Fund
b. Fast Fund
c. National Fund
d. CDR Fund
20. Which of the following statements is correct?
I. High-yield bond funds are affected by both interest rate changes and changes in the economic performance of the company issuing the bonds.
II. Risk-adjusted performance can best be measured by beta.
An investor who wanted to rank a list of diversified mutual funds could feel comfortable using the Treynor index.
IV. If an investor wanted to rank a list of sector funds, the Treynor index would be more appropriate than the Sharpe ratio.
a. II only
b. I and IV only
c. IandlIIonly
d. II and IV only.
Attachment:- Cantrell_Case.rar