CFP 301 Final

The present value approach takes each short, intermediate, and long-term goal, determines each individual present value, then sums these present values together and then reduces them by current resources (investment assets and cash and cash equivalents) and then treats the net PV as an obligation to be retired over the remaining life expectancy at a discount rate equal to the expected portfolio rate of return. a. True b. False

?

Ruby, a CFP® professional works for a life insurance company and sells only life insurance products. She met with her new client Sally, a single parent, for the first time today. She had already collected data from Sally concerning her income, needs and age of her children. During the meeting, Ruby discussed the distinctions between term, universal and variable life insurance with Sally. She subsequently evaluated Sally's needs concerning life insurance and plans to discuss the advantages and disadvantages of two approaches: (1) purchasing a universal policy designed to provide sufficient coverage for Sally's insurance needs while building cash value for the long term, and (2) purchasing a term policy to cover insurance needs until her children become independent and recommending another CFP® professional who Ruby is confident could assist Sally with building her investment portfolio for the long term. Which of the

? According to the CFP Board's Standard of Professional Conduct FAQs (1-12), if a "needs analysis" is focused on a limited component of the client's financial situation, and does not involve other services related to financial planning, that analysis may not rise to the level of financial planning. For instance, if a client hires a CFP® professional solely to purchase life insurance, the CFP® professional will by necessity obtain information about the client sufficient to ensure that any policies recommended meet the client's needs. If the "needs analysis" is focused solely on factors related to the client's life insurance needs, that analysis may not rise to the level of financial planning. It is irrelevant which option Sally chooses. In both cases, Ruby is neither engaged in financial planning nor providing material elements of financial planning.

Bill is 63, very wealthy and has one child from his current marriage with Hillary. He also has a child from a previous relationship that Hillary is unaware of. Bill's investment portfolio and pension assets are held in a variety of accounts for which no overall plan has been developed. Bill, being kind and generous, has asked Monica, a CFP® professional, to assist him in maximizing his children's inheritance while ensuring that Hillary is financially comfortable for the remainder of her life. All of the following items are relevant to determining if this engagement constitutes financial planning or material elements of the financial planning process EXCEPT: a. The client's understanding and intent in engaging the certificant. b. The comprehensiveness of expected data gathering. c. The planner's understanding of the engagement. d. The breadth and depth of expected recommendations.

? Option c is not relevant because the certificant should use the criteria provided by the Board to determine if the engagement rises to the level of financial planning, not his/her "understanding" [FAQ 1-3].

Jerry and Jenny are 25 years old and plan on retiring at age 67 and expect to live until age 100. Jenny currently earns $150,000 and they expect to need $150,000 per year in today's dollars in retirement. Jerry is a stay at home dad. They also expect that Social Security will provide $40,000 of benefits in today's dollars at age 67. Jenny has been saving $5,000 annually in her 401(k) plan. Their son, Jazz, was just born and is expected to go to college in 18 years. They want to save for Jazz's college education, which they expect will cost $20,000 in today's dollars per year and they are willing to fund 5 years of college. They were told that college costs are increasing at 7% per year, while general inflation is 3%. They currently have $100,000 saved in total and they are averaging a 10% rate of return and expect to continue to earn the same return over time. Based on this information, what should they do? a. They h

? Rates: Earnings rate 10.0% Inflation rate 3.0% Current Age 25 Retirement Age 67 Life Expectancy 100

Which of the following is inconsistent with respect to the gambler's fallacy? a. The gambler's fallacy has nothing to do with probabilities. b. When watching successive coin flips, if heads is the result successively, the belief is that the odds of that continuing to happen are lesser, and therefore it is a better probability to bet on tails. c. Because each flip of a coin is a separate action, the probability of the coin flip, using the gambler's fallacy, changes drastically from fifty (50%) percent. d. None of the above.

None of the above are true. The gambler's fallacy is one of the incorrect assumptions from the world of probabilities. When watching successive coin flips, if heads is the result successively, the belief is that the odds of that continuing to happen are lesser, and therefore it is a better probability to bet on tails. While there would be some support for this logic, the likelihood of heads in a coin flip remains at fifty (50%) percent. Because each flip of the coin is a separate action, the probability of the coin flip is no greater and no less than fifty (50%) percent.

Pat and Marie have the following expenses and account balances: Pat's annual 401(k) plan contribution = $16,500 Pat's annual salary = $100,000 Current liabilities = $24,000 Housing costs (P&I&T&I) monthly = $2,167 Cash & Cash equivalents = $18,000 Monthly nondiscretionary cash flows = $6,000 Monthly debt payments other than housing = $500 * Pat's employer matches $1 for $1 up to 3% of Pat's salary in his 401(k) plan. Based on the information above, calculate Pat and Marie's current ratio in numbers. a. 0.75 : 1. b. 1 : 1. c. 1 : 1.3. d. 2 : 1. $18,000 / $24,000 = 0.75 : 1.

a. 0.75 : 1. $18,000 / $24,000 = 0.75 : 1.

Which of the following convictions, if any, will always bar a candidate from becoming a CFP® professional? 1. Conviction for tax fraud. 2. Conviction for passing a bad check. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.

a. 1 only. A conviction for passing a bad check will not always bar a candidate from being a licensee. However, conviction of tax fraud will bar licensing.

In what order should the steps in the financial planning process occur? 1. Gathering client data. 2. Establishing and defining the planner / client relationship. 3. Developing and presenting financial plan recommendations. 4. Analyzing and evaluating client's financial status. 5. Monitoring the plan. 6. Implementing financial plan recommendations. a. 2,1,4,3,6,5. b. 2,1,3,4,5,6. c. 1,2,4,3,6,5. d. 1,2,3,4,5,6.

a. 2,1,4,3,6,5. Monitoring is last and implementing is next to last. Establishing the planner / client relationship is first.

Which, if any, of the following is not a principle from the Board of Standards Code of Ethics and Professional Responsibility? 1. Integrity. 2. Diligence. 3. Professionalism. 4. Candidness. a. 4 only. b. 1 and 3. c. 2 and 4. d. 1, 2, and 3.

a. 4 only. Candidness is not one of the seven principles from the Board of Standards Code of Ethics and Professional Responsibility. The remaining four principles are: fairness, confidentiality, objectivity, and competence.

Which of the following is not necessary to identify a client's life cycle position? a. Attitudes and/or beliefs. b. Marital status. c. Dependents. d. Income level. e. Net worth.

a. Attitudes and/or beliefs. Options b through e, plus a client's age, represents what is necessary to determine a client's life cycle position.

The first two steps in the financial planning process are: a. Establish and define client planner relationship and gather client data. b. Establish and define client planner relationship and analyze client data. c. Establish and define client planner relationship and monitor client's current plan. d. Establish and define client planner relationship and develop and present recommendations.

a. Establish and define client planner relationship and gather client data. The first two steps in the financial planning process are to establish and define client planner relationship and gather client data.

Mary is a CFP® professional and is in the analyzing and evaluating step of the financial planning process. Mary is developing a capital needs analysis for her client and has established assumptions for tax rates, investment returns and inflation rates. Her client disagrees with Mary's assumptions regarding inflation and other economic variables used in the retirement needs analysis calculation. What should Mary do next? a. If Mary and her client are unable to agree on the assumptions used for the retirement capital needs analysis, Mary should limit the scope of the engagement and exclude retirement capital needs analysis from her recommendations. b. Mary should use the assumptions that result in the most conservative recommendations for retirement funding. c. The CFP Board's Standards of Professional Conduct require Mary to disengage from the client. d. Mary should provide her client with multiple projections, consi

a. If Mary and her client are unable to agree on the assumptions used for the retirement capital needs analysis, Mary should limit the scope of the engagement and exclude retirement capital needs analysis from her recommendations. According to Practice Standard 300-1: Analyzing and Evaluating the Client's Information, the practitioner will utilize client-specified, mutually agreed upon, and/or other reasonable assumptions. If the practitioner and client are unable to agree upon assumptions regarding the capital needs analysis for retirement, it may be appropriate to amend the scope of the engagement and/or to obtain additional information. Option b is incorrect because Practice Standard 300-1 requires assumptions to be client-specified and mutually agreed upon, not the assumptions that result in the most conservative recommendations. Option c is incorrect because Mary is not required to disengage, but instead limit the scope of the engagement. Option d is incorrect because the client disagrees with her assumptions, so either limit the scope of the engagement or use client-specified assumptions.

Inflation refers to: a. Rising prices. b. Declining interest rates. c. The opposite of wealth. d. The opposite of stagflation.

a. Rising prices. Inflation is increasing prices without corresponding increases in productivity.

Tracy and Brett are married. Current assets = $9,243 Current liabilities = $6,921 Monthly non discretionary expenses = $4,693 Annual combined income = $70,000 Annual debt payments (excluding monthly housing costs) = $22,084 Assume for this question only that Tracy and Brett's monthly housing costs (P&I&T&I) are $1,500. Which of the following lender thresholds will Tracy and Brett meet? a. The 28% benchmark. b. The 36% benchmark. c. Both benchmarks. d. Neither benchmark.

a. The 28% benchmark. $1,500 / ($70,000 / 12) = 25.7; ($1,500 + ($22,084 / 12) / ($70,000 / 12) = 57.2

The benefits that accrue to a client from using a financial planner to prepare a financial plan include all of the following except: a. The financial planner is subjective and knowledgeable. b. A professional planner will include metrics. c. A financial planner will identify risks in the process. d. Increased awareness on client's part as to opportunity costs.

a. The financial planner is subjective and knowledgeable. The financial planner is objective not subjective. All of the other statements are correct.

External data might include interest rates, housing trends, equity market outlook. a. True b. False

a. True

Financial advisors are in positions of trust and must be cautious not to inadvertently misuse their power and refrain from wielding a disproportionate amount of the power in interactions with clients. a. True b. False

a. True

One of the advantages of a professional financial planner is his or her expertise and their objectivity. a. True b. False

a. True

The present value approach takes each short, intermediate, and long-term goal, determines each individual present value, then sums these present values together and then reduces them by current resources (investment assets and cash and cash equivalents) and then treats the net PV as an obligation to be retired over the remaining work life expectancy at a discount rate equal to the expected portfolio rate of return. a. True b. False

a. True

The rational investor is deemed to know that when a stock value goes down, even though a sale is not made, the value is lost. a. True b. False

a. True

Colin is trying to decide whether he should make his IRA contribution at the beginning of the year or at the end of the year. He wants to save $5,000 per year for 25 years in his IRA that can earn 7% per year. What would be the difference in his account value if he made the payments at the beginning of each year rather than at the end? a. $338,382. b. $22,137. c. $28,041. d. $316,245.

b. $22,137. AD N = 25 i = 7 PV = 0 PMTAD = 5,000 FV = ? 338,382 OA N = 25 i = 7 PV = 0 PMTOA = 5,000 FV = ? 316,245 338,382 - 316,245 = 22,137

Rob has just received a check for $32,595. This is a return from an investment that he made 18 years ago. He was told that the return was the equivalent of 11% per year. How much was his original investment? a. $3,566.90. b. $4,981.24. c. $5,760.98. d. $2,954.70.

b. $4,981.24. N = 18 i = 11 PV = ? FV = 32,595 <4,981.2389>

Robin is looking to buy a condo in 5 years for $300,000 in today's dollars. She can earn an 8% return on her investments and she expects inflation to be 2.5%. What serial payment should Robin make at the end of the first year? a. $53,894.14. b. $55,244.56. c. $52,415.36. d. $51,136.94.

b. $55,244.56. N = 5 i = [(1.08 / 1.025) -1] x 100 = 5.37 PV = 0 PMT = ? FV = 300,000 53,897.14 x 1.025 = $55,244.56

Michael has been dollar cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 7 years. He earns an average annual compound return of 11% on this investment, compounded quarterly. How much is the fund worth today? a. $82,721.95. b. $84,996.80. c. $91,389.22. d. $93,902.42.

b. $84,996.80. N = 7 x 4 i = 11 / 4 PV = 0 PMT = (2,000) Solve for FV (= 84,996.80449)

Tracy and Brett are married. Current assets = $9,243 Current liabilities = $6,921 Monthly non discretionary expenses = $4,693 Annual combined income = $70,000 Annual debt payments (excluding monthly housing costs) = $22,084 What is Tracy and Brett's current ratio? a. 0.7958. b. 1.3355. c. 1.9695. d. 5.0387.

b. 1.3355. Current ratio = cash + cash equivalents / current liabilities =$9,243 / $6,921 = 1.3355

Emily is considering purchasing a new home for $400,000. She intends to put 20% down and finance $320,000, but is unsure which financing option to select. Emily is considering the following options: Option 1: Fixed rate mortgage over 30 years at 6% interest, zero points, or Option 2: Fixed rate mortgage over 30 years at 4% interest, plus two discount points. How long would her financial planner recommend that she live in the house to break even using Option 2 presuming she is not financing the points? a. 18.3. b. 16.4. c. 12.5. d. 8.9.

b. 16.4. Option 1: N = 30 x 12 = 360 i = 6 ÷12 = 0.5 PV = 320,000 PMT = ? FV = 0 1,918.56 Option 2: N = 30 x 12 = 360 i = 4 ÷12 = 0.333 PV = 320,000 PMT = ? FV = 0 1,527.73 1,918.56 - 1,527.73 = 390.83 $320,000 x 0.02 = $6,400 cost of points 6,400 / 390.83 = 16.4 months

Beth earns $100,000 working as a part time lawyer in New Orleans. The company provides a matching contribution to the 401(k) plan of 50% of her contribution up to a maximum contribution of 4% of compensation. Her 401(k) plan account had $60,000 in it at the beginning of the year. She contributed $15,000 to the plan this year and the employer made the matching contribution before year-end. The ending balance of the account is $100,000. What is her savings rate this year? a. 15%. b. 19%. c. 22.5%. d. 35%.

b. 19%. The savings rate equals the savings to her 401(k) plan and the employer match divided by her compensation. Calculation - ($15,000 + $4,000) / $100,000. Note, the employ match is limited to 4% or $4,000.

Which of the following statements is/are correct? 1. Property titled Joint Tenants with Rights of Survivorship (JTWROS) can only be owned by married couples. 2. Property titled Tenants by the Entirety can only be owned by married couples. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.

b. 2 only. JTWROS can be held by any two or more persons and does not require that they be married. Tenants by the Entirety is reserved for married couples and has a survivorship feature.

An engagement letter is a quasi-legal agreement between a professional or professional organization and a client. a. True b. False

b. False

Intrinsic values, in an efficient market, are determined by an analysis of expected cash flows and of the risk of those cash flows along with investor heuristics and tendencies. a. True b. False

b. False

It is very important that assumptions are not used in the financial planning process. The planner must only used facts. a. True b. False

b. False

Lori is an assistant to a patent lawyer and earns $40,000. She pays $500 per month on her mortgage, her homeowners insurance is $2,000 per year, her taxes are $2,000, her utilities are $5,000 per year and she pays $4,000 in credit card bills each year. Her housing ratio 1 is equal to 37.5%. a. True b. False

b. False

Once the implementation of the financial plan is completed, the engagement is over and there are no further steps. a. True b. False

b. False

Which of the following is probably the start of a closed question? a. How ... b. Isn't it true that ... c. Why ... d. Please explain whether ...

b. Isn't it true that ... Open questions usually begin with words such as how, what, when, where, who and why. Closed questions lead with is, are, do, did, could, would, have, or "is it not true that."

Which of the following is not a primary responsibility of the Federal Reserve (Fed)? a. Maintain sustainable long-term economic growth. b. Maintain fair practices between securities dealers. c. Maintain price levels that are supported by economic growth. d. Maintain full employment.

b. Maintain fair practices between securities dealers. Option b is actually the job of the SEC.

When the economy experiences a decline in real GDP for two or more successive quarters, what stage of the economic cycle does this indicate? a. Trough. b. Recession. c. Peak. d. Recovery.

b. Recession. A recession is characterized by a decline in Gross Domestic Product (GDP) for two or more successive quarters. Other characteristics of a recession include decline in consumer purchases, expansion of inventory, decrease in labor demand, and decline in capital investment and business profits.

If the Federal Reserve wants to increase interest rates, which of the following actions might they take? a. Buy government securities. b. Sell government securities. c. Decrease the reserve requirement. d. Decrease the prime lending rate.

b. Sell government securities. To increase interest rates, the Fed needs to decrease the money supply or sell government securities. If the fed buys government securities, the money supply will increase and interest rates will decrease.

John, age 58, has been using a CFP® practitioner for the last 15 years. The CFP® practitioner recently retired and, as a result, John has decided to engage Tom, who is also a CFP® practitioner, but unaffiliated with John's original practitioner. After analyzing and evaluating John's current financial position, Tom made his recommendations. Those recommendations differed from that of John's original practitioner. According to Practice Standard 400-2, how should the differing recommendations be handled? a. The Code of Ethics requires a CFP® practitioner to act in a professional manner and recommendations should not conflict with other CFP® practitioners, provided those recommendations reasonably meet the client's goals, needs and priorities. b. Significant differences in recommendations between planners are acceptable, as long as the recommendations reasonably meet the client's goals, needs and priorities. c. The

b. Significant differences in recommendations between planners are acceptable, as long as the recommendations reasonably meet the client's goals, needs and priorities. According to Practice Standard 400-2: Developing the Financial Planning Recommendations, recommendations developed by a practitioner may differ from those of other practitioners or advisers, yet each may reasonably meet the client's goals, needs and priorities. Option a is incorrect because conflicting recommendations are acceptable, as long as they reasonably meet the client's goals, needs and priorities. Option c is incorrect because the Code of Ethics recognize differences in recommendations may occur and are acceptable, as long as they each reasonably meet the client's goals, needs and priorities. Option d is incorrect because Practice Standard 400-2 recognizes that recommendations may differ between practitioners, which is acceptable, as long the client's goals, needs and priorities are reasonably met.

Bob is a CFP® professional and has entered into a signed engagement letter to provide the first four steps of the financial planning process. Once Bob has made the recommendations, the engagement letter clearly identifies that the scope of the relationship ends and the client is solely responsible for implementation. Six months after Bob provided a client with his recommendations, the client approached Bob about purchasing life insurance through Bob, which was one of the recommendations in his plan. Is Bob still engaged with the client? a. No, the engagement letter limited the scope of the services to be provided. Bob is no longer engaged in the financial planning process with the client. Bob is now selling product beyond the scope of the engagement. b. Yes, Bob is still engaged with the client because Bob previously established a professional relationship and is now providing implementation services to the client b

b. Yes, Bob is still engaged with the client because Bob previously established a professional relationship and is now providing implementation services to the client by selling life insurance. According to the CFP Board's Standard of Professional Conduct FAQs, in general, once a financial planning relationship with a CFP® professional has been established, all future services provided by the CFP® professional to the client are likely to be considered by CFP Board to be part of the financial planning process. Option a is incorrect because CFP Board generally considers a CFP® professional to be engaged with the client for all future services provided by the CFP® professional. Option c is incorrect because the planner is still engaged because a relationship was previously established and future services are considered to be part of the financial planning process. Option d is incorrect because if the planner did not previously provide financial planning services and was solely selling life insurance, the planner would not be engaged with the client.

Anthony has been investing $1,000 at the end of each year for the past 15 years. How much has accumulated assuming he has earned 10.5% compounded annually on his investment? a. $20,303.72. b. $23,349.28. c. $33,060.04. d. $36,531.34.

c. $33,060.04. N = 15 i = 10.5 PV = 0 PMT = 1,000 FV = $33,060.04

Tracy purchased a car for $19,500. She is financing the purchase at an 11% annual interest rate, compounded monthly for 3 years. What is the payment that Tracy is required to make at the end of each month? a. $606.71. b. $632.61. c. $638.40. d. $684.97.

c. $638.40. N = 3 x12 i = 11 / 12 PV = 19,500 FV = 0 Solve for PMT (= $638.4049838)

Dennis and Rhonda are married with two boys, Blake and Chase. They have the following accounts with the following balances at their local bank: • Dennis (single account): $300,000 • Rhonda (single account): $100,000 • Dennis & Rhonda (joint account): $400,000 • Rhonda & Blake (joint account): $100,000 How much of all of their accounts will be insured by the FDIC? a. $400,000. b. $700,000. c. $850,000. d. $900,000.

c. $850,000. Dennis' account will be insured up to $250,000. Rhonda's account is fully insured. Dennis & Rhonda's joint account is fully insured. Rhonda and Blake's account is fully insured. Therefore, $850,000 is insured by the FDIC.

Use the following data to answer the next 3 questions: Tracy and Brett are married. Current assets = $9,243 Current liabilities = $6,921 Monthly non discretionary expenses = $4,693 Annual combined income = $70,000 Annual debt payments (excluding monthly housing costs) = $22,084 What is Tracy and Brett's emergency fund ratio in months? a. 1.2430. b. 1.3355. c. 1.9695. d. 3.1697.

c. 1.9695. Emergency Fund Ratio = current assets / monthly nondiscretionary expenses = $9,243 / $4,693 = 1.9695 months.

Pat and Marie have the following expenses and account balances: Pat's annual 401(k) plan contribution = $16,500 Pat's annual salary = $100,000 Current liabilities = $24,000 Housing costs (P&I&T&I) monthly = $2,167 Cash & Cash equivalents = $18,000 Monthly nondiscretionary cash flows = $6,000 Monthly debt payments other than housing = $500 * Pat's employer matches $1 for $1 up to 3% of Pat's salary in his 401(k) plan. Based on the information above, calculate Pat and Marie's housing ratio 2. a. 28%. b. 30%. c. 32%. d. 34%.

c. 32% $26,000 + ($500 x 12) = $32,000 / $100,000 = 32%.

Pat and Marie have the following expenses and account balances: Pat's annual 401(k) plan contribution = $16,500 Pat's annual salary = $100,000 Current liabilities = $24,000 Housing costs (P&I&T&I) monthly = $2,167 Cash & Cash equivalents = $18,000 Monthly nondiscretionary cash flows = $6,000 Monthly debt payments other than housing = $500 * Pat's employer matches $1 for $1 up to 3% of Pat's salary in his 401(k) plan. Based on the information above, calculate Pat and Marie's housing ratio 2. a. 28%. b. 30%. c. 32%. d. 34%.

c. 32%. $26,000 + ($500 x 12) = $32,000 / $100,000 = 32%.

During which step of the financial planning process would a planner prepare and analyze financial statements? a. Establishing and defining the planner / client relationship. b. Gathering client data. c. Analyzing and evaluating client's financial status. d. Developing and presenting financial plan recommendations.

c. Analyzing and evaluating client's financial status. The planner must gather data prior to the preparation and analysis of financial statements.

Financial counselors or advisors must establish and maintain the advisor-client relationship based on their ability to: a. Calculate earnings. b. Understand financial statements. c. Communicate effectively. d. Bring in business.

c. Communicate effectively. The financial counselor must be able to communicate effectively to establish and maintain the advisor-client relationship.

Which of the following is not considered to be in line with the Developmental paradigm or school of thought? a. Human development occurs in stages over time. b. Humans develop and progress in a predictable sequence. c. Results of disruptions in any stage of an individual's development are completely unpredictable. d. All of these answers.

c. Results of disruptions in any stage of an individual's development are completely unpredictable. As to emotions, the Developmental Paradigm assumes that all humans develop and progress in a predictable sequence. Disruptions, whether by trauma, incident or otherwise, at a particular stage of that individual's development will result in predictable problems, symptoms and behavior.

Which of the following is not one of the four stages of a business cycle? a. Peak. b. Expansion. c. Stagnation. d. Contraction. e. Trough.

c. Stagnation. The four stages of a business cycle are: expansion, peak, contraction, and trough. Stagnation refers to a period of little economic activity.

All of the following economic activities represent governmental fiscal policy EXCEPT: a. The government increases purchases of goods and services. b. The government cuts taxes. c. The government cuts the Federal Funds Rate. d. The government uses higher taxes to dampen consumption and private investment.

c. The government cuts the Federal Funds Rate. The Federal Reserve sets the discount rate, upon which the Federal Funds Rate is based. The Fed will lower the discount rate when it wants to increase the money supply. Options a and b represent expansionary fiscal policy. Option d represents restrictive fiscal policy.

One of the most reported interruptions or disruptions in passive listening is when: a. A seminar moderator interrupts the presentation. b. A friend asks you questions about the presenter's speech. c. The listener is thinking about what he or she may say in response to what is being discussed while the listener should instead be listening. d. The speaker takes too many breaks.

c. The listener is thinking about what he or she may say in response to what is being discussed while the listener should instead be listening. One of the most reported interruptions or disruptions in passive listening is when the listener is thinking about what he or she may say in response to what is being discussed while the listener should instead be listening.

Your client invested $10,000 in an interest bearing promissory note earning an 11% annual rate of interest, compounded monthly. How much will the note be worth at the end of 7 years, assuming that all interest is reinvested at the 11% rate? a. $13, 788.43. b. $20,762.60. c. $21,048.52. d. $21,522.04

d. $21,522.04 N = 7 x 12 i = 11 / 12 PV = 10,0000 PMT = 0 Solve for FV (= 21,522.03612)

Bob and his wife Sally recently opened an investment account with the intention of saving enough to purchase the house of their dreams. Their goal is to have $45,000 down in 5 years. Their account will guarantee them a return of 8% compounded annually. How much do they need to put into the account right now to reach their objective? a. $46,778.96. b. $39,546.09. c. $51,214.75. d. $30,626.24.

d. $30,626.24. N = 5 i = 8 PV = ? PMT = 0 FV = 45,000 <30,626.2439>

Jill would like to plan for her son's college education. She would like for her son, who was born today, to attend college for 5 years, beginning at age 18. Tuition is currently $12,000 per year and tuition inflation is 6%. Jill can earn an after-tax rate of return of 8%. How much must Jill save at the end of each year, if she wants to make the last payment at the beginning of her son's first year of college? a. $3,145.81. b. $3,745.31. c. $4,080.32. d. $4,406.75.

d. $4,406.75. Step 1: Solve for NPV 0 g CF0 0 g CFj 17 g Nj 12,000 g CFj 5 g Nj (1.08 / 1.06) - 1 x 100 fNPV = ? -> 41,299.53 Step 2: Solve for annual savings N = 18 i = 8 PV = 41,299.53 PMT = 4,406.75 FV = 0

Which of the following is/are forms of discipline? 1. Private Censure. 2. Revocation. 3. Suspension. 4. Public Letter of Admonition. a. 1 and 2. b. 1, 2, and 3. c. 2, 3, and 4. d. 1, 2, 3, and 4.

d. 1, 2, 3, and 4. All of the above are possible forms of discipline. Fines and imprisonment are not forms of available punishment.

Tony saved enough money to place $125,500 in an investment generating 9.25% compounded monthly. He wants to collect a monthly income of $1,350, at the beginning of each month, for as long as the money lasts. How many months will Tony have this income coming to him? a. 165. b. 145. c. 192. d. 162.

d. 162. N = ? i = 9.25 / 12 = 0.7708 PV = <125,500> PMT = 1,350 FV = 0 <161.7058> = 162

Susan's annual salary is $80,000. She contributes 10% of her salary to her 401(k) plan; and her employer contributes 5% of her salary to a profit sharing plan. She also contributes $2,500 per year to an IRA. What is Susan's approximate savings rate? a. 5%. b. 10%. c. 15%. d. 18%.

d. 18% Savings + employer match = $8,000 + $4,000 + $2,500 = $14,500$14,500/$80,000 = 18.125% Savings rate

Holly's salary is $120,000 per year. She contributes 12% of her salary to her 401(k) plan. Her employer matches with 5% of her salary to a 401(k) plan. She also contributes $2,500 per year to an IRA. Holly's annual savings rate is? a. 12.00%. b. 14.08%. c. 17.00%. d. 19.08%.

d. 19.08%. ($14,400 + $6,000 + $2,500) / 120,000 = 19.08%

Pat and Marie have the following expenses and account balances: Pat's annual 401(k) plan contribution = $16,500 Pat's annual salary = $100,000 Current liabilities = $24,000 Housing costs (P&I&T&I) monthly = $2,167 Cash & Cash equivalents = $18,000 Monthly nondiscretionary cash flows = $6,000 Monthly debt payments other than housing = $500 * Pat's employer matches $1 for $1 up to 3% of Pat's salary in his 401(k) plan. Based on the information above, calculate Pat and Marie's savings rate: a. 16.5. b. 17.5. c. 18.5. d. 19.5.

d. 19.5. $16,500 + (3% x $100,000) / $100,000 = 19.5%.

Pat and Marie have the following expenses and account balances: Pat's annual 401(k) plan contribution = $16,500 Pat's annual salary = $100,000 Current liabilities = $24,000 Housing costs (P&I&T&I) monthly = $2,167 Cash & Cash equivalents = $18,000 Monthly nondiscretionary cash flows = $6,000 Monthly debt payments other than housing = $500 * Pat's employer matches $1 for $1 up to 3% of Pat's salary in his 401(k) plan. Based on the information above, calculate Pat and Marie's housing ratio 1 in numbers. a. 20%. b. 22%. c. 24%. d. 26%.

d. 26%. $2,167 x 12 = $26,000 / $100,000 = 26%.

Use the following data to answer the next 5 questions. Pat and Marie have the following expenses and account balances: Pat's annual 401(k) plan contribution = $16,500 Pat's annual salary = $100,000 Current liabilities = $24,000 Housing costs (P&I&T&I) monthly = $2,167 Cash & Cash equivalents = $18,000 Monthly nondiscretionary cash flows = $6,000 Monthly debt payments other than housing = $500 * Pat's employer matches $1 for $1 up to 3% of Pat's salary in his 401(k) plan. Based on the information above, calculate Pat and Marie's emergency fund ratio in months. a. 0.25 months. b. 1 month. c. 2 months. d. 3 months.

d. 3 months. $18,000 / $6,000 = 3 months.

Betty earns $100,000 working as a part time lawyer in New Orleans. The company provides a matching contribution in the 401(k) plan of 50% up to a maximum contribution of 4% of compensation. Her 401(k) plan account had $60,000 in it at the beginning of the year. She contributed $15,000 to the plan this year and the employer made the matching contribution before year-end. The ending balance of the account is $100,000. What is her return on investments this year? a. 6.675%. b. 26.6%. c. 29.2%. d. 35%.

d. 35%. The ROI equals the balance at the end of the year less the contributions and the beginning balance divided by the initial balance. Calculation - ($100,000 - ($60,000 + $15,000 + $4,000)) / $60,000 = 35%. Note, the match is limited to 4% or $4,000.

David won the lottery. He can take a single lump sum payout of $10 million dollars or receive $750,000 per year for the next 25 years. What rate of return would David need to break even if he took the lump sum amount instead of the annuity? a. 6.19%. b. 5.31%. c. 4.98%. d. 5.56%.

d. 5.56%. N = 25 i = ? PV = 10,000,000 PMT = 750,000 FV = 0 5.56

Proper and practical communication skills and techniques in financial counseling can aid the financial planning advisor to understand: a. Their clients. b. What their clients' perceptions of their own needs are. c. What their clients' objectives are. d. All of these answers.

d. All of these answers.

Which step in the financial planning process comes before monitoring? a. Presenting the plan. b. Analyzing the client's financial status. c. Gathering data. d. Implementing the plan.

d. Implementing the plan. The final step before monitoring is implementation.

Which of the following do NOT apply to the use of questionnaires? a. They provide quick and easy information. b. They ensure that subject areas are not left out or forgotten by the advisor. c. They can be very thorough and cover many areas that must be covered during the acquisition of quantitative information from the client. d. Long questionnaires are most desirable.

d. Long questionnaires are most desirable. While there is a lot of information that needs to be provided by the client and extracted the advisor, there is certainly a time for questionnaires to be filled out. Questionnaires provide quick and easy information, while they ensure that subject areas are not left out or forgotten by the advisor. Questionnaires can be very thorough and cover many areas that must be covered during the acquisition of quantitative information from the client. However, especially in the early stages of the relationship including the initial meeting, long questionnaires are considered to be less desirable if the advisor does not know the client well.

Which of the following statements is/are correct? 1. Net worth represents the personal equity that the individual has in his assets and can never be less than zero. 2. If Lisa purchased a car using 30% cash and 70% debt, her net worth would increase by 30%. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.

d. Neither 1 nor 2. Net worth is properly defined in statement 1 but can be negative. Lisa's net worth would remain the same. She decreased her assets by 30%, increased an asset by 100%, and increased her liabilities by 70%, resulting in no change to net worth.

John and Mary, both 45 years old, are married and have one child, age 10. They plan to pay for his college at an in-state university from age 18 to 23 and they would like to retire at age 62. They have provided the following financial data: Joint employment income = $200,000 John's 401(k) plan contributions = $16,500 Mary's IRA contributions = $3,000 John's 401(k) plan employer match = $5,000 Annual gifts from John's parents = $10,000 Total Investment Assets = $380,000 Total Cash and Cash Equivalents = $100,000 From the goals and data given, which of the following statements is/are correct? (Do not make assumptions that are not stated) 1. John and Mary's investment assets to gross pay ratio is adequate for their age. 2. John and Mary's savings rate is appropriate for their goals. a. 1 only. b. 2 only. c. Both 1 and 2. d. Neither 1 nor 2.

d. Neither 1 nor 2. The investment assets to gross pay ratio is $480,000 / $200,000 = 2.4 times which is not adequate for persons age 45. Their savings rate is $24,500 / $200,000 = 12.25% and appears adequate for both the retirement and the education goals.

Which of the following are examples of fiscal policy? a. Excess Reserves. b. Reserve Requirement. c. Open Market Operations. d. None of these Answers.

d. None of these Answers. All are examples of monetary policy.

According to the cash flow approach, all of the following recommendations will have a positive impact to cash flow except: a. Raise insurance deductibles. b. Reduce the amount of insurance coverage. c. Payoff existing debts with non-cash balance sheet assets. d. Purchase new insurance to cover an existing risk.

d. Purchase new insurance to cover an existing risk. The purchase of a new insurance product will have a negative cash flow impact.

Which of the following ratios is not used in a typical financial statement approach? a. Liquidity ratios. b. Debt ratios. c. Financial security goals ratios. d. Social Security to savings ratios.

d. Social Security to savings ratios. There is no such thing as a Social Security to savings ratio. The other options are the ratios used to determine a client's true financial situation.

The estimated value of a real estate asset in a financial statement should be based upon the: a. Income tax basis of the asset, after adjusting straight line and accelerated depreciation. b. The client's estimate of current value. c. Current replacement value of the asset. d. The value that a well-informed buyer is willing to accept from a well-informed seller where neither is compelled to buy or sell.

d. The value that a well-informed buyer is willing to accept from a well-informed seller where neither is compelled to buy or sell. The question is what values should be used in preparation of a personal financial statement. The answer is fair market value (FMV) and option d is the definition of FMV.