©2012, College for Financial Planning, all rights reserved.

Final Review Questions

Foundations In Financial PlanningSM Professional Education Program

Question 1

Mary identified a list of goals that were stated in fairly broad, somewhat fuzzy terms. The financial planner's job is to a. prioritize the goals in light of the

client's available resources. b. make decisions for the client based on

his or her goals.c. approve the goals that make the most

sense for the client. d. turn the goals into well-defined

statements.

Question 2

Of the following steps, what is the usual sequence in the financial planning process? I. implementing the financial planning

recommendations II. analyzing the client's financial statusIII. gathering data IV. defining the client/planner relationshipV. developing financial planning

recommendationsI. III, V, IV, II, and I II. IV, III, II, V, and I III. IV, V, III, I, and II IV. V, III, IV, II, and I

Question 3

Which of the following items are included in a client's statement of financial position (balance sheet)? I. mortgage balanceII. purchase price of stockIII. vested pension benefits IV. car payment

a. I and III onlyb. I and IV onlyc. II and III onlyd. II and IV only

Question 4 Fact Chart

Barbara Conway has the following assets and liabilities as of December 31 last year.

Residence purchase price: $350,000market value: $300,000original mortgage: $280,000balance: $250,000

Automobile purchase price: $28,000market value: $10,000

Credit card balance $1,900

Checking balance $2,200

Personal property $25,000 value

Question 4

What is Barbara's net worth as of December 31?a. $78,100 b. $85,300 c. $86,200 d. $119,700

Question 5

The debt-to-income ratio is equal to annual debt repayments divided by which one of the following?a. total expensesb. total assetsc. gross incomed. take-home pay

Question 6

Which one of the following is an example of open-end credit?a. car loanb. installment loanc. bank credit cardd. home equity loan

Question 7

Which of the following are primary considerations in determining how much debt is acceptable? I. the amount of the total debt loadII. the terms of the debt contractIII. the monthly debt repayment

a. I and II only b. I and III only c. II and III only d. I, II, and III

Question 8

Which one of the following statements concerning rate of return assumptions is true?a. A high rate of return assumption means a

goal will take more time to be achieved.b. A low rate of return assumption will cause

a planner to recommend fewer dollars to be invested to achieve a goal.

c. A high rate of return assumption will cause a planner to recommend fewer dollars to be invested to achieve a goal.

d. A low rate of return assumption means a goal will take less time to be achieved.

Question 9

Trixie Lowman plans to invest $5,000 in an individual retirement account (IRA) at the end of each of the next 10 years. If the investment vehicle selected for the IRA yields annual interest of 6%, what will be the value of Trixie's IRA in 10 years? (Round the answer to the nearest dollar.)a. $36,800 b. $39,008 c. $65,904 d. $69,858

Question 10

DeDe Doughtry deposited $20,000 in an account earning 8% annual interest, compounded quarterly. What will be the value of the account if the money is left to accumulate for 12 years? (Round the answer to the nearest dollar.)a. $25,365 b. $51,741c. $268,242 d. $804,212

Question 11

Nadine Neff wants to invest to build a retirement fund. She can deposit $255,000 in an account with a 10% annual rate of return compounded semi-annually. Approximately how many years will Nadine have to wait for the account to be worth $1,000,000? (Round answer to the nearest number of years.)a. 6 years b. 14 years c. 24 years d. 55 years

Question 12

Ruby Rubble would like to accumulate $20,000 for new furniture. She can invest $450 at the beginning of each month toward the purchase in an account earning 6% annual interest, compounded monthly. Approximately how many months will it take for her to accumulate $20,000? (Round the answer to the nearest number of months.)a. 15 months b. 30 months c. 40 months d. 47 months

Question 13

"Purchasing power risk" is related toa. a company's financial strength.b. prevailing interest rates. c. open market conditions. d. the rate of inflation.

Question 14

Your client thinks that growth stocks will outperform cyclical stocks over the next 12 months and has instructed you to change his asset allocation accordingly. Which one of the following asset allocation approaches is your client using?a. buy and hold b. tactical asset allocationc. strategic asset allocation d. passive asset allocation

Question 15

An investor who believes strongly in fundamental stock analysis would purchase information about which one of the following?a. market averagesb. supply and demand for a stock c. an industryd. an index

Question 16

An investment firm using technical analysis would employ which of the following indicators? I. business cyclesII. trading volumeIII. advances/declines IV. market averages

a. I and II only b. III and IV only c. I, II, and III only d. II, III, and IV only

Question 17

Dollar-cost averaging has which of the following characteristics? I. When prices go down, more shares are

purchased. II. This strategy protects an investor against a

loss. III. When prices go up, fewer shares are

purchased.IV. This strategy guarantees a profit over the

long term. a. I and III only b. I and IV only c. II and III only d. II and IV only

Question 18

When investing in closed-end investment funds,a. commissions are not charged on

transactions. b. shares are bought and sold in the

market just like the stock of corporations.

c. capitalization is not fixed. d. share prices are based solely upon the

fund's net asset value.

Question 19

In order to raise capital without giving up ownership of the firm, a company would issuea. stock. b. preferred stock. c. warrants.d. bonds.

Question 20

The price/earnings (P/E) ratio for XYZ Corp has ranged between 13 and 18 over the past nine months. In the last two weeks, the P/E ratio has increased to 26. All other things held constant, which one of the following statements explains this situation?a. The ratio increased because analysts now

expect earnings to increase. b. The ratio increased because analysts now

expect the stock price to decrease. c. The stock's price has increased, and it may

be a good time to sell.d. The stock's price has decreased, and it may

be a good time to buy.

Question 21

A preferred stock dividend usually isa. variable and noncumulative.b. variable and cumulative.c. fixed and noncumulative.d. fixed and cumulative.

Question 22

Par value is a bond’s valuea. when called. b. at maturity. c. when issued.d. at purchase.

Question 23

Treasury bills exhibit which one of the following characteristics?a. low liquidity, high marketability b. moderate liquidity, moderate

marketability c. high liquidity, low marketabilityd. high liquidity, high marketability

Question 24

Wilma asked Betty to explain the personal exemptions on her income tax return. Betty explained that a personal exemption essentially isa. an adjustment for the effects of inflation

as measured by the consumer price index.

b. an amount subtracted from adjusted gross income to arrive at taxable income.

c. the percentage of tax payable on the last dollar of taxable income.

d. an itemized deduction.

Question 25

Which of the following is an example of postponing taxation? I. investing in certificates of deposit II. investing in qualified municipal bondsIII. investing in Series EE bondsIV. investing in an IRA

a. I and II only b. I and III only c. II and IV only d. III and IV only

Question 26

One benefit of a simplified employee pension (SEP) for the participant is thata. benefits are always 100% vested.b. loans are permitted.c. no limits are placed on income taken

into account for contribution purposes. d. early withdrawals are permitted

without penalties.

Question 27

Which one of the following is a characteristic of a money purchase pension plan?a. The maximum allowable annual contribution

is either $250,000 or 100% of the employee's average annual compensation, whichever is less.

b. Distributions must begin no earlier than April 1 of the year the participant attains full retirement age.

c. Distributions are taxed as capital gains. d. The maximum allowable annual contribution

is either $50,000 or 25% of the participant's annual compensation, whichever is less.

Question 28

Barb Conway, who works for a nonprofit organization, participates in her employer's retirement plan. She has already taken advantage of the "age 50 catch-up" contribution. Now, she plans to utilize the retirement plan's special "catch-up provision" contribution option. What type of retirement plan is her employer offering?a. a SEP-IRA b. a 401(k) plan c. a 403(b) plan d. a defined benefit plan

Question 29

A 401(k) plan loana. is treated as a taxable distribution if it

is not repaid.b. may be forgiven, if an employee

terminates employment. c. may be repaid with before-tax elective

deferrals.d. is subject to the early withdrawal

penalty.

Question 30

Mary Lou, age 62, wants to take a distribution from her IRA account. Which one of the following describes the tax consequences of her distribution?a. It will be subject to ordinary income tax

and a 10% penaltyb. It will be subject to ordinary income tax

and a 20% penaltyc. It will be subject to ordinary income taxd. It will not be subject to any tax of any

type

Question 31

Janet Driscoll works outside the home, and her two young children regularly attend a day care center. She wants to transfer the risk of ongoing medical costs if her children become ill. Which one of the following recommendations makes the most sense for Janet? a. remove the children from day care b. immunize the children against common

diseases c. suggest the day care facility maintain a

"healthy" area separate from an "ill" area d. enroll the children in her health care plan

Question 32

A bilateral contract is an agreement a. that is not enforceable. b. is only enforceable when certain

conditions have been violated.c. in which all parties can be forced to

comply with the contract in a court of law.

d. in which one party can be forced to comply with the contract in a court of law.

Question 33

Which one of the following automobile policy coverages will pay an insured the amount he or she should have been able to collect from another driver in the event of an accident? a. collisionb. comprehensive c. uninsured motoristd. broad form

Question 34

During the contestable period in a life insurance policy, a. the insurer may deny reinstatement of

a lapsed policy. b. the insurer may deny a claim because

of false information supplied by the insured.

c. the insured may terminate the policy contract and receive a refund of premiums paid.

d. the beneficiary may dispute the benefit amount payable through the contract.

Question 35

With major medical insurance coverage a. the policy pays beginning with the first

dollar of expense.b. the policy pays the full amount of

expense up to the breakpoint. c. the insured and insurer share expenses

from the breakpoint to the maximum lifetime benefit.

d. the insured normally must satisfy a deductible before coverage begins.

Question 36

When Andrew Albertson tried to qualify for long-term care (LTC) coverage, he had to use up all the funds from his investment accounts, as well as sell some rental property he owned. Which one of the following coverages is he trying to obtain? a. Medicaid b. Medicare Part Ac. Medicare Part Bd. Medigap

Question 37

Justin Lowman set up a trust with WealthRidge Corporation, which manages the property of the trust. Maureen Michel receives the income from assets included in the trust. Justin is the a. grantor.b. trustee. c. fiduciary.d. beneficiary.

Question 38

A will can be used to a. circumvent spousal elective share

laws.b. avoid application of state intestacy

laws.c. change a life insurance beneficiary

designation.d. create an inter vivos trust.

Question 39

If Jennifer Jones retires at age 62, her Social Security retirement payments are a. reduced throughout her retirement. b. taxable regardless of her income level

or age.c. not taxable until age 66 (full retirement

age).d. increased once she reaches age 66.

Question 40

The gift tax annual exclusion allows a donor to make tax-free gifts annually up to a. a maximum total of $13,000. b. a maximum total of $26,000.c. $13,000 to each of an unlimited

number of individuals.d. $26,000 to each of an unlimited

number of individuals.

©2012, College for Financial Planning, all rights reserved.

Final Review QuestionsEnd of Slides

Foundations In Financial PlanningSM Professional Education Program