Capstone Midterm.

Balance sheet liabilities should be recorded at their: A Current outstanding balance. B Fair market value. C Depreciated value. D Appraised value.

A

If your financial planning client talks about situations, expresses emotions verbally, enjoys listening (but cannot wait to talk), and tends to move lips or sub-vocalize when reading, then, their learning style is most likely A Auditory. B Visual. C Both auditory and visual. D None of the choices.

A

In what order should the steps in the financial planning process occur? 1. Identifying and Selecting Goals 2. Understanding the Client's Personal and Financial Circumstances 3. Developing the Financial Planning Recommendation(s) 4. Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action 5. Implementing the Financial Planning Recommendation(s) 6. Presenting the Financial Planning Recommendation(s) 7. Monitoring Progress and Updating A: 2,1,4,3,6,5,7 B: 2,1,3,7,4,5,6 C: 7,1,2,4,3,6,5 D: 1,2,3,4,5,6,7

A

Joe, a CERTIFIED FINANCIAL PLANNERTM professional, has prepared financial statements and conducted ratio analysis. Which step in the financial planning process is he in? A Develop the Financial Planning Recommendations. B Analyzing the Client's Current Course of Action and Potential Alternative Courses of Action C Understanding the Client's Personal and Financial Circumstances. D Implement Financial Plan Recommendations.

B

The balance sheet equation is: A: Total Assets / Total Liabilities = Net Worth. B: Total Assets × Total Liabilities = Net Worth. C Total Assets - Total Liabilities = Net Worth. D Total Assets + Total Liabilities = Net Worth.

C

Which of the following approaches provides the planner and client with a methodology in order to reach goals by covering risks, short term and long term savings and investments: A: Pie chart. B: Ratio analysis. C: Three panel approach. D: The strategic approach

C

A client in the asset accumulation phase is characterized by: A: Discretionary cash flow for investing is low and debt to net worth is low. B: Discretionary cash flow for investing is high and debt to net worth is high. C: Discretionary cash flow for investing is high and debt to net worth is low. D: Discretionary cash flow for investing is low and debt to net worth is high.

D

Darrin and Kathi recently gave you the following financial information. Current Liabilities$6,921Monthly Non-discretionary Expenses$4,693Yearly Income$70,000Annual Debt Expenses (excluding monthly housing costs)$22,084 Which of the following lender thresholds will Darrin and Kathi meet assuming their monthly housing costs will be $1,500? The 28% benchmark The 36% benchmark A I only B II only C I and II D Neither I nor II

The correct answer is A. 28% Benchmark = 1,500 / (70,000/12) = 25.7% YES 36% Benchmark = (1,500 + (22,084/12)) / (70,000/12) = 57.2% NO

Which of the following is not necessary to identify the client's life cycle position? A Attitudes (beliefs). B Marital Status. C Dependents. D Income Level. E Net Worth.

The correct answer is A. Age, marital status, dependents, income and net worth determine a client's life cycle position.

All of the following are true except: I: Only high net worth clients need a PLUP. II: A savings rate of 10-13% is likely inadequate for both a retirement and education funding goal. III: An emergency fund should be approximately 3-6 months of non-discretionary expenses. IV: Both Housing Ratio 1 and Housing Ratio 2 are based on gross pay, not net pay. A 1 only B 1 and 2 C 3 and 2 D 2 and 4

The correct answer is A. All individuals need a PLUP. It provides protection of assets, wages and legal defense.

Utilizing the three panel approach, which of the following would be evaluated in Panel 2 - Short Term Savings and Investing? A Emergency Fund B Education Fund C Wills D Life Insurance

The correct answer is A. Life insurance would be evaluated as part of Panel 1 - Risk Management. The emergency fund would be evaluated as part of Panel 2 - Short Term Savings and Investment. The education and wills would be evaluated as part of Panel 3 - Long Term Savings.

During your work with your new client, Bryan, you created several visual representations of how your client spends his money and overall allocation between assets, liabilities and net worth. Which approach to financial planning are you utilizing? A Pie Chart Approach B Cash Flow Approach C Financial Statement Approach D Three Panel and Metrics Approach

The correct answer is A. The pie chart approach provides a visual representation of how the client spends his money and overall allocation between assets, liabilities and net worth. The cash flow approach takes an income statement approach to recommendations. The financial statement approach helps establish where the client is today and uses ratio analysis to determine the client's weaknesses and strengths. The metric approach utilizes qualitative benchmarks to determine where a client should be.

Hannah, age 65, is retiring today. Hannah would like $100,000 per year in retirement income. If the invested assets to gross pay benchmark is 16:1, how much should Hannah have saved for retirement according to the invested assets to gross pay benchmark? A $1,000,000 B $1,600,000 C $3,200,000 D $4,800,000

The correct answer is B. 16 × 100,000 = $1,600,000

John and Jane have a net worth of $20,000 and total assets of $150,000. If their revolving credit and unpaid bills total $8,000, how much are their total liabilities? A $122,000 B $130,000 C $138,000 D $150,000

The correct answer is B. A − L = Net Worth 150,000 − L = 20,000 L = 130,000

Jennifer has the transactions below, what is the combined impact on her net worth when considering all of the transactions? 1: She purchases $5,000 worth of a mutual fund with cash from her savings account. II: She spends $6,000 on a two-week vacation to Italy using funds in her money market account. III: She purchases $10,000 worth of furniture for her house and uses her credit card to finance the purchase. A $21,000 decrease in net worth B $6,000 decrease in net worth C $15,000 increase in net worth D $6,000 increase in net worth

The correct answer is B. I: No change. Decrease in current assets of $5,000 and increase in invested assets of $5,000 II: Decrease of $6,000 in current assets III: No change. Personal use assets increases by $10,000 and current liabilities increase by $10,000

You have been working with your client, Brenda, for 3 months now. You developed a mission statement, goals, and objectives with the client. You are now constructing a plan that is led by the client's mission statement. Which approach to financial planning are you utilizing? A Life Cycle Approach B Strategic Approach C Metrics Approach D Three Panel Approach

The correct answer is B. The strategic approach is led by the client's mission statement. The life cycle approach utilizes quick and simple data collection in a nonthreatening way permitting the financial planner to quickly focus on expected needs. The metrics approach utilizes qualitative benchmarks to determine where a client should be. The three panel approach compares the client's actual financial situation with benchmark criteria.

William is 30 years old. He has a net worth of $30,000. He is planning to marry in the next 6-9 months. Which phase of the life cycle is William most likely in? A Conservation Phase B Asset Accumulation Phase C Distribution Phase D Income Phase

The correct answer is B. William is likely in the Asset Accumulation Phase.

Darrin and Kathi recently gave you the following financial information. Current Assets$9,243Current Liabilities$6,921Monthly Non-discretionary Expenses$4,693Yearly Income$70,000Annual Debt Expenses (excluding monthly housing costs)$22,084 What would Darrin and Kathi's Emergency Fund Ratio be? A 1.2430 months B 1.3355 months C 1.9695 months D 3.1697 months

The correct answer is C. 9,243 / 4,693

During which step of the financial planning process would a planner analyze financial statements provided? A: Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action B: Identifying and Selecting Goals C: Understanding the Client's Personal and Financial Circumstances. D: Developing the financial plan recommendations.

The correct answer is C. From the CFP Board Code and Standards 1. Understanding the Client's Personal and Financial Circumstances Obtaining Qualitative and Quantitative Information. ACFP® professional must describe to the Client the qualitative and quantitative information concerning the Client's personal and financial circumstances needed to fulfill the Scope of Engagement and collaborate with the Client to obtain the information. Examples of qualitative or subjective information include the Client's health, life expectancy, family circumstances, values, attitudes, expectations, earnings potential, risk tolerance, goals, needs, priorities, and current course of action. Examples of quantitative or objective information include the Client's age, dependents, other professional advisors, income, expenses, cash flow, savings, assets, liabilities, available resources, liquidity, taxes, employee benefits, government benefits, insurance coverage, estate plans, education and retirement accounts and benefits, and capacity for risk. Analyzing Information. ACFP® professional must analyze the qualitative and quantitative information to assess the Client's personal and financial circumstances. Addressing Incomplete Information. If unable to obtain information necessary to fulfill the Scope of Engagement, the CFP® professional must either limit the Scope of Engagement to those services the CFP® professional is able to provide or terminate the Engagement.

After Joe has reviewed and analyzed the client's financial statements, which step is next in the financial planning process? A Analyzing the client's current course of action and potential alternatives. B Developing the financial planning recommendations. C Identifying and selecting goals. D Implementing the financial planning recommendations.

The correct answer is C. Step one in the financial planning process includes Analyzing information. A CFP® professional must analyze the qualitative and quantitative information to assess the Client's personal and financial circumstances. If unable to obtain information necessary to fulfill the Scope of Engagement, the CFP® professional must either limit the Scope of Engagement to those services the CFP® professional is able to provide or terminate the Engagement. Watch the wording on the difference between analyzing statements and step three. Step three is Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action.

After meeting with your new client, you prepared his statement of financial position and pie charts. Which part of the financial planning process were you engaged in? A Developing the financial planning recommendations. B Identifying and selecting goals. C Analyzing the client's personal and financial circumstances. D Presenting the financial plan recommendations.

The correct answer is C. Preparing financial statements are part of the analyzing and evaluating the client's current financial status in step 1 of the financial planning process.

Holly's salary is $80,000 per year. She contributes 10% of her salary to her 401(k) plan. Her employer contributes 5% of her salary to a profit share plan. She also contributes $2,500 per year to an IRA. Holly's savings ratio is? A: 5%. B: 10%. C: 15%. D: 18%.

The correct answer is D. (8,000 + 4,000 + 2,500)/80,000 = 18%

Your client, Bob, engaged you to help him arrange his financial situation. During the course of your meetings you sold Bob a disability insurance policy. Which part of the financial planning process were you engaged in? A Analyzing and evaluating the client's financial status. B Monitoring the plan. C Developing and presenting the financial recommendations. D Implementing the financial plan recommendations.

The correct answer is D. By actually selling the insurance product you are now implementing the plan recommendations.

Which of the following items of information is most likely to be obtained from your client during the data gathering portion of the client meeting? I: General attitude towards spending. II: The income tax bracket of your client's adult children. III: Employer sponsored employee benefits. IV: Repayment term of outstanding debt. A 1 and 2 B 1, 2 and 4 C 1 and 3 D 1, 3 and 4

The correct answer is D. Knowing the income tax bracket of your client's children may be helpful in some situations (for example, when you are determining the most appropriate gift to give a particular per-son) however, it is generally not essential to the financial planning process. The other three items are more relevant.

According to the cash flow approach, all of the following recommendations may have a positive impact to cash flow except: A: Raise insurance deductibles. B: Reduce the amount of insurance coverage. C: Payoff existing debt with balance sheet assets. D: Purchase new insurance to cover an existing risk.

The correct answer is D. The purchase of a new insurance product will have a negative cash flow impact.