Quiz

Question 1. Rachel is 30 years old and single. She is healthy, has no children or pets. Rachel works as a human resources coordinator and earns approximately $40,000 per year. Due to her outstanding student loans, she has a fairly low net worth. She rents an apartment but does own her car outright. All of the following are likely insurance coverage needs, except?
Life Insurance.
Health Insurance.
Disability Insurance.
Liability Insurance.

Question 2. Natalie and Brian visited your office today. They are both in their early 30s and have two children with one on the way. During your meeting they provide you with the following financial information:

• Gross Income per Year - $150,000
• Housing Costs per Year (P & I and T & I) - $24,000
• Other Debt Payments per Year - $50,000
• Total Assets - $300,000
• Total Debt - $200,000

Which of the following is true?
The housing ratio 1 (basic) is within the normal range.
The housing ratio 2 (broad) is within the normal range.
The debt to total assets ratio is 25%.
There are not enough facts to determine the net worth to total assets ratio.

Question 3. CJ bought the following assets this year. Which of these purchases would be considered "bad debt?"
He purchased a slightly used car from a pre-owned dealer. The car has an estimated useful life of 3 years. He put down 5% and financed the balance over 72 months.
He bought a new living room set that cost $5,000. He used his credit card that has a 23% APR. He paid the balance off within one month.
He purchased a home for $500,000. He made a down payment of 20% and financed the remainder over 15 years.
He took a CFP Certification education program in order to meet the education requirement to take the CFP Certification Examination. He paid $5,000 for the program utilizing a student loan.

Question 4. Adriana is an analyst at High Tech Hedge (HTH) where she earns $150,000 base salary with a bonus of $50,000. HTH sponsors a profit-sharing plan with a 401(k) feature and provides for a dollar for dollar match up to 3% of compensation. Her account had $10,000 of capital gains this year and dividends of $5,000. She defers $15,000 into the 401(k) plan. The employer made no additional contribution to the profit sharing plan. What is her savings rate this year?
10.5%.
14%.
18%.
31%.

Question 5. The savings rate is a ratio for financial security goals that measures the amount a client is saving towards a retirement goal. The savings rate calculates savings, reinvestments, and employer retirement match as to gross pay. The savings rate benchmark comparison is dependent upon the client's age. For example, the average sav- ings rate for a client 25-35 years of age is 10-13 percent of annual gross income.
True
False

Question 6. Craig's financial planner is preparing his balance sheet. Which of the following would be considered an "investment asset?"
A certificate of deposit with a maturity of exactly 1 year.
The unvested portion of a pension plan.
A vacation home.
An education fund.

Question 7. Which of the following statements concerning the valuation of assets on the balance sheet is correct?
Since a financial planner has access to all of the client financials, a privately-held small business is easier to value than a publicly traded company.
Assets should be valued on the balance sheet using replacement cost.
An actuary should be retained to value all personal use assets.
Money market accounts are unlikely to lose value over time.

Question 8. Which of the following would not generally be considered a short-term liability?
An automobile loan.
Credit card bills.
Medical expenses.
Unpaid taxes.

Question 9. Jay purchased a new home for $100,000. He put $20,000 down and financed the $80,000 balance. What is the impact of this transaction on his net worth?
His net worth increases.
His net worth decreases.
His net worth remains the same.
The net worth will decrease with each mortgage payment made.

Question 10. Your client, Meg, asked you several questions about her balance sheet. She doesn't understand how the assets, liabilities and net worth are related. Which of the following statements is true?
Net Worth = Assets + Liabilities.
Assets = Net Worth - Liabilities.
Liabilities = Assets - Net Worth.
A balance sheet reflects how the assets, liabilities, and net worth changed over the year.