101 questions

Question #13 of 25 Randy wants to accumulate $300,000 by retirement, but he currently has a limited amount of discretionary funds. Which of the following methods of determining periodic retirement plan deposits would allow him to save the least amount the first year? A) Average payment B) Annuity due C) Serial payment D) Ordinary annuity

An ordinary annuity payment would be higher than an annuity due, which would be higher than a serial payment in the first year. Therefore, the serial payment would allow him to save the least amount in the first year. A serial payment is a payment made every year in terms of today's dollars that increases at the rate of inflation.

Question #23 of 25 Fred wants to transfer $50,000 of AAA rated corporate bonds to his 9-year-old daughter, Sarah. The bonds have a coupon rate of 3.5% and will mature in 10 years. He is interested in using a Uniform Gift to Minors Act (UGMA) account to hold the bonds. If he transfers the bonds to the UGMA account, which of the following statements is CORRECT? A) UGMA account assets are not considered in determining financial aid. B) The interest income in the account will be income tax free if the account is used to fund Sarah's college education. C) A portion of the interest income earned by the bonds within the UGMA account will be taxed at the trust and estate marginal income tax rate. D) The interest income earned by the bonds within the UGMA account will be taxed at trust income tax rates.

Because Sarah is under age 19, a portion of the interest income will be taxed at the parent's (Fred's) income tax rate. UGMA account assets are considered an asset of the child and are considered in determining financial aid. The income from this type of account is not tax-free

Question #6 of 25 The government is concerned about inflation and a possible recession. In an effort to curb these events, the Federal Reserve decides to sell government securities in the open market. Which of the following is NOT a consequence of this action? A) Consumer purchasing may decrease B) Interest rates will increase C) Less money will be circulating in the economy D) Banks will aggressively lend money to stimulate growth

Due to rising interest rates, banks will be forced to reduce to amount of money they can lend to borrowers. If consumers have less money available, this will further curb spending and may help to reduce inflationary pressures.

Question #24 of 25 Tom and Mary Jane want to purchase a beach house in 5 years and will have to accumulate at least $150,000 in today's dollars. They expect to earn a 10% after-tax rate of return (compounded annually) and anticipate an average annual inflation rate of 4%. Tom and Mary Jane agree that they want to make substantially equal payments, adjusted for inflation, at the end of each year. What serial payments will they have to make at the end of years 2 and 5, respectively? (Round to the nearest dollar) A) $27,801 and $28,913 B) $28,914 and $32,524 C) $30,070 and $31,273 D) $26,732 and $27,801

END mode FV = 150,000 PV = 0 i = 5.7692 [(1.10 ÷ 1.04) - 1] × 100 n = 5 PMT = (26,732.35) $26,732.35 × 1.04 = $27,801.64 = Payment at end of year 1 Payment at end of year 2 = $27,801.64 × 1.04 = $28,913.71 Payment at end of year 3 = $28,913.71 × 1.04 = $30,070.26 Payment at end of year 4 = $30,070.26 × 1.04 = $31,273.07 Payment at end of year 5 = $31,273.07 × 1.04 = $32,523.99

Question #12 of 25 David recently purchased a home for $120,000. He put 20% down and financed the remaining amount over 15 years at 7.5%. How much interest will be paid over the life of the loan assuming he pays the loan as agreed? (Round to the nearest dollar). A) $64,187 B) $96,000 C) $31,813 D) $160,187

END mode PV = 96,000 (120,000 × 0.80) i = 0.625 (7.5 ÷ 12) n = 180 (15 × 12) PMTOA = (889.93) Total payments = $160,187.40 ($889.93 × 180) Less principal = ($96,000.00) Total interest = $64,187.40

Question #15 of 25 Two years ago, Samantha and Troy hired Mr. Williams, a CFP® professional, to manage their money. The couple started to worry about their asset management account when they noticed the account had lost about 25% of its value while the market as a whole had only lost 7%. After contacting another advisor, they discovered that Mr. Williams was not actively managing their account as stated in both the investment advisory agreement and Form ADV Part 2A. Instead, Mr. Williams simply purchased securities at the relationship onset and did not bother to rebalance or contact the couple regarding their losses. Based on the information provided, which of the following best describes Mr. Williams' actions with regards to the couple? A) Breach of contract B) Violation of fiduciary responsibility C) Civil malfeasance D) Criminal mischief

If a financial planner has agreed to perform certain services for a client and fails to honestly, properly, and completely perform those contractual duties, the financial planner will be civilly liable to the client for breach of contrac

Question #10 of 10 Under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code, which of the following statements apply(ies) to a person who has voluntarily filed for and received a discharge in bankruptcy? The person will be discharged from all debts. The person can obtain another voluntary discharge in bankruptcy under Chapter 7 after three years have elapsed from the date of the prior filing. The debtor will be granted an order for relief if the petition is proper and if the debtor has not been discharged in bankruptcy within the past six years.

In a voluntary liquidation under Chapter 7, a petitioning debtor does not have to be insolvent unless it is a partnership and the debtor will be granted an order for relief if the petition is proper and if the debtor has not been discharged in bankruptcy within the past six years. Examples of debt that cannot be discharged under Chapter 7 include back taxes (up to three years), debts associated with fraudulent activities, alimony, child support, debt due to intentional tort claims, student loans, and consumer debts of more than $650 for luxury goods or services owed to a single creditor within 90 days of the order for relief.

Question #12 of 25 Build-a-Kit Construction is considering making an investment in a backhoe. The cost of the equipment is $200,000. The annual cash return for this investment over the next five years is expected to be $25,000 for each of the first two years, $35,000 for the third year, $40,000 for the fourth year, and $50,000 for the fifth year. At the end of the fifth year, the company will be able to sell the equipment for $75,000. Assume that the cost of capital to Build-a-Kit is 8.5%. Based on the cost and projected cash flows, calculate net present value (NPV) of the backhoe and determine if Build-a-Kit's investment is recommended. A) The NPV is −$16,326.71 therefore the investment is not recommended. B) The NPV is $42,411.93 therefore the investment is recommended. C) The NPV is −$217,411.93 therefore the investment is not recommended. D) The NPV is $383,573.29 therefore the investment is recommended.

In this case Build-a-Kit should not make the investment based on a NPV of −$16,326.71. Keystrokes for the HP 10bII/HP 10bII+ 200000 +/− CFj 25000 CFj 25000 CFj 35000 CFj 40000 CFj 50000 + 75000 = CFj 8.5 I/YR Solve for NPV = −16,326.7104, or −$16,326.71

Question #4 of 25 Jill is a financial planner. She believes that her clients' attitudes, beliefs, and values influence their behavior. In her practice, she tries to replace negative beliefs that lead to poor financial decisions with positive attitudes that might yield better results. Jill's approach to financial counseling is known as the

Jill's approach to financial counseling is known as the cognitive-behavioral approach. In contrast, the economic and resource approach focuses on obtaining and analyzing quantitative data, such as cash flow, assets, and debt. In the classical economics approach, planners attempt to achieve better financial outcomes by increasing financial resources or reducing expenditures. In the strategic management approach, the client's goals and values drive the client-planner relationship and the planner serves as a consultant.

Question #11 of 25 Mike, a CFP® professional and licensed life insurance agent, is meeting with his clients, Patrick and Francis, to discuss their overall risk management program and specific life insurance needs. The couple believes they are grossly underinsured for life insurance because Francis recently gave birth to twin girls. How should Mike proceed with the discussion? A) Complete a risk management questionnaire. B) Ask for referrals. C) Recommend they purchase term life insurance. D) Advise the client that he may be compensated for the purchase of life insurance.

Mike should disclose to the couple that he may be compensated for a life insurance purchase. After full disclosure, Mike could have them complete a questionnaire to better analyze their needs. Then, he could recommend specific products and ask for referrals.

Question #20 of 25 Mr. and Mrs. Claiborne, both age 40, have provided their financial planner with the following information: Statement of Financial Position Cash $4,000 Credit Cards $25,000 Traditional IRA $25,000 Student Loans Outstanding $20,000 Investments $40,000 Personal Residence Mortgage Outstanding $200,000 Personal Residence $240,000 Statement of Cash Flows Annual Income $250,000 Annual Expenditures: Housing Payments (PITI) $25,062 Credit Card Payments $10,000 Student Loan Payments $5,000 What is Mr. and Mrs. Claiborne's net worth? A) $107,938. B) $148,000. C) $103,938. D) $64,000.

Net worth is defined as assets minus liabilities. The statement of cash flows is irrelevant to this question. Total assets = $309,000 ($4,000 + $25,000 + $40,000 + $240,000). Liabilities = $245,000 ($25,000 + $20,000 + $200,000). Net worth = $64,000 ($309,000 - $245,000).

Question #21 of 25 Janet, a full-time student, is 18 years old and claimed as a dependent on her parents' tax return. She is a sophomore, majoring in economics at State University. Janet has $20,000 in unearned income this tax year. Her education expenses are as follows: Tuition $10,000 Books 1,000 Laptop required by the university 1,500 Fees 650 Room and board 4,000 Transportation 1,000 What American Opportunity Tax Credits and Lifetime Learning Credits can she claim on her personal tax return this year for education expenses? A) She can only claim a $2,500 American Opportunity Tax Credit. B) She can claim either the $2,000 Lifetime Learning Credit or the $2,500 American Opportunity Tax Credit. C) None. She is a dependent and her parents must claim any education credits. D) She may claim a $2,000 Lifetime Learning Credit and a $2,500 American Opportunity Tax Credit.

No credit is available for a taxpayer who qualifies as another's dependent.

Question #2 of 10 Clyde met with his new client, Sara, to discuss her financial needs and goals. She arrived promptly with her financial documents. Clyde began by asking Sara some general background questions, listening carefully to her responses and taking detailed notes. Then, he asked open-ended questions to elicit additional information. Sara told him she is an avid reader, volunteers at a local pet rescue, and works at the family's lakefront business during the summer. Throughout this phase of the financial planning process, which of the following responsibilities is(are) important for Clyde? Understanding her family values and culture. Preparing recommendations that are consistent with her goals and values. Gathering her financial documentation for analysis. Selecting financial products to meet her needs.

Preparing recommendations and selecting financial products will take place during the developing the financial planning recommendations phase of the financial planning process.

Question #10 of 25 Todd and Diana are establishing a college fund for their 14-year-old son, Mike. The couple does not wish to invest aggressively but is willing to take a moderate amount of investment risk. Which of the following investments is most appropriate for the college fund and why? A) A small-cap stock mutual fund owned by Mike because it provides the best return at a modest level of risk consistent with the time horizon. B) A money market checking account jointly owned by Todd and Diana because this account is very safe. C) A variable life insurance policy owned by Mike because it saves taxes and provides a life insurance benefit. D) A series of investment grade zero-coupon corporate bonds owned by Todd because they can provide appropriate funds at the correct times.

Small-cap stock mutual funds are too risky of an investment for a short term time horizon. A variable life insurance policy does not match the investment vehicle to the time horizon of the investment. A money market checking account will probably not provide them with a rate of return that will keep up with inflation. The zero-coupon bonds will allow the couple to match the time horizon of the investments to the duration of the bonds and avoid reinvestment rate risk.

Question #21 of 25 Joel is a financial planner who uses the strategic management financial counseling process with his clients. Which of the following statements regarding Joel's approach to financial counseling is(are) CORRECT? Joel attempts to replace clients' negative beliefs that lead to poor financial decisions with positive attitudes that lead to better results. Joel conducts a SWOT analysis (identifying strengths, weaknesses, opportunities, and threats) early in the financial planning process. Joel uses the clients' goals and values to drive the client-planner relationship. A) 1 only B) 2 and 3 C) 1, 2, and 3 D) 1 and 2

Statements 2 and 3 are correct. Statement 1 is incorrect because it represents the cognitive-behavioral approach to financial counseling.

Question #23 of 25 Question ID: 959703 Samantha is preparing a comprehensive financial plan and is in the process of compiling an overview of her client's debt. Which of the following guidelines should Samantha use to determine whether the client has excessive debt? Payments on housing should be no greater than 28% of gross income. Total monthly payments on all debts should be no greater than 36% of gross monthly income. Total monthly payments on all debts should be no greater than 28% of gross monthly income. Consumer debt payments should be no greater than 30% of net income. A) 2 and 3 B) 1, 2, and 3 C) 1, 2, 3, and 4 D) 1 and 2

Statements 3 and 4 are incorrect. Consumer debt payments should be no greater than 20% of net income.

Question #1 of 25 Frank is a fireman with the local volunteer fire department. He and his wife, Mary, want to retire in 25 years. They expect to live approximately 30 years after retirement and need $50,000 (in today's dollars) annually during retirement. Unfortunately, over the past few years they spent their savings on unexpected medical expenses and have no funds for retirement. Inflation is currently 3% and is expected to continue indefinitely. Frank believes that he can earn an 8% rate of return before retirement but expects to earn only about 6% during retirement because of the change in asset allocation that he expects to occur at retirement. How much does Frank need to accumulate by the time he retires to fund his goal? A) $1,416,270 B) $1,836,170 C) $2,075,320 D) $2,135,766

Step 1: Inflate needs until retirement: PV = −50,000 n = 25 i = 3 (inflation rate) FV = 104,688.90 Step 2: Discount annual needs to beginning of retirement: BEG mode PMT = −104,688.90 n = 30 i = 2.9126 [(1.06 ÷1.03) − 1] × 100 (inflation-adjusted discount rate) PVAD = 2,135,766.46, or $2,135,766.46

Question #10 of 25 Jackie has decided to refinance her current mortgage with a balance of $175,000 and 15 years remaining. Her current interest rate is 7.85%. She would like to reduce her principal and interest payment to below $1,500 per month and she is willing to pay all closing costs from her savings. Jackie has a reputation for being slightly risk averse. She has been provided with the following information by her mortgage broker: Mortgage Type Interest Rate Closing Costs 15-year fixed 5.45% 1 point 30-year fixed 6.15% ½ point 3-year ARM 2/6 3.00% 2 points Based on the information provided, which of the following mortgages would best suit Jackie's needs? A) 15-year fixed rate mortgage B) None of these choices would be appropriate C) 3-year adjustable rate mortgage with 2/6 cap D) 30-year fixed rate mortgage

The 15-year fixed rate mortgage is the best choice for Jackie. Because she is risk averse, she may tend to feel uncomfortable with an ARM. Also, the 30-year mortgage has a higher interest rate and the time frame to pay off the mortgage may be too long considering she has only 15 years left on her existing mortgage.

Question #17 of 25 Kenneth and Liz, ages 50 and 39, respectively, want to invest $3,000 per year toward the future college expenses of their 8-year-old son, John, who will begin attending college in 10 years. Kenneth and Liz had hoped that John would get an athletic scholarship because he is a talented tennis player. However, due to John's recent elbow injury, his parents have decided to plan for the likely event that he will not get an athletic scholarship. Because they have a modest income they are concerned about qualifying for financial aid. Which of the following investment vehicles would best serve their needs? A) Coverdell Education Savings Account (CESA) B) Series EE savings bonds for Liz C) Roth IRA for Kenneth D) Custodial account for John

The Roth IRA for Kenneth is the best choice because it keeps an asset out of the son's name (for financial aid purposes). The Roth IRA also allows contributions up to $5,500 with an additional catch-up amount of $1,000 for individuals at least 50 years old (for 2018)

Question #13 of 25 Jack, age 43, works for the local newspaper as an editorial director. His wife, Jackie, is a stay-at-home mother raising their 2 children, Sarah and Nathan. Given the following information, calculate the amount available for an emergency fund and determine if this amount is sufficient based on general planning principles. Cash $1,500 3-month CD $5,000 Money market mutual fund $12,000 Savings account $5,700 10-year bond maturing in 3 months $20,000 Traditional IRA $56,000 Nondiscretionary cash flows (monthly) $2,000 A) Yes, Jack has $24,200 which is a satisfactory amount to cover his needs. B) No, Jack has only $1,500 in cash to meet his immediate cash needs. C) Yes, Jack has $44,200 available to meet any emergencies. D) No, Jack has only $19,400 to cover any sudden obligations.

The emergency fund helps the client withstand a sudden negative financial disruption of income. Six months is generally used when the client is married with only one working spouse. Jack will need at least $12,000 to cover 6 months of his nondiscretionary cash flows. His emergency fund would equal $44,200 ($1,500 + $5,000 + $12,000 + $5,700 + $20,000) which is more than adequate to meet any sudden needs. I didn't see the 10 year bond was up in 3 months so I missed the question

Question #7 of 25 John and Marcy have one child Rex. Rex is a single parent with one daughter, Lauren, and is temporarily living with John and Marcy. John and Marcy have presented the following information to their financial planner regarding their checking and savings accounts: (NOTE: each owner has an equal right of withdrawal) Marcy and John checking $100,000 Marcy and John savings $30,000 Marcy, John, and Rex checking $60,000 Rex and Lauren checking $80,000 Based on the information provided, what is the total FDIC coverage afforded to John assuming the accounts are held at the same financial institution? A) $100,000 B) $55,000 C) $85,000 D) $190,000

The total coverage afforded to John is $85,000 [(0.5 × 100,000) + (0.5 × 30,000) + (0.333 × 60,000)]. The interests in all joint accounts he owns at the same FDIC-insured depository are added and insured up to a maximum of $250,000.

Question #7 of 10 A client provides the following information regarding his assets and liabilities as of December 31, 2018. Determine which of the items listed below should be presented on his statement of financial position as of December 31, 2018. Stock options granted September 30, 2018, exercisable one year from date of grant. A bonus receivable of $10,000. The client estimates the bonus based on the prior year's bonus and cannot determine the precise amount because the board of directors meets February 15, 2019, to determine if and when a bonus will be paid. Huge Oil, Inc., stock in the amount of $15,000. The client owns 1,000 shares priced at $10 per share on December 31, 2018. Huge Oil, Inc., declared a $5 per share dividend on December 10, 2018, payable January 15, 2019, to the stockholders of record as of December 31, 2018. The client participates in the company's dividend reinvestment plan. The client is a cosigner on a loan. The proceeds were used by his son to purchase an automobile. The principal balance on the loan is $4,500, and his son has made all payments to date. Consulting fees receivable related to services performed by the client's spouse. The engagement was completed, an invoice was mailed on December 10, 2018, and the credit terms were net 30.

To determine whether the items should be included in the statement of financial position, the asset or liability should have the following characteristics: (1) The asset or liability is a fixed and determinable amount. (2) The receipt or payment is not contingent on the occurrence of a particular event. (3) The receipt or payment does not require future performance of service. Statement 1 is fixed and determinable but requires that one year pass before the options become exercisable. Statement 2 is not fixed and determinable and requires that the board of directors meet and authorize the bonus. Statement 3 addresses the issue of constructive receipt of the dividend. Because the record date was December 31, 2018, and the client held the shares as of that date, the client will receive the payment regardless of whether the client owns the stock after December 31, 2018, and the amount should be shown on the statement of financial position. Statement 4 requires that the client's son defaults on the loan and, therefore, should not be included in the statement of financial position. Finally, Statement 5 should be included because the spouse is awaiting payment and no further service is required to receive the payment.

Question #8 of 25 George and Cassandra have a newborn daughter and want to make sure they have the necessary funds to pay for her college education in 18 years. They feel they can only afford to save $100 at the end of each month. Assuming they will need $75,000 for college costs in 18 years and they can earn 8% interest compounded monthly, will they accumulate enough to meet their goal by saving $100 at the end of each month? A) Yes, they only need to save $78 at the end of each month to reach their goal. B) No, they need to save $123 at the end of each month to reach their goal. C) No, they need to save $156 at the end of each month to reach their goal. D) Yes, they only need to save $95 at the end of each month to reach their goal.

To reach their goal, they will need to save $156 at the end of each month. END mode FV = 75,000 PV = 0 i = 8 ÷ 12 = 0.6667 n = 18 × 12 = 216 PMT = -156.2220, or $156.22