Principles of Financial Plan Exam

Question 1
During which step of the financial planning process would a planner prepare and analyze financial statements?
Developing and presenting financial plan recommendations.
Analyzing and evaluating client's financial status.
Gathering client data.
Establishing and defining the planner / client relationship.

Question 2
Holly is considering purchasing a new car for $30,000. The dealer is offering two mutually exclusive options on the purchase:

• Option 1: Receive a $4,000 rebate on the price of the car and finance the balance over 5 years at 4%
interest, or
• Option 2: Finance the vehicle for 7 years at 0% interest with no rebate.

Which of the following options should Holly select if her goal is to minimize the total amount she pays for the car?
Both options cost the same.
There is not enough information to answer the question.
Option 1 is better.
Option 2 is better.

Question 3

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?
$5,760.98.
$2,954.70.
$4,981.24.
$3,566.90.

Question 4

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?
$39,546.09.
$30,626.24.
$51,214.75.
$46,778.96.

Question 5

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?
$20,762.60.
$13, 788.43.
$21,522.04.
$21,048.52.

Question 6
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?
145.
162.
165.
192.

Question 7
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?
5.56%.
5.31%.
6.19%.
4.98%.

Question 8

Jason received a check for $50,000 today. This was from an investment made 10 years ago. The investment earned 8% compounded quarterly. How much was his original investment?
$22,645.
$41,017.
$16,035.
$23,160.

Question 9

Which of the following statements is true?

1. Quantitative information that is gathered in the data gathering process might include banking and investment information, tax information, financial statements and attitudes regarding risk tolerance and charitable funding.

2. External data might include interest rates, housing trends, equity market outlook.

3. Once the implementation of the financial plan is completed, the engagement is over and there are no further steps.

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

2 AND 4
4 ONLY
2,3, AND 4
1, 2, AND 4.

Question 10

Which of the following statements is/are true?
Communication is the key factor in the financial advisor-client relationship.

Trust with the financial planner can be lost if care is not used in communication.
A and C
The movements of the client's body mostly do not indicate thoughts or emotions of the client.

Question 11

If your financial planning client uses phrases like: "see what I mean" or "imagine that," your client's learning style is most likely...
Auditory.
Both auditory and visual.
Visual.
Neither auditory nor visual.

Question 12

Tracy and Brett are married.
Their current assets $9,243
Their current liabilities $6,921
Their monthly nondiscretionary expenses $4,693
Their annual combined income $70,000

Their annual debt payments (excluding monthly housing costs) $22,084

What is Tracy and Brett's emergency fund ratio in months?
1.3355.
1.9695.
1.2430.
3.1697.

Question 13

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.
28%.
30%.
34%.
32%.

Question 14

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.

What is their savings rate?
19.5.
18.5.
17.5.
16.5.

Question 15

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.
26%.
20%.
24%.
22%.

Question 16

Samantha has the following transactions:
• She purchases $5,000 worth of a mutual fund with cash from her savings account.
• She spends $6,000 on a car with cash from her money market account
• She spends $10,000 on new furniture, and uses her credit card to make the purchase.

What is the combined impact of these transactions on her net worth?
$6,000 decrease.
no change
$6,000 increase.
$21,000 decrease.
$15,000 increase.

Question 17

Which of the following statements is/are correct?
1. The emergency fund ratio metric should be 3 to 6 months of non-discretionary cash flows.
2. When calculating the savings rate for a family, any contributions to retirement made by the
employer should be included.
Both 1 and 2.
2 only.
Neither 1 nor 2.
1 only.

Question 18

Which of the following statements is/are correct?

1. A CD with a maturity of 6-months is classified as an investment asset on the Statement of
Financial Position.

2. A CD with a maturity of 9-months is classified as an investment asset on the Statement of
Financial Position.
Both 1 and 2.
1 only.
Neither 1 nor 2.
2 only.

Question 19

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%.
2 only.
Both 1 and 2.
Neither 1 nor 2.
1 only.

Question 20

Which of the following debts are discharged in bankruptcy?
Alimony.
Student loans.
Consumer debt.
Child support.

Question 21

Which of the following is the least liquid?
CD with a 24 month maturity
Savings Account
Retirement account
Marketable securities

Question 22
What is the address of the government approved website to get your credit report from?
None of the above
www.thisisnottheanswer.com
www.freecreditreport.com
www.wellsbankchaseofamerica.com
www.myfico.com

Question 23
Which of the following statements is/are true regarding financial planners?

1. Anyone can call themselves a financial planner.
2. A CFP professional has a fiduciary responsibility to his/her client.
3. A financial planner, specifically a CFP(R) professional provides subjective advice.
4. Financial planners use engagement letters which helps set expectations for the client and the planner. (Points : 0.64)
1 AND 2 Only
1,2,3, AND 4
1,2, AND 4 Only
1,2, AND 3 Only

Question 24
The Fair Debt Collection Practices Act prevents third-party debt collectors from using deceptive or abusive methods to collect debts.
True
False

Question 25
The Fair Packaging and Labeling Act requires manufacturers to disclose the contents of products and con- tact information for the manufacturer in order to prevent unfair or deceptive packaging and labeling.
True
False

Question 26
Which of the following are true?

1.Discretionary cash flows are expenses which can be avoided in the event of a loss of income.
2.Non-discretionary cash flows are mostly fixed expenses which must be met on a regular basis regardless of loss of income.
2 Only
Both 1 and 2
Neither statement is true
1 Only

Question 27

Norm visited your office today. He is 45 years of age. He is divorced and has two children. One child recently graduated from college and the other child is just entering high school. Norm lives in a van down by the river. He earns $100,000 a year as a chemistry professor and $20,000 as a part time chef where he cooks Mexican-Chinese Fusion. He needs both incomes to meet his financial needs.
Which of the follow is true?
Cash and Cash Equivalents - $35,000
Annual Non-Discretionary Expenses - $70,000
Annual Discretionary Expenses $50,000
Given all the facts, Norm is HIGHLY liquid and in good financial shape when evaluating his emergency fund ratio.
Norm is good shape because he has an emergency fund ratio of 3 months.
Given all the facts and circumstances, Norm probably does not have an adequate emergency fund.
Norm is insolvent and barely meets basic financial ratios.

Question 28
Chapter 13 bankruptcy known as the "wage earners plan" is for individuals or self-employed workers that want to keep their assets and payoff a portion of their debt over time.
True
False

Question 29
Chapter 7 bankruptcy is for individuals or businesses to use for protection from creditors under federal and state bankruptcy laws. A Chapter 7 bankruptcy can be voluntary or involuntary. Assets are liquidated to repay a portion or all of the debts.
True
False

Question 30

Future value is the value today of one or more future cash payments discounted at an interest rate. Present value is the value at some point in the future of a present amount or amounts after earning a rate of return for a period of time.
True
False