INVESTMENTS(LL)W/CONNECT
11th Edition
ISBN: 9781260433920
Author: Bodie
Publisher: McGraw-Hill Publishing Co.
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Question
Chapter 28, Problem 7CP
a.
Summary Introduction
To state: Key elements foundation would consider before spending policy.
Introduction: The model that shows the relation between systematic risk and expected
b.
Summary Introduction
To formulate: Investment policy statement
Introduction: The model that shows the relation between systematic risk and expected return on assets (especially stocks) is known as capital asset pricing model (CAPM).
c.
Summary Introduction
To Suggest: Long term allocation consistent with investment policy statement.
Introduction: The model that shows the relation between systematic risk and expected return on assets (especially stocks) is known as capital asset pricing model (CAPM).
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Frank is a widower. He has a $15.3 million estate consisting primarily of undeveloped real estate and life insurance. His children are the beneficiaries of his life insurance. His will leaves 30% of probate assets to each of his three children, with the residue to his cousin, James. Frank learned that his estate may have liquidity problems when he dies.
Which one of the following techniques is the most appropriate to increase liquidity in Frank's estate?
A)
Change the beneficiary on his life insurance to his estate
B)
Transfer existing life insurance policies to an irrevocable life insurance trust with his children as beneficiaries, which allows the trustee to purchase some of the hard-to-sell property from the estate and/or to loan funds to the estate
C)
Place the undeveloped real estate in a qualified terminable interest property (QTIP) trust and make the QTIP election
D)
Amend his will to place the undeveloped real estate in an power of appointment trust
Jacob owns a modest house on a large, ocean-front lot in a region where development is booming. Seeking to cap his estate-tax exposure, Jacob sells a remainder interest in the property to Alice — Jacob’s committed partner to whom he is not married — for its actuarial value. Jacob continues to reside in the property pursuant to his retained life estate for the remainder of his lifetime. At the time of the sale of the remainder, the fee interest was valued at $3 million, and the remainder was valued at $1 million. Upon Jacob’s death five years later, the value of the property had increased to $5 million. Discuss the estate tax consequences to Jacob’s estate.
Rhonda owns the following assets:
A residence owned with her husband as joint tenants with right of survivorship
A solely owned closely held business that comprises one-half of the value of her large estate
A large collection of antique figurines
Rhonda's will bequests $10,000 to her only niece and leaves the balance of her estate to her husband if he survives her. Because Rhonda can no longer obtain life insurance, she is looking for other methods to provide the liquidity needed for her estate.
Which of the following actions would have the potential to improve the liquidity of Rhonda's estate?
Retitling the residence she owns with her husband as tenants by the entirety
Selling or giving away the antique figurines
Eliminating the bequest in her will to her niece
Her husband could waive the executor fees
A)
I and II
B)
II, III, and IV
C)
I, II, and III
D)
III and IV
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