Unit 15
An individual's net worth is A. the difference between the individual's assets and the individual's liabilities B. best determined by examining the individual's personal income statement C. largely irrelevant in identifying the individual's investment objectives D. another term for discretionary income
A. An individual's net worth is the difference between the individual's assets and the individual's liabilities. It is determined from the personal balance sheet rather than from the personal income statement. Net worth is relevant in deterring an individual's investment objectives. Someone with a. negative net wroth high find it preferable to reduce hid debt level before beginning an investment program.
The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70,000 and this is their first attempt at finical planning. Which of the following should be the first step taken by the financial planner? A. Establish an emergency fund B. Pay of credit card debt C. Determine a reasonable efee for designing the plan D. set goals and dates for reaching them
A. There are many questions on the exam where you will be forced to choose between two possible answers, only one of which is correct. In many cases, it is strictly a matter of opinion, but only NASAA's opinion counts. This is one of them. Goal setting is important, but the regulators feel that the first step in any plan is making sure that there is a "rainy day" fund. We can argue about that because some will say that a good plan can be used to establish that fund where none has existed before. But, please go with the right choice.
An 83-year-old widower explains to you that he is risk averse and wishes to find an investment that will provide him with preservation of capital. Which of the following might you recommend? A. an index fund B. bank-insured CDs C. Long-term U.S. government bonds D. preferred stock
B. There are two answers for preservation of capital on this exam. The strongest is a bank insured CD, followed by a money market fund (you'll never have both in the same question).
Assets that might be found on a family balance sheet include: I. Car loan II. Gold watch III. Keogh plan IV. Salary A. I and IV B. I and II C. II and III D. III and IV
C. An asset is something that is owned. Jewelry is part of the family's assets, as is the value of any retirement plan. A loads is a liability ( the car is the asset), and salary represents income.
In designing an investment portfolio for a new client, one fo the first things to do is determine the client's A. home address B. Social Security or tax ID number C. risk tolerance D. beneficiary
C. One can't adequately present any investment recommendations without having an understanding of the client's risk tolerance. Home address and social security number are legal requirements for opening the account, but they do not enter into the decision-making process for portfolio design. yes, you will want to know the beneficiary of any IRAs or qualified plans, but that has little to do with the nature of your recommendations.
If a new client has $200,000 to invest and wants to retire in 15 years, which of the following client information is least necessary for an adviser to recommend a suitable investment program. A. the age of the client B. the amount of income he requires for his retirement years C. current income and cash flow requirements D. Tolerance toward risk
C. While current income and cash flow requirement are ordinary important considerations, in this question we are being asked about the investment of a lump sum, not periodic additional investments. the amount of income required will determine the types of investments and how they must be structured in order to achieve the retirement income desired. The client's age is necessary to determine the time horizon. That is, if the client is currently 35 and he wishes to retire at age 50, the money will have to last a log longer than if we are dealing with a. 55 year-old who wishes to retire in 15 years at 70. A client's tolerance toward risk is among the most important non-financial conservations in determining investment suitability.
A married couple is 55 and 57 years old. They older of the two plans to retire at 62 and the younger at 65, and both are healthy. what is the most appropriate estimate of the time horizon for their retirement portfolio? A. 5 years B. 7 years C. 8 years D. more than 20 years
D. Time Horizon does not end at retirement age. The portfolio will have to last them throughout their retirement until their death. On the basis of current life expectancy tables, the money will have to last them at least 20 years.
