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BUSI 352 quiz 2 Financial Planning Approached and Financial Statements solutions complete answers
BUSI 352 quiz 2 Financial Planning Approached and Financial Statements solutions complete answers
Use the following data: What was the return on net worth for the year?
Allen is a graphic designer and contributes 10% of his salary to his 401(k). His employer makes matching contribution of 3% of salary. Last year, Allen earned $60,000, but he received a raise and will earn $65,000 this year. Also, Allen contributes $2,000 to an IRA at the end of each year. What is his total savings rate this year?
Six months ago, Juan purchased a new dining room table for $6,500. In preparing accurate personal financial statements, this purchase would appear as a(n): ONE: Use assets on the client’s balance sheet. TWO: Investment assets on the client’s balance sheet. THREE: Variable outflow on the client’s cash flow statement. FOUR: Fixed outflow on the client’s cash flow statement.
Thurston and Lovie are 38 years old and plan on retiring at age 67 and expect to live until age 95. Thurston currently earns $150,000 and they expect to need $100,000 in retirement. Lovie is a stay at home mom. They also expect that Social Security will provide $30,000 of benefits in today’s dollars at age 67. He has been saving $17,000 annually in his 401(k) plan. Their daughter, Mary Ann, who was just born, is expected to go to college in 18 years. They want to save for Mary Ann’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 $400,000 saved in total and they are averaging a 7% rate of return and expect to continue to earn the same return over time. Based on this information, what should they do?
Which of the following statements is/are correct? STATEMENT ONE: A new automobile loan for 60 months is an example of a long-term liability. STATEMENT TWO: Unpaid taxes are an example of a long-term liability.
Use the following data: What was the return on assets (ROA) for the year?
Which of the following approaches provides the planner and client with a methodology in order to reach goals? The methodology is expressed as cover the risk and save and invest.
Assume the following annual financial information for Kelli (age 30). Utilizing targeted benchmarks, which of the following statements is FALSE regarding Kelli’s financial situation?
Use the following data: What was the return on investment (ROI) for the year?
Which of the following best describes the financial approach that uses quantitative benchmarks that provide guidelines of where a client’s financial profile should be.
George, age 40, is married with two daughters. His primary goals include saving for retirement, paying down the mortgage on his new home, managing his risks, and education funding for his daughters. Which phase(s) of the life cycle approach is George most likely in?
Which of the following factors is critical in determining the appropriate benchmark for the investment assets to gross pay ratio?
Dan and Tina, 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. From the goals and data given, which of the following statements is/are correct? (Do not make assumptions that are not stated). STATEMENT ONE: Dan and Tina’s investment assets to gross pay ratio is adequate for their age. STATEMENT TWO: Dan and Tina’s savings rate is appropriate for their goals.
Greg and Cindy are married and 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?
Which of the following is the formula to calculate Net Discretionary Cash Flow (NDCF)?
Which of the following transactions is most likely to appear on a statement of net worth?
Which of the following is most likely to be considered a discretionary cash flow?
Margaret’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. Margaret’s annual savings rate is?
Megan purchased a new vehicle for $40,000. She put $5,000 down and financed the $35,000 balance over 5 years. What is the impact of this transaction on her net worth?
Utilizing investment assets to gross pay benchmarks, which of the following individuals is likely on target with their investment assets?
Which of the following insurance recommendations will result in a positive cash flow?
Use the following data to answer the questions. Based on the information below, calculate Rick and Suki’s emergency fund ratio in months.
Jason earns an annual salary of $50,000. His company matches 50% of his 401(k) contributions up to 6% of his compensation (max 3% company contribution). Jason contributed $5,000 to the plan this year and his company made the matching contribution before the end of the year. The balance of his account at year’s end was $95,000. What is his savings rate this year?
Use the following data to answer the question. What was Ronnie’s return on net worth for the year?
Which of the following is most likely to take place in the Analyze & Evaluate Client’s Financial status step?
Financial planners earn compensation in the form of
Which of the following is usually included in an engagement letter?
Use the following financial information for Jay (age 30) and Maria (age 30) Handberger:
• Cash and Cash Equivalents: $75,000
• Investment Assets: $220,000
• Personal Use Assets: $350,000
• Current Liabilities: $45,000
• Long-Term Liabilities: $300,000
Before your next meeting with the Handberger’s, you create a pie chart to visually depict their current balance sheet. Utilizing targeted benchmarks, which of the following statements are you most likely to make during your next meeting?
a. “Your investment assets make up 34% of your asset pie chart, which is too low for your age group.”
b. “Given your assets and liabilities, your net worth is appropriate for your age group.”
c. “Relative to the rest of your assets, your cash and cash equivalents are too low for your age group.”
d. “Compared to your net worth and current liabilities, your long-term liabilities are excessive for your age group.”
Assume the following annual financial information for Kelli (age 30):
Income (after taxes) $80,000
Savings $2,500
Rent $18,000
Dry Cleaning $200
Entertainment $2,000
Utilities $1,800
Car Payment $6,600
Auto Insurance $2,400
Student Loans $6,000
Credit Cards $1,200
Utilizing targeted benchmarks, which of the following statements is FALSE regarding Kelli’s financial situation?
All of the following are examples of qualitative information that should be collected by the financial planner except:
During your meeting with your client, Hayden Doyle, you recommend he purchase a personal liability umbrella policy (PLUP). Which part of the financial planning process were you engaged in according to the textbook?
Your client, David, provides you with his tax returns from a previous year.
During their meeting with you, Johnny and June call the benefits office to adjust their tax withholding to better suit their financial needs.
During your meeting with Jeff, you provide him with three education saving plans to choose from.
Using Liquidity, Debt, and other types of equations to determine your clients goals and progress towards them using benchmarks
An approach of using rules of thumbs to use to determine if the client is on a good
Maria Chen has been a client of yours for many years. In your quarterly meeting with Maria, you evaluate her retirement portfolio performance and ensure that progress is being made as expected. Which part of the financial planning process are you engaged in?
Dividing Financial Planning into Risk Management, Short term savings and investments, and long term savings and investments.
A process that recognizes and weighs the risks, and benefits of investments
Tiffany Evans, a medical doctor and prospective client, has come to your office for the first time. Which is the most appropriate way to greet her?
Investment Assets at Year End = $170,000
Investment Assets at Beginning of year = $125,000
Savings = $25,000
Employer Match to 401(k) = $4,800
Gross Income = $120,000
Total Assets at Year End = $650,000
Total Assets at beginning of year = $610,000
Total Liabilities at Year End = $235,000
Total Liabilities at Beginning of Year = $240,000
What was the return on assets (ROA) for the year?
1.67%
3.25%
6.56%
13.74%
Investment Assets at Year End = $170,000
Investment Assets at Beginning of year = $125,000
Savings = $25,000
Employer Match to 401(k) = $4,800
Gross Income = $120,000
Total Assets at Year End = $650,000
Total Assets at beginning of year = $610,000
Total Liabilities at Year End = $235,000
Total Liabilities at Beginning of Year = $240,000
What was the return on net worth for the year?
4.11%
5.41%
9.45%
12.16%
Candice earns $85,000 working as an administrative assistant in a public company based in New York. The company provides a matching contribution in the 401(k) plan of 50%. Her 401(k) plan account had $20,000 in it at the beginning of the year. She contributed $5,000 to the plan this year and the employer made the matching contribution before year end. The ending balance of the account is $30,000. What is her savings rate this year?
A) 8.8%.
B) 9.9%.
C) 12.5%.
D) 25%.
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?
A) 10.5%.
B) 14%.
C) 18%.
D) 31%.
Investment Assets at Year End = $170,000
Investment Assets at Beginning of year = $125,000
Savings = $25,000
Employer Match to 401(k) = $4,800
Gross Income = $120,000
Total Assets at Year End = $650,000
Total Assets at beginning of year = $610,000
Total Liabilities at Year End = $235,000
Total Liabilities at Beginning of Year = $240,000
What was the return on investment (ROI) for the year?
12.16%
18.00%
26.47%
36.00%
Allen is a graphic designer and contributes 10% of his salary to his 401(k). His employer makes a 3% matching contribution. Last year, Allen earned $60,000, but he received a raise and will earn $65,000 this year. Also, Allen contributes $2,000 to an IRA at the end of each year. What is his total savings rate this year?
13.00%
14.08%
16.08%
17.42%
Roger and Julie are married. Roger is a police officer and earns $50,000 per year. He contributes 10% of his salary to his retirement plan. His employer also makes a 5% match contribution. Julie stays at home with their children and contributes $5,000 to an IRA. What is their total saving rate?
A) 10.0%.
B) 20.0%.
C) 20.5%.
D) 25.0%.
`CJ bought the following assets this year. Which of these purchases would be considered “bad debt?”
A) 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.
B) 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.
C) He purchased a home for $500,000. He made a down payment of 20% and financed the remainder over 15 years.
D) 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.
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?
a. Life Insurance.
b. Health Insurance.
c. Disability Insurance.
d. Liability Insurance.
During your work with your new client, Brian, you created several visual representations of how your client spends his money. Which approach to financial planning are you utilizing?
A) Pie Chart Approach.
B) Cash Flow Approach.
C) Financial Statement Approach.
D) Metrics Approach.
Which of the following would not generally be considered a short-term liability?
A) An automobile loan.
B) Credit card bills.
C) Medical expenses.
D) Unpaid taxes.
A client, Marie, age 35, came into a financial planner’s office today. She provides the planner with the following information for the upcoming year:
• Income - $100,000
• Principal and Interest payments on home mortgage - $14,000
• Homeowners insurance - $1,000
• Property taxes - $5,000
• Living Expenses - $40,000
• Credit Card Debt Payments - $12,000
• Savings - $5,000
• Student Loan Payments - $5,000
• Car Payment - $6,000
When considering the targeted benchmarks, which of the following statements is the planner most likely to make during the next meeting?
A) Both the basic and broad housing ratio are within the normal range.
B) Both the basic and broad housing ratio are outside the normal range.
C) The basic housing ratio is within the normal range, but the broad housing ratio is not.
D) The broad housing ratio is within the normal range, but the basic housing ratio is not.
Evaluating your client’s emergency fund will fall into which of the following panels of the Three-Panel Approach?
a. Panel 1.
b. Panel 2.
c. Panel 3.
d. The emergency fund is not addressed in the Three-Panel Approach.
Your new client, Kerri, age 35, came into your office today. She provided you with the following information for the year:
• Income - $100,000
• Taxes - $18,000
• Rent - $14,000
• Living Expenses - $40,000
• Credit Card Debt - $12,000
• Savings - $5,000
• Student Loan Payments - $5,000
• Car Payment - $6,000
After receiving this information you created a pie chart to visually depict where her income was spent. Utilizing targeted benchmarks which of the following statements are you most likely to make during you next meeting?
A) “You are spending too much on housing.”
B) “Your current living expenses are within the normal range.”
C) “Your mortgage and debt payments are within the normal range.”
D) “Your savings is low but still appropriate for your age.”
Janice earns $85,000 working as an administrative assistant in a public company based in New York. The company provides a matching contribution in the 401(k) plan of 50%. Her 401(k) plan account had $20,000 in it at the beginning of the year. She contributed $5,000 to the plan this year and the employer made the matching contribution before year end. The ending balance of the account is $30,000. What is her return on her investments this year for the 401(k) account?
A) 8.8%.
B) 9.9%.
C) 12.5%.
D) 25%
Robin met with you recently to make some changes to her insurance needs. You have made several recommendations. Which of these recommendations will have a positive cash flow impact from an insurance perspective?
A) Cancel an insurance policy.
B) Change the name of the beneficiary on her life insurance policy.
C) Increase coverage on an existing insurance policy.
D) Lower the deductible on her auto insurance.
Used by financial professionals to focus attention on current and prospective inflows and outflows of cash; This approach takes an income statement approach to recommendations. It uses the three-panel approach and uses a pro forma approach (as if) “to purchase” the suggested recommendations. This approach has the effect of driving down the discretionary cash flow. Next, positive cash flows or the sale of assets are identified and used to finance the recommendations.
Craig’s financial planner is preparing his balance sheet. Which of the following would not generally be considered “cash and cash equivalents?”
A) Cash value in life insurance.
B) Money market account.
C) Certificate of deposit with a 6 month maturity.
D) Checking account.
Darrin and Kathi are both 44 years of age. They came to your office today and provided the following financial information:
• Cash and Cash Equivalents - $333,333
• Investment Assets - $333,333
• Personal Use Assets - $333,333
• Current Liabilities - $100,000
• Long-Term Liabilities - $250,000
After meeting with them you created a pie chart to visually depict their current balance sheet. Utilizing targeted benchmarks, which of the following statements are you most likely to make during you next meeting?
A) “You are within all normal ranges for your age group.”
B) “Your net worth is too low.”
C) “Compared to the other assets, the investment asset holdings are appropriate.”
D) “Your long-term liabilities are excessive.”
Curtis is 60 years old. He plans to retire in a five years. He has amassed a net worth of $1,500,000 which he expects will sustain him during retirement. He is divorced with two adult independent children. Which phase of the life cycle is Curtis most likely in?
A) Conservation Phase.
B) Asset Accumulation Phase.
C) Distribution Phase.
D) Income Phase.
Which of the following best describes the financial approach that provides a visual representation of how a client distributes resources?
a. Strategic Approach.
b. Two-Step/Three-Panel Approach.
c. Pie Chart Approach.
d. Life Cycle Approach.
Craig’s financial planner is preparing his balance sheet. Which of the following would be considered an “investment asset?”
A) A certificate of deposit with a maturity of exactly 1 year.
B) The unvested portion of a pension plan.
C) A vacation home.
D) An education fund.
The ratio analysis provides an opportunity to assess the client’s strengths, weaknesses, and deficiencies by comparing the client’s ratios to the benchmark metrics. The ratio approach usually follows the pie chart approach.
Ronnie visited your office today. He is 55 years of age. He is divorced and has two children. One child recently graduated from college and the other child is just entering into high school. Ronnie earns $350,000 a year as the operator of a very specific type of medical equipment. There are only two of these particular machines in existence. He has provided you the following financial information.
• Cash and Cash Equivalents - $100,000
• Annual Non-Discretionary Expenses - $300,000
Which of the following is true?
A) Given all the facts and circumstances, Ronnie probably does not have an adequate emergency fund.
B) Ronnie has an emergency fund ratio of 3 months.
C) All individuals should have an emergency fund equal to 3 - 6 months.
D) Disability insurance is irrelevant in determining whether the emergency fund ratio is appropriate.
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?
A) His net worth increases.
B) His net worth decreases.
C) His net worth remains the same.
D) The net worth will decrease with each mortgage payment made.
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?
A) The housing ratio 1 (basic) is within the normal range.
B) The housing ratio 2 (broad) is within the normal range.
C) The debt to total assets ratio is 25%.
D) There are not enough facts to determine the net worth to total assets ratio.
Your client, Tom, asked you to prepare his financial statements. He believes that his wife is the root of all of their financial problems because of her spending habits. His wife, on the other hand, believes that most of their money goes to pay routine expenses like, house, auto, etc. Which financial statement will help them resolve this disagreement?
A) Balance Sheet.
B) Income Statement.
C) Statement of Net Worth.
D) Statement of Financial Position.
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?
A) Net Worth = Assets + Liabilities.
B) Assets = Net Worth - Liabilities.
C) Liabilities = Assets - Net Worth.
D) A balance sheet reflects how the assets, liabilities, and net worth changed over the year.
Collecting and Analyzing different information about clients to determine which phase of life they are in between Asset accumulation phase, Conservation/risk management Phase
Utilizing the three panel approach, which of the following would be evaluated in Panel 1 - Risk Management?
A) Emergency Fund.
B) Education Fund.
C) Retirement Fund.
D) Life Insurance.
This approach uses quantitative benchmarks that provide rules of thumb for a measurement of where a client’s financial profile should be. When combined with the two-step/three-panel approach, ___________ approach helps establish objectives that are dollar and percentage measurable compared to ratio analysis.
Which of the following would NOT be considered an investment asset?
Cash Value in Life Insurance
A Money Market Account
A brokerage Account
A 401(k) Plan
Which of the following statements concerning the valuation of assets on the balance sheet is correct?
A) 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.
B) Assets should be valued on the balance sheet using replacement cost.
C) An actuary should be retained to value all personal use assets.
D) Money market accounts are unlikely to lose value over time.
Which of the following statements is/are correct?
A new automobile loan for 60 months is an example of a long-term liability.
Unpaid taxes are an example of a long-term liability
Both 1 and 2
Neither 1 nor 2
A financial planner is currently preparing a client’s cash flow statement. Which of the following would the planner classify as a financing activity?
A) The purchase of a new residence.
B) A contribution to a retirement account.
C) A cash inheritance.
D) Paying a credit card debt.
Which of the following is true?
A) Debt ratios measure the ability to meet short-term obligations.
B) Liquidity ratios indicate how well a client manages debt.
C) Ratios for financial security determine the progress that he client is making toward achieving short-term financial security goals.
D) Performance ratios determine the adequacy of returns on investments given the risks taken.
Dividing up all of their expenses and show them a visual representation to show how much they spend on each thing.
an approach using time value of money to interpret what the client needs to put aside to reach their goals
David, 33 years of age, and Kristina, 34 years of age, are married with no children. They anticipate having children within the next five years. David and Kristina both have a graduate degree and student loans. They both have good jobs and earn about $110,000 together. They have mortgage debt of $190,000 on their home that is valued at $210,000. They have one car that they share that is not yet paid for and they anticipate buying a second car in the next year. They have no credit card debt. Which of the following is a likely current goal of the couple?
A) Education Funding.
B) Gifting.
C) Charitable Gifting.
D) Retirement Funding.
You currently manage Cody’s investment portfolio. He provided you with the following information for the beginning and the end of the year:
• Investment Balance (beginning of the year) - $100,000
• Investment Balance (end of the year) - $115,000
• IRA Balance (beginning of the year) - $75,000
• IRA Balance (end of the year) - $82,000
• Net Worth (beginning of the year) - $1,000,000
• Net Worth (end of the year) - $970,000
• Annual Savings to IRA - $5,000
Which of the following statements is correct?
A) The return on investments ratio is within the normal range.
B) The return on the IRA ratio is 10%.
C) The return on net worth ratio is 3.5%.
D) The return on investments, return on IRA, and return on net worth ratios are all within the normal range.
Utilizing investment assets to gross pay benchmarks, which of the following individuals is likely on target with their investment ratios?
Jerry age 55 earns $120,000 a year and has invested assets of $450,000
Liam age 25 earns $45,000 a year and has invested assets of $5,500
Sarah age 25 earns $90,000 a year and has invested assets of $325,000
Alex age 45 earns $110,000 a year and has invested assets of $170,000
While meeting with your new client about his retirement needs you have made several assumptions regarding income growth, savings rate, inflation rates, and investment returns. You engage in the process of changing some of the key assumptions to determine the overall impact of those changes on the financial plan. What is this process called?
A) Sensitivity Analysis.
B) Objectivity Analysis.
C) Monte Carlo Analysis.
D) Las Vegas Analysis.
Which of the following statements concerning income and expenses listed on the Income Statement is correct?
A) Charitable contributions are always a discretionary expense.
B) Reinvested dividends is an example of income.
C) Entertainment expenses is an examples of a fixed expense.
D) Social Security taxes withheld is an example of a fixed expense.
This approach uses a mission, goal, and objective approach considering the internal and external environment and may be used with other approaches.
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.
Which of the following property ownership regimes has a right of survivorship feature?
A) Sole Ownership / Fee Simple.
B) Tenancy in Common.
C) Tenancy by the Entirety.
D) Community Property.
Nathan and Evan (two brothers) are joint property owners. Nathan owns 60% and Evan owns 40%. How is this property owned?
A) Sole Ownership / Fee Simple.
B) Tenants in Common.
C) Joint Tenancy.
D) Tenancy by the Entirety.
Paul and Lucy Martin are married and both are 65 years of age. Paul is retired from the military and receives a military pension as well as disability benefits from an injury he sustained during the Vietnam War. Lucy is a retired nurse. Lucy is fairly healthy, although she is borderline diabetic. Paul is diabetic and had a triple bypass several years ago. He also has extensive hearing loss in one ear that he sustained during his military service. Both have a family history of Alzheimer’s disease. Their home is paid for and they just purchased a new car with financing. They have three self sufficient adult children and two grandchildren. The Martins have a life insurance policy on each of their adult children they purchased when the children were young with a death benefit of $10,000. All three policies have a cash value of $3,000 each. They also have policies on each other with a death benefit of $100,000. The Martins live comfortably with their pensions but do not have a lavish lifestyle or high net worth. Which of the following is their most important need/goal?
A) They should immediately begin a gifting plan giving $13,000 to each child each year.
B) They should investigate long-term care insurance.
C) They should purchase additional life insurance immediately.
D) They should purchase a disability policy on Paul.
A step-by-step approach in which the client’s actual financial situation is compared against benchmark criteria. This approach is relatively thorough and presents a manageable approach to the client. It stresses the management of risk, seeks to avoid financial dependence, and promotes savings and investing to achieve financial independence.
After generating financial statements for your client, Doug, you list each line item on the income statement as a percentage of total income and each item on the balance sheet as a percentage of total asses. Which comparative financial statement tool are you utilizing?
Byron and Mandy are marries and have a net worth of $20,000 and total assets of $150,000. How much are their total liabilities?
Craig’s financial planner is preparing his balance sheet. Which of the following would not generally be considered “cash and cash equivalents?”
- cash value in life insurance
- money market account
- certificate of deposit with a 6 mo maturity
- checking account
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.
The estimated value of a real estate asset in a financial statement should be based upon the:
External data collected in phase 2 of the financial planning process includes all of the following
except:
a. Information about the business cycle.
b. Current and prospective interest rates.
c. Education goals of the family.
d. Expected rate of increases in the prices of education and medical care.
For valuation purposes, balance sheet liabilities should be recorded at their:
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 CD with a maturity of 9-months is classified as an investment asset on the Statement of Financial Position.
A new automobile loan for 60 Mo. is an example of a long-term liab
A savings rate between 10-13% of one’s gross pay is almost always sufficient to meet most financial goals.
at the introductory meeting, the financial planner will collect data, come to understand the client’s values and goals, establish the scope of the engagement and discuss fees.
Cash and cash equiv are assets that are highly liquid and are either cash or can be converted to cash withing the next 12 mo.
Common performance ratios include net worth to total asset ratio, ROI, and ROA
Debt ratios utilized in the financial analysis include housing ratio 1, housing ratio 2, debt to total assets ratio, and net worth to total assets ratio.
examples of internal data include current interest rates, housing market status, job market status, local cost of living, and the expected inflation rate.
External data might include interest rates, housing trends, equity market outlook and the client’s
goals.
For an adequate emergency fund there needs to be cash and cash equivalents of 3-6 Mo of non-discretionary cash flows as to mitigate against the risk of job loss or temporary injury
If Lisa purchased a car using 30% cash and 70% debt, her net worth would increase by 30%.
Investment assets are those assets that help maintain the client’s lifestyle
It is very important that assumptions are not used in the financial planning process. The planner must only use fact.
Long-term goal planning includes emergency funding, financial security planning, education planning, lump-sum purchase planning, and legacy planning
L-T liabilities represent client financial obligations that are owed to creditors beyond the next 12 mo
Main categories listed on the income statement include income, savings contributions, assets, and expenses.
net discretionary cash flow represents the amount of cash flow still available after all savings, expenses, and taxes have been paid
Net Worth represents the personal equity that the individual has in his assets and can never be less than zero.
Once the implementation of the financial plan is completed, the engagement is over and there are
no further steps.
One of the benefits of using a professional financial planner is that a financial planner is subjective
and knowledgeable.
personal financial planning is the comprehensive process of formulating, implementing, and monitoring financial decisions that guide the client to achieve financial goals.
Qualitative 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
Ratio analysis is the process of calculating financial ratios that are compared to example benchmarks for meaningful interpretation of the client’s actual financial status
the client’s balance sheet represents all income earned less expenses incurred for the period being covered
The client’s income statement can be prepared from the client’s W-2 info, credit card statement, and other billing statement info.
The emergency fund ratio measure how many times the client can satisfy their short-term liabilities
The housing ratio 1 industry benchmark is less than or equal to 28%
The implementation phase is where change really occurs, but may require the use of other
professionals other than the financial planner.
The principal but not the interest to be paid this year on a 30-year mortgage is properly classified on the Statement of Financial Position as a current liability
The quality of debt assessment is based on the comparison of the term of the debt on an asset and the useful life of the asset.
The savings rate benchmark is client goal oriented, while the investment assets to gross pay benchmark is client age dependent.
The savings rate calculation includes reinvestments and the employer match
The savings rate is measured to help clients achieve long-term goals including retirement funding, education funding, lump-sum expenditures, and legacy plans.
To obtain a loan, either the housing ratio 1 or the housing ratio 2 must be okay, not both.
Unpaid taxes are an example of a Long-term Liability
Vertical analysis is a tool for financial statement analysis using a common size comparison of a statement’s line items.
When calculating the savings rate for a family, any contributions to retirement made by the employer should be included.
Which of the following is most likely not classified as an investment amount on the Statement of Financial Position?
- cash value of permanent life insurance
- valuable antique furniture
- a 529 plan for education
- the vested portion of a pension plan
Which of the following is not considered a critical element of an engagement letter?
a. The scope of the work agreed upon.
b. The time horizon for that work.
c. A description of the fees and costs.
d. All of the above are considered to be an element of an engagement letter.
Which of the following is true?
- Debt ratios measure the ability to meet short-term obligations
- liquidity ratios indicate how well a client manages debt
- ratios for financial security determine the progress that the client is making toward achieving short-term goal
-performance ratios determine the adequacy of returns on investments given the risks taken
Which of the following would NOT be considered an investment asset?
- Cash value in life insurance
- a money market account
- a brokerage account
- a 401 (k) plan
Which of the following would not generally be considered a short-term liability?
-An automobile loan
-credit card bills
-medical expenses
-unpaid taxes
Adriana is an analyst at high tech hedge 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 .03 of compensation. her account had 10,000 of capital gains this year and dividends of 5000. she defers 15000 into the 401k plan. the employer made no additional contribution to the profit sharing plan. what is her savings rate this year?
after meeting with your new client, Sid, you prepared his current financial statements. which part of the financial planning process were you engaged in?
at the introductory meeting, the financial planner will collect data, come to understand the client’s values and goals establish the scope of the engagement and discuss fees
byron and mandy are married and have a net worth of 20,000 and total assets of 150,000. how much are their total liabilities.
candice earns 85000 working as an administrative assistant in a public company based in new york. The company provides a matching contribution in the 401 k plan account had 20,000 in it at teh beginning of the year. she contributed 5000 to the plan this year and the employer made the matching contribution before year end. the ending balance of the account is 30,000. what is her savings rate this year?
cash and cash equivalents are assets that are highly liquid and are either cash or can be converted to cash within the next 12 months
a CD with a maturity of 9 months is classified as an investment asset on the statement of financial position.
CJ bought the following assets this year. which of these purchases would be considered “bad debt”
the client’s balance sheet represents all income earned less expenses incurred for the period being covered.
the client’s income statement can be prepared from the clients w2 information, credit card statements, and other billing statement information.
common performance ratios include net worth to total asset ratio, return on investments, and return on assets.
craig’s financial planner is preparing his balance sheet. which of the following would not generally be considered “cash and cash equivalent”
a. cash value in life insurance
b. money market account
c. certificate of deposit with a 6 month maturity
d. checking account.
Current assets - 9243
current liabilities - 6921
monthly nondiscretionary expenses - 4693
annual combined income - 70,000
annual debt payments - 22,084
what is the Emergency fund
what is the housing ratio 1 and 2
what is Current ratio
Debt ratios utilized in the financial analysis include housing ratio 1, housing ratio 2, debt to total assets ratio, and net worth to total assets ratio.
define the process of financial planning
during which step of the financial planning process would a planner prepare and analyze financial statements.
the emergency fund ratio measure how many times the client can satisfy their short term liabilities.
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.
examples of internal data include current interest rates, housing market status, job market status, local cost of living, and the expected inflation rate.
external data collected in phase 2 of the financial planning process includes all of the following except:
a. information about the business cycle
b. current and prospective interest rates
c. education goals of the family
d. expected rate of increases in the prices of education and medical care
external data might include interest rates, housing trends, equity market outlook and the client’s goals.
for an adequate emergency fund there needs to be cash and cash equivalents of 3 to 6 months of non-discretionary cash flows as to mitigate against the risk of job loss or temporary injury.
for valuation pruposes, balance sheet liabilities should be recorded at their:
a. current outstanding balance
b. fair market value
c. discounted value
d. total amounts of payments to be made.
the housing ratio 1 industry benchmark is less than or equal to 28 percent.
IF LISA purchased a car using 30% cash and 70% debt, her net worth would increase by 30%
the implementation phase is where change really occurs, but may require the use of other professionals other than the financial planner.
important elements when addressing a client
investment assets are those assets that help to maintain the client’s lifestyle
in what order should the steps in the financial planning process occur.
It is very important that assumptions are not used in the financial planning process. the planner must only use facts
janice earns 85,000 working as an administrative assistant in a public company based in new york. the company provides a matching contribution in the 401k plan of .5 up to a maximum contribution of .04 of compensation. her 401k plan account had 20,000 in it at teh beginning of the year. she contributed 5000 to the plan this year and the employer made the matching contribution before year end. the ending balance of the account is 30,000. what is her return on her investments this year for the 401k account.
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?
Lisa cooper recently came to your office for her second appointment after receiving your engagement letter. During the meeting you collect several documents from her including her prior year tax returns, estate planning documents, and investment statements and history. which of the following is the next step in the financial planning process ?
list some important elements of a financial planning engagement letter.
long term goal planning includes emergency funding. financial security planning, education planning, lump sum purchase planning, and legacy planning.
long term liabilities represent client financial obligations that are owed to creditors beyond the next 12 months.
main categories listed on the income statement include income, savings contributions, assets, and expenses.
net discretionary cash flow represents the amount of cash flow still available after all savings, expenses, and taxes have been paid.
Net worth represents the personal equity that the individual has in his assets and can never be less than zero.
a new automobile loan for 60 months is an example of a long term liability
once the implementation of the financial plan is completed, the engagement is over and there are no further steps. True or false?
one of the benefits of using a professional financial planner is that a financial planner is subjective and knowledgeable.
personal financial planning is the comprehensive process of formulating implementing and monitoring financial decisions that guide the client to achieve financial goals.
the principal but not the interest to be paid this year on a 30 year mortgage is properly classified on the statemetn of financial position as a current liability.
qualitive 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.
the quality of debt assessment is based on the comparison of the term of the debt on an asset and the useful life of the asset
ratio analysis is te process of calculating financial ratios that are compared to example benchmarks for meaningful interpretation of the client’s actual financial status.
Roger and Julie are married. roger is a police officer and earns 50,000 per year. he contributes .1 of his salary to his retirement plan. his employer also also makes a .05 match contribution. julie stays at home with their children and contributes 5000 to an ira. what is their total saving rate.
Samantha has the following transaction:
1. she purchases 5000 worth of a mutual fund with cash from her savings account.
2. she spends 6000 on a vacation with cash from her money market account
3. she spends 10,000 on new furniture, and uses her credit card to make the purchase.
the savings rate benchmark is client goal oriented, while the investment assets to gross pay benchmark is client age dependent.
a savings rate between 10 and 13 % of one’s gross pay is almost always sufficient to meet most financial goals.
the savings rate calculation includes reinvestment and the employer match.
the savings rate is measured to help clients achieve long term goals including retirement funding, education funding, lump sum expenditures, and legacy plans.
steve stein, a local CFP practitioner, recently met with one of his new clients, Merrell. during the course of the meeting Steve did the following things:
steve was late by 10 minutes
in order to establish Merrell’s confidence in him, Steve told Merrel the names of several well-known clients that currently do business with him.
steve asked Merrell several questions regarding merrell’s family situation, hobbies, and activities.
which of these activities is considered inappropriate?
to obtain a loan, either the housing ratio 1 or the housing ratio 2 must be okay, not both.
Unpaid taxes are an example of a long term liability
vertical analysis is a tool for financial statement analysis using a common size comparison of a statement’s line items
What are examples of external data items required as part of the “gather client data” part of the financial planning process?
What are examples of internal data items required as part of hte “gather client data” part of the financial planning process?
what are some of the benefits a client receives from choosing to use a professional financial planner?
what is net discretionary cash flow?
what is personal financial planning
when calculating the savings rate for a family, any contributions to retirement made by the employer should be included.
when defining the obligation and responsibility of each party
which of hte following statemetns concerning the valuation of assets on the balance sheet is correct?
which of the following is most likely not classified as an investment amount on the statement financial position.
a. cash value of permanent life insurance
b. valuable antique furniture
c. a 529 plan for education
d. the vested portion of a pension plan
which of the following is not considered a critical element of an engagement letter?
which of the following is true?
a. debt ratios measure the ability to meet short term obligations.
b. liquidity ratios indicate how well a client manages debt.
c. Ratios for financial security determine the progress that the client is making toward achieving short term goals
d. performance ratios determine the adequacy of returns on investments given the risks taken
which of the following would not be considered an investment asset?
a. cash value in life insurance
b. a money market account
c. a brokerage account
d. a 401 k plan
which of the following would not generally be considered a short-term liability?
a. an automobile loan
b. credit card bills
c. medical expenses
d. unpaid taxes
your client jed, engaged you to help him with his financial situation. during the course of your meetings you sold jed a 1 million life insurance policy. which part of the financial planning process were you engaged in?
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?
An adviser always inquires into her clients’ investment objectives, financial situations, and needs. The investment adviser is:
A) obtaining the information required to fulfill her professional obligation regarding suitability.
B) determining whether she has any inherent conflicts of interest with her clients.
C) violating her ethical obligation regarding confidentiality of client information.
D) giving herself an unethical advantage regarding how much the client can afford to spend on an advisory fee.
An agent is assisting a client in opening an account who refuses to provide his net worth and annual income. The agent should:
A) proceed with opening the account.
B) refuse to open the account.
C) seek permission to consult with the client’s fiduciary team including accountants and attorneys to obtain the financial information.
D) consult a registered principal of the firm to determine its policy on opening an account when the customer refuses to provide financial information.
Allison recently inherited $750,000 from a distant relative. Her investment adviser representative, John, suggests that since these funds are a windfall, Allison should invest them in several different investments that carry higher exposure to risk than the rest of Allison’s portfolio. John informs her that this type of diversification is an important objective for someone with a large portfolio of value and income securities. Allison has always had a buy-and-hold attitude toward investing and her undergraduate degree in finance has reinforced his belief. The most suitable action for John to take under these circumstances would be to:
A) place the funds in a money market fund.
B) explain the benefits and risks if Allison diversifies her portfolio with the addition of new securities that bear higher risks with returns that are not closely correlated with her present portfolio.
C) purchase investments that closely mirror Allison’s current portfolio.
D) purchase long-term investment-grade bonds.
As part of your annual review for clients, you perform a net worth computation. You have computed a specific client’s net worth at $500,000. This client calls you and asks what his net worth will be after withdrawing $4,000 from his savings account to pay off credit cards, taking another $5,000 to deposit to his IRA and buying a $25,000 home theater system using store credit. You would respond that the client’s net worth is now:
A) $466,000.00
B) $475,000.00
C) $491,000.00
D) $500,000.00
Assets that might be found on a family balance sheet include:
car loan.
gold watch.
Keogh plan.
salary.
A) I and II.
B) I and IV.
C) III and IV.
D) II and III.
A client profile is not complete without a family income statement. A typical one would include:
dividends.
credit card debt.
autos.
mortgage interest.
A) II and III.
B) III and IV.
C) I and IV.
D) I and II.
An individual’s net worth is:
A) the difference between the individual’s assets and the individual’s liabilities.
B) best determined by examining the individual’s personal income statement.
C) largely irrelevant in identifying the individual’s investment objectives.
D) another term for discretionary income.
In making suitable investment recommendations, the least significant element would be the client’s:
A) death and disability needs.
B) current income.
C) educational level.
D) retirement needs.
In order to determine the availability of funds for continuous investment, an IAR should prepare a statement of cash flows for her clients. When prepared for the family, this cash flow statement would include all of the following items EXCEPT:
A) taxes.
B) assets.
C) salary.
D) expenses.
An investment adviser representative is meeting with a potential advisory client. Among the items of information the IAR needs to obtain in order to develop the proper plan are the prospect’s:
anticipated number of years until retirement.
location of current bank and brokerage accounts.
current savings and investments.
college alma mater.
A) III and IV.
B) I and III.
C) I and II.
D) II and IV.
John and Jane have a net worth of $20,000 and total assets of $150,000. If their revolving credit and unpaid bills totals $8,000, how much are their total liabilities?
A) $150,000.
B) $130,000.
C) $122,000.
D) $138,000.
One respect in which an investment adviser differs from an agent for a broker/dealer is that of fiduciary responsibility to the client. Therefore, the IA will have greater concerns about various needs and attitudes of the client when making recommendations. Included in those concerns would be the client’s:
expectation of rewards.
emotional risk tolerance.
type of retirement plan.
time horizon.
A) II and IV.
B) I and II.
C) I and IV.
D) I, II and IV.
**The Jones family has scheduled an initial visit with a financial planner. Mr. Jones has an annual salary of $70,000 and this is their first attempt at financial planning. Which of the following should be the first step taken by the financial planner?
A) Establish an emergency fund.
B) Set goals and dates for reaching them.
C) Pay off credit card debt.
D) Determine a reasonable fee for designing the plan.
The three parts of a family balance sheet are:
A) assets, liabilities, and net worth.
B) income, liabilities, and net worth.
C) assets, expenditures, and balance.
D) income, liabilities, and balance.
What is among the most important nonfinancial considerations in determining the suitability of investments for a client?
A) Client’s income needs.
B) Assets under management.
C) Tolerance for risk.
D) Rate of interest on Treasury bills.
What is the net worth of a customer with the following personal balance sheet?
Cash $20,000.
Municipal bonds $75,000.
401(k) account value $150,000.
Salary $80,000 per year.
Cars $30,000.
Home $250,000.
Miscellaneous (jewelry, etc.) $50,000.
Personal loan $10,000.
Car loan $20,000.
Mortgage $150,000.
Monthly mortgage payment $1,500.
A) $245,000.
B) $473,500.
C) $395,000.
D) $95,000.
When making a customer profile, one of the documents created is a balance sheet. Among other items, your client’s balance sheet would include:
A) salary or wages.
B) assets.
C) interest expense.
D) accumulated depreciation.
When preparing a client profile, it is prudent to investigate the prospect’s non-financial considerations. Included would be that client’s:
attitudes.
demographics.
experience with investments.
values.
A) II and IV.
B) I and III.
C) I, II, III and IV.
D) I, II and IV.
Which of the following items is NOT necessary to establish before helping a client open an investment account?
A) Emergency fund.
B) Adequate life insurance.
C) Established short- and long-term investment goals.
D) Zero balance on all credit cards.
