CFA LEVEL III Exam with all Correct & 100% Verified
Answers |Actual Complete Exam |Already Graded A+
Estate deffinition ✔Correct Answer-is everything a person owns
Probate ✔Correct Answer-the legal process to confirm the validity of the will.
what is intestate ✔Correct Answer-when you die without a will and a court has to decide who gets
what
civil law vs common law courts ✔Correct Answer-civil law is predominant legal system, apply
abstract rules or thoughts to case. Common law (Britain and USA) uses the rulings in previous court
cases to defend claims
communal vs separate property regimes ✔Correct Answer-separate: each spouse can control
property independently
in community property regime there is always a 1/2 split regardless
4 ways taxes are levied ✔Correct Answer-tax on income, tax on wealth, tax on spending, tax on
wealth transfers
testamentary gratuitous transfer ✔Correct Answer-means a transfer of wealth to another person
made after death
human capital ✔Correct Answer-an implied asset that people have. basically their ability to work
and generate money
Formula for how much you should save based on probability of survival ✔Correct Answer-
[(psurvival) * Spending]/(1+r)
psurvival=probability of surviving until that year and the cash spend expected in that year
r=risk free rate
why discount probability of spending flows with risk free rate ✔Correct Answer-beacuse these
flows risk is unrelated to market forces and the probability of dying is unrelated to market forces
formula for geometric average return ✔Correct Answer-FV= (1+rg)^n which is equal to each
periods return times the next ie...(1+r)*(1+r1)*(1+r2)*(1+r3)
how to calculate Rg ✔Correct Answer-Rg= r-(.5*std. dev.)
r= arithmetic average return
how are compounding returns organized and how do withdrawals effect it ✔Correct Answer-if you
have poor performance to start strong to end and dont take anything out your returns would be the
same. If you are liquidating a portion of the portfolio then the sequence matter a great deal
relative value of tax free gift equation ✔Correct Answer-FVgift/FVbequest= 1+[r*(1-t)]^n / [1+r*(1-
t)]^n*(1-T)
,Big T is tax on transfer. Little T tax on returns for that person. Top is recipient
relative value of taxed gift ✔Correct Answer-FV gift/ FV bequest = [1+r*(1-t)]^n*(1-T) / [1+r*1-
T)]^n
this assumes that there are different interest rates on lifetime gifts than bequests...
Bit T tax on transfer. Little T tas on returns. Top is recipient
relative value of gift when gifter pays the tax ✔Correct Answer-[1+r*(1-tg)]^n*(1-T+TgTe)/(1+r*(1-
tg)]^n*(1-te))
deemed dispositions ✔Correct Answer-means that at death and transfer there is no tax on transfer
but all unrecognized gains and losses become realized and are taxed themselves.
relative value charitable gift to taxed bequest ✔Correct Answer-(1+r)^n
+T[1+r*(1-t)]^N*(1-t)/[1+r*(1-t)]^n *(1-t)]
trust settlor or grantor is who ✔Correct Answer-man who makes the trust. Beneficiary is not the
owner of the trust but gets benefits
revocable vs irrevocable ✔Correct Answer-revoke: can call back but also responsible for taxes and
creditors can make claims on assets. Not the case in irrevocable trust.
foundation vs trust ✔Correct Answer-foundation set up for particular cause or purpose instead of
person. Reasons for both are asset control, minimize taxes, asset protection
use of life insurance ✔Correct Answer-to create liquidity for transfer of hard assets to heirs. also
allows you to transfer wealth in some ways where trusts are not acceptable to common law
CFC and reasons for it ✔Correct Answer-controlled foreign corporation. basically shell company off
shore where you can hide gains until they are distributed to shareholders and avoid paying taxes
until a certain point in time.
Deemed distribution ✔Correct Answer-if you own too much of CFC or other things the IRS can just
determine you are hiding money offshore and tax you in deemed distribution case.
Hague Conference ✔Correct Answer-its an international conference that works to conform private
international law
source vs residence tax system ✔Correct Answer-source: country where revenue comes from taxes
product
Residence: tax is placed on resident of country regardless of revenue source
united states taxes on assets and real estate in US ✔Correct Answer-they tax everything regardless
of place of residence. UK not bad as you can avoid taxes if you are not a permanent citizen and do
not repatriate your money. many HNW people there keep off shore accounts in sing a pore and other
counties
Double tax in US? ✔Correct Answer-yes beacause we tax everything even if foregin resident. but
through tax treaties can usually avoid issues.
, types of doubel tax issues ✔Correct Answer-residence residence = 2 counties claim as resident
source source= 2 countries calim as source
resident source most common.
foreign tax credit provision ✔Correct Answer-you get tax credit in one country for taxes paid in the
other. This results in generally you paying higher of 2 possible tax pools...
exemption method foreign tax provision ✔Correct Answer-residence country imposes no tax on
income generated and taxed in foreign country
deduction method foreign tax provision ✔Correct Answer-Tax paid= tax residence * tax source*(1-
tax residence)
how are gains on sale of property typically taxed ✔Correct Answer-based on location of property
tax avoidance vs tax evasion and offshore banking ✔Correct Answer-avoidance: means you are
being smart but only doing things that obey the letter and spirit of law
Evasion: illegal
offshore banking: not related to any of the above. Can be a way to hid things from family and not
conceal all of your assets at one.
how is low basis stock acquired? ✔Correct Answer-either entrepreneurial success (starting own
business), executive success (stock options) or investment success (buy extremely low sell high).
what risk is left after diversification ✔Correct Answer-counterparty risk, and regulatory risks still
exist in terms of them taxing you more than you think on your position or that you cant sell in market
to another party.
ways to diversify too much specific risk ✔Correct Answer-outright sale, exchange funds, add assets
to lower volatility of specific portfolio, multi asset class completion portfolio
what is an exchange fund ✔Correct Answer-two people come together with assets that can
diversify the others holdings in order to avoid paying taxes. Public are well tested in market but are
expensive with a lot of fees. Private has regulatory issues as they are relatively new
how do you use exchange funds and other managed portfolio to reduce tax issues? ✔Correct
Answer-you harvest losses
monetization of position ✔Correct Answer-borrow against gains in portfolio. no one really does
this because of excess leverage issues
limits on equity collar to not trigger capital gains ✔Correct Answer-must have a 15% risk exposure
so when might you monetize your postions ✔Correct Answer-after putting an equity collar in place.
Then you can basically reinvest the gains without triggering any capital gains taxes.
variagble pre paid forward ✔Correct Answer-you deliver stock at some future date in exchange for
cash. Other party bears the liabiiltiy of stock price increasing and getting owned
Standards of Professional Conduct ✔Correct Answer-1. Professionalism
Answers |Actual Complete Exam |Already Graded A+
Estate deffinition ✔Correct Answer-is everything a person owns
Probate ✔Correct Answer-the legal process to confirm the validity of the will.
what is intestate ✔Correct Answer-when you die without a will and a court has to decide who gets
what
civil law vs common law courts ✔Correct Answer-civil law is predominant legal system, apply
abstract rules or thoughts to case. Common law (Britain and USA) uses the rulings in previous court
cases to defend claims
communal vs separate property regimes ✔Correct Answer-separate: each spouse can control
property independently
in community property regime there is always a 1/2 split regardless
4 ways taxes are levied ✔Correct Answer-tax on income, tax on wealth, tax on spending, tax on
wealth transfers
testamentary gratuitous transfer ✔Correct Answer-means a transfer of wealth to another person
made after death
human capital ✔Correct Answer-an implied asset that people have. basically their ability to work
and generate money
Formula for how much you should save based on probability of survival ✔Correct Answer-
[(psurvival) * Spending]/(1+r)
psurvival=probability of surviving until that year and the cash spend expected in that year
r=risk free rate
why discount probability of spending flows with risk free rate ✔Correct Answer-beacuse these
flows risk is unrelated to market forces and the probability of dying is unrelated to market forces
formula for geometric average return ✔Correct Answer-FV= (1+rg)^n which is equal to each
periods return times the next ie...(1+r)*(1+r1)*(1+r2)*(1+r3)
how to calculate Rg ✔Correct Answer-Rg= r-(.5*std. dev.)
r= arithmetic average return
how are compounding returns organized and how do withdrawals effect it ✔Correct Answer-if you
have poor performance to start strong to end and dont take anything out your returns would be the
same. If you are liquidating a portion of the portfolio then the sequence matter a great deal
relative value of tax free gift equation ✔Correct Answer-FVgift/FVbequest= 1+[r*(1-t)]^n / [1+r*(1-
t)]^n*(1-T)
,Big T is tax on transfer. Little T tax on returns for that person. Top is recipient
relative value of taxed gift ✔Correct Answer-FV gift/ FV bequest = [1+r*(1-t)]^n*(1-T) / [1+r*1-
T)]^n
this assumes that there are different interest rates on lifetime gifts than bequests...
Bit T tax on transfer. Little T tas on returns. Top is recipient
relative value of gift when gifter pays the tax ✔Correct Answer-[1+r*(1-tg)]^n*(1-T+TgTe)/(1+r*(1-
tg)]^n*(1-te))
deemed dispositions ✔Correct Answer-means that at death and transfer there is no tax on transfer
but all unrecognized gains and losses become realized and are taxed themselves.
relative value charitable gift to taxed bequest ✔Correct Answer-(1+r)^n
+T[1+r*(1-t)]^N*(1-t)/[1+r*(1-t)]^n *(1-t)]
trust settlor or grantor is who ✔Correct Answer-man who makes the trust. Beneficiary is not the
owner of the trust but gets benefits
revocable vs irrevocable ✔Correct Answer-revoke: can call back but also responsible for taxes and
creditors can make claims on assets. Not the case in irrevocable trust.
foundation vs trust ✔Correct Answer-foundation set up for particular cause or purpose instead of
person. Reasons for both are asset control, minimize taxes, asset protection
use of life insurance ✔Correct Answer-to create liquidity for transfer of hard assets to heirs. also
allows you to transfer wealth in some ways where trusts are not acceptable to common law
CFC and reasons for it ✔Correct Answer-controlled foreign corporation. basically shell company off
shore where you can hide gains until they are distributed to shareholders and avoid paying taxes
until a certain point in time.
Deemed distribution ✔Correct Answer-if you own too much of CFC or other things the IRS can just
determine you are hiding money offshore and tax you in deemed distribution case.
Hague Conference ✔Correct Answer-its an international conference that works to conform private
international law
source vs residence tax system ✔Correct Answer-source: country where revenue comes from taxes
product
Residence: tax is placed on resident of country regardless of revenue source
united states taxes on assets and real estate in US ✔Correct Answer-they tax everything regardless
of place of residence. UK not bad as you can avoid taxes if you are not a permanent citizen and do
not repatriate your money. many HNW people there keep off shore accounts in sing a pore and other
counties
Double tax in US? ✔Correct Answer-yes beacause we tax everything even if foregin resident. but
through tax treaties can usually avoid issues.
, types of doubel tax issues ✔Correct Answer-residence residence = 2 counties claim as resident
source source= 2 countries calim as source
resident source most common.
foreign tax credit provision ✔Correct Answer-you get tax credit in one country for taxes paid in the
other. This results in generally you paying higher of 2 possible tax pools...
exemption method foreign tax provision ✔Correct Answer-residence country imposes no tax on
income generated and taxed in foreign country
deduction method foreign tax provision ✔Correct Answer-Tax paid= tax residence * tax source*(1-
tax residence)
how are gains on sale of property typically taxed ✔Correct Answer-based on location of property
tax avoidance vs tax evasion and offshore banking ✔Correct Answer-avoidance: means you are
being smart but only doing things that obey the letter and spirit of law
Evasion: illegal
offshore banking: not related to any of the above. Can be a way to hid things from family and not
conceal all of your assets at one.
how is low basis stock acquired? ✔Correct Answer-either entrepreneurial success (starting own
business), executive success (stock options) or investment success (buy extremely low sell high).
what risk is left after diversification ✔Correct Answer-counterparty risk, and regulatory risks still
exist in terms of them taxing you more than you think on your position or that you cant sell in market
to another party.
ways to diversify too much specific risk ✔Correct Answer-outright sale, exchange funds, add assets
to lower volatility of specific portfolio, multi asset class completion portfolio
what is an exchange fund ✔Correct Answer-two people come together with assets that can
diversify the others holdings in order to avoid paying taxes. Public are well tested in market but are
expensive with a lot of fees. Private has regulatory issues as they are relatively new
how do you use exchange funds and other managed portfolio to reduce tax issues? ✔Correct
Answer-you harvest losses
monetization of position ✔Correct Answer-borrow against gains in portfolio. no one really does
this because of excess leverage issues
limits on equity collar to not trigger capital gains ✔Correct Answer-must have a 15% risk exposure
so when might you monetize your postions ✔Correct Answer-after putting an equity collar in place.
Then you can basically reinvest the gains without triggering any capital gains taxes.
variagble pre paid forward ✔Correct Answer-you deliver stock at some future date in exchange for
cash. Other party bears the liabiiltiy of stock price increasing and getting owned
Standards of Professional Conduct ✔Correct Answer-1. Professionalism
