Deck 16: Synthesis of Financial Planning - Integrating the Components of a Financial Plan

Question 1

It would be advisable to make additional loan payments if the interest rate is eight percent,rather than investing in short-term interest-bearing securities offering four percent.

Answer 1

True

Question 2

Budgeting allows you to forecast how much money you will have at the end of each month so you can determine how much you will be able to invest in assets.

Answer 2

True

Question 3

Regularly reviewing your financial plan is the only way to make sure that all of its components are properly integrated to meet your goals.

Answer 3

True

Question 4

If you want to use funds from your RRSP for furthering your education,the Lifelong Learning plan is the only way to get at that money without paying full tax on it.

Question 5

Financing may be good for obtaining assets right away but also may end up restricting your cash flow to save for other goals.

Question 6

Even though insurance costs reduce your cash flow,insurance could have a larger impact on your net worth than its cost.

Question 7

No financial plan is complete if it does not include a will.

Question 8

You should make investments only after you have sufficient liquidity and sufficient insurance to protect your existing assets.

Question 9

Investing in stocks of large,well-known firms typically offer lower return and risk than stocks of growth companies.

Question 10

As time passes,your financial position and goals are likely to change,so you will need to revise your financial plan.

Question 11

You should maintain just enough money in liquid assets to satisfy your liquidity needs.Then you can earn a higher return on your other assets.

Question 12

Stocks of small firms are more volatile than those of large firms and might not be liquid.

Question 13

Maintaining all documents in a safe place and leaving instructions on their location is not necessary in the high-tech age.

Question 14

To budget for savings or retirement,you need positive cash flows.

Question 15

Having a power of attorney will guarantee the preservation of your net worth should you become incapacitated.

Question 16

There are only three ways to get funds from your RRSP without paying tax on 100 percent of the withdrawal: the HBP,LLP and RRIF.

Question 17

If Jack has a $3000 credit card balance he is paying off,it would be financially advisable to pay it off before starting to save $300 per month in his emergency fund.

Question 18

Budgeting decisions involve a trade-off between spending today and allocating funds for the future.

Question 19

You do not need insurance for events which are unlikely to happen.

Question 20

Once someone is deemed incompetent,the only way you can make arrangements to look after their financial decisions is to complete a durable power of attorney.

Question 21

Normally,you should use all of your liquid assets to pay off your loan.

Question 22

Which of the following is True?

A)You should use all your liquid assets to pay off loans when the return on the investments is high.
B)Paying off loans is appropriate when the loan interest rate is high and you have enough liquidity.
C)Paying off loans is wise whenever the loan rate is lower than what you expect to earn on investments.
D)Loan payments will not restrict your cash flow but may prevent you from achieving financial goals.

Question 23

Investing in mutual funds is a conservative investment strategy.

Question 24

Paying off loans rather than making additional investments is appropriate when the expected investment return is higher than the interest rates on loans.

Question 25

Once you have enough assets to last you three years of expenses,it is not advisable to pay for disability insurance.

Question 26

Which of the following statements about insurance is True?

A)The most important things to insure are your fixed assets.
B)Money used to buy insurance is wasted because you cannot invest it.
C)You cannot have too much insurance.
D)It should be given priority before you start investing.

Question 27

Personal financing

A)allows you to make grocery purchases with your credit card.
B)increases your assets overall.
C)enables you to make large purchases.
D)helps increase your ability to save.

Question 28

Monitoring liquidity includes tracking your

A)RRSP balances.
B)emergency funds.
C)TFSA growth stocks.
D)mortgage balance.

Question 29

Which of the following assets will increase your liquidity?

A)A higher balance in your chequing account
B)Growth in the value of your home
C)Cash in your RRSP
D)A defined-contribution pension plan

Question 30

What is the liquidity trade-off?

A)Determining the best liquid assets
B)Having enough liquid assets to cover cash deficiencies one year in advance
C)Maintaining adequate liquidity to avoid borrowing every time you need money
D)Maintaining enough liquid assets to meet obligations and earning a higher return on other assets

Question 31

If you are looking for fast-growth stocks,you should look for stocks that do not pay dividends.

Question 32

The purpose of insurance is to protect your

A)liabilities and expenses.
B)assets and liabilities.
C)assets and net worth.
D)income and expenses.

Question 33

A budget is not intended to help you determine

A)how much money you will have at the end of each month.
B)a plan for spending all of your income on current needs.
C)how much you can allocate for the future.
D)how to prevent excessive spending to achieve financial goals.

Question 34

Some large well-known firms pay no dividends,but most do.

Question 35

Liability insurance provides your beneficiaries with financial support in the event of your death.

Question 36

A disadvantage of paying off your mortgage with all your remaining liquid funds is that

A)you likely make higher interest with your liquid funds.
B)you could incur an unanticipated expense you cannot pay.
C)you might not be able to qualify for another loan.
D)early repayment could damage your credit rating.

Question 37

You must have assets to be able to access financing for large purchases.

Question 38

What is meant by the financing trade-off?

A)Financing is a necessary evil and people today could not live without it.
B)Financing enables people to get what they want faster but encourages greed.
C)Borrowing can slow the growth of your net worth if it is for depreciating assets.
D)Borrowing is an important tool but it can cause budgeting problems.

Question 39

Disability insurance protects your

A)lifestyle.
B)income.
C)health.
D)assets.

Question 40

The first component in creating a financial plan is

A)preparing a budget.
B)setting up a brokerage account.
C)starting an emergency fund.
D)figuring out your goals.

Question 41

Financial documents should be

A)stored on a secure cloud-based Internet site.
B)kept in a safety deposit box or a safe place at your home.
C)kept at your parents' house in their desk.
D)stored on your computer.

Question 42

Key documents for managing personal financing include

A)pension statements.
B)retirement account balances.
C)personal loans,such as automobile loans.
D)Canada Pension Plan calculations.

Question 43

Key documents for managing investments include

A)defined-benefit plan statements.
B)account balances showing the market values of holdings.
C)insurance policies.
D)health insurance certificates.

Question 44

You are 25 years old and saving for an early retirement.Assuming that you have a high risk tolerance,which of the following can best help you reach your goal of retiring early?

A)A bond fund
B)A money market fund
C)A growth fund
D)A dividend fund

Question 45

Which of the following will increase your net worth over time?

A)Leasing a car
B)Renting a house
C)Buying a house
D)Term insurance

Question 46

Which of the following accounts offers tax deferral,tax sheltering,and tax deduction for contributions?

A)Only TFSA
B)RRSP and TFSA
C)Only RRSP
D)RRSP and RESP

Question 47

Which of the following should you do first?

A)Save for retirement
B)Pay off loans
C)Make a budget
D)Purchase insurance

Question 48

Property and casualty insurance protects your

A)home and family.
B)car and home.
C)home and health.
D)home and income.

Question 49

A financial plan should be prepared when you graduate from college or university

A)and carefully followed thereafter without changes.
B)and carefully followed until you retire,when you will no longer need one.
C)and reviewed and adjusted periodically as events such as marriage,job changes,birth of children,and retirement necessitate.
D)as a rough outline,as it will change too often to make anything more detailed feasible.

Question 50

Even average earners can accumulate wealth by

A)spending less than they make.
B)saving more than they make.
C)borrowing to buy what they want.
D)winning the lottery.

Question 51

Compared to the stocks of larger firms,the stocks of smaller firms are

A)less volatile.
B)more volatile.
C)more liquid.
D)safer.

Question 52

To increase your net worth,you should

A)pay off a loan with cash flow.
B)spend all cash remaining in your budget.
C)invest in household assets.
D)buy a luxury car.

Question 53

Which of the following will decrease your net worth?

A)Increase your income
B)Decrease your expenses
C)Increase your assets
D)Increase your liabilities

Question 54

In deciding how much to contribute to your retirement savings,which of the following should you ignore?

A)Anticipated inheritances
B)Other financial goals
C)Liquidity needs
D)Current expenses

Question 55

If you want investment income,which of the following investments should you purchase?

A)Bonds and dividend producing equities
B)Stocks with high betas
C)Growth mutual funds
D)IPOs

Question 56

Which of the following investments achieves the greatest diversification?

A)Ten international stocks
B)A TSX ETF
C)A balanced mutual fund
D)A GIC

Question 57

Which of the following investments reduces your taxable income?

A)Stock investments
B)RRSP contributions
C)RESP contributions
D)TFSA contributions

Question 58

Which of the following increases your net worth?

A)Increasing your retirement savings
B)Starting a pension plan
C)Cashing in an investment to pay off a loan
D)Purchasing a new car

Question 59

The purpose of financial planning is to help do all of the following except

A)set goals.
B)decrease your food expenses.
C)become financially educated.
D)increase your net worth.

Question 60

If you save monthly for retirement,which of the following would be used to determine how much you would ultimately have in your retirement account?

A)Present value of an annuity
B)Future value of an annuity
C)Present value of $1
D)Future value of a lump sum

Question 61

Discuss how financial planning principles will help you solve the following challenges.
a)Getting married sooner than expected
b)Starting a family
c)Having a high-paid job that causes ongoing stress
d)Having to change careers

Question 62

All components of a financial plan start with

A)your financial goals.
B)cost benefit analysis.
C)security planning.
D)budgeting.

Question 63

Trust agreements in financial plans are normally are used for

A)wills.
B)powers of attorney.
C)financial security.
D)estate planning.

Question 64

Withdrawals of interest from a TFSA are

A)tax favoured.
B)taxable.
C)tax-deductible.
D)tax-free.

Question 65

The best schedule for the order of the components of your financial plan would be

A)budgeting and tax planning,managing liquidity,financing large purchases,insurance,investing and estate planning.
B)tax planning,managing liquidity,budgeting,financing large purchases,insurance,investing and estate planning.
C)managing liquidity,budgeting and tax planning,financing large purchases,insurance,investing and estate planning.
D)budgeting and tax planning,financing large purchases,managing liquidity,insurance,investing and estate planning.

Question 66

It is easier to cover monthly loan payments if you select financing with

A)a relatively long term.
B)a relatively short term.
C)a fixed interest rate.
D)a high interest rate.

Question 67

Discuss ten specific measures a risk taker versus risk averse investor may take to protect and maintain their wealth.

Question 68

An example of compounding is

A)buying stocks that do not pay dividends.
B)buying a strip bond.
C)using dividends to pay your cell phone bill.
D)reinvesting dividends to purchase more units.

Question 69

What are four types of financial investment accounts and indicate the likely purposes they would have in your financial plan?

Question 70

Which of the following cannot be protected by property and casualty insurance?

A)Your car
B)Your income
C)Your home
D)Your furniture

Question 71

When considering the goal of funding retirement the best strategy is to

A)rely on getting a job with a good pension plan.
B)ensure that you have enough cash flow to save in an RRSP.
C)rely on CPP and OAS to look after most of your retirement needs.
D)pay off large purchases before opening an RRSP.

Question 72

If you do not have a financial plan,you will not likely be able to

A)retire.
B)afford a vacation.
C)meet your goals.
D)get married.

Question 73

List three types of financing you have studied and an important consideration about each one of them

Question 74

You will know your financial plan is working when

A)the plan has been revised to increase your risk tolerance for improved investment return.
B)your net worth increases each year in step with your goals.
C)you have sufficient capital to meet all of your established goals.
D)you have reached the highest tax bracket.

Question 75

An important consideration regarding applying for a loan is that

A)you may not have a good credit rating unless you have borrowed before.
B)it would be better to simply increase your credit card limit than take out a loan.
C)a longer term is preferred because of the smaller payments.
D)it lets you purchase items now,rather than later,without affecting your budget.

Question 76

Revising a financial plan

A)should only be done in extreme circumstances.
B)may include changing your goals.
C)does not have to be done when you have more cash flow than needed.
D)is not necessary once you retire.

Question 77

Withdrawals from your RRSP account

A)are fully taxed as income.
B)are taxed 20% withholding tax only.
C)are taxed only if withdrawn before age 65.
D)are taxed on the growth of the funds only.