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.

Accepted Answer

This is because the interest rate on the loan is higher than the return on the investment, so paying off the loan faster will save more money in the long run.

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.

Accepted Answer

Budgeting helps you plan and track your income and expenses so that you can allocate your money towards your goals, which may include investing in assets. By forecasting your income and expenses, you can determine how much disposable income you will have at the end of each month, which can then be used to invest and grow your wealth.

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.

Accepted Answer

Regular review of a financial plan is important to ensure all components are working together to achieve the desired goals.

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.

Accepted Answer

The Lifelong Learning plan allows individuals to withdraw funds from their RRSP without incurring full tax consequences, specifically for the purpose of furthering their education. There is no other way to access RRSP funds for this purpose without paying taxes on the withdrawal.

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.

Accepted Answer

When you finance an asset, you may have to make regular payments towards it, which could limit the amount of cash you have available for other goals, such as saving for emergencies or investing for retirement.

Question 6

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

Accepted Answer

Insurance helps protect your assets and mitigate financial losses, which can ultimately have a positive impact on your net worth in the long term.

Question 7

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

Accepted Answer

A will is an essential part of a financial plan as it ensures that an individual's assets are distributed according to their wishes after their death. Without a will, the distribution of assets will be determined by the laws of the state in which they reside, which may not align with their preferences.

Question 8

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

Accepted Answer

It is important to prioritize having enough cash reserves and insurance in place before making investments, as it serves as a safety net and helps manage financial risk.

Question 9

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

Accepted Answer

Large, well-known firms are often more stable and established in the market, which typically results in lower risk and lower returns compared to growth companies that are often riskier but with higher potential for returns.

Question 10

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

Accepted Answer

As life circumstances change, such as a new job, marriage, or children, financial goals and priorities may shift, and thus the financial plan should be reviewed and revised accordingly.

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.

Accepted Answer

Keeping too much money in liquid assets can hinder the potential for higher returns on other investments. By maintaining just enough for immediate liquidity needs, investors can maximize their overall portfolio returns.

Question 12

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

Accepted Answer

This is a commonly accepted notion in the world of finance. Small firms are generally considered riskier investments compared to their larger counterparts as they have limited resources and are more vulnerable to market fluctuations. Additionally, stocks of small firms might not have as much trading volume and might be difficult to sell quickly, leading to lower liquidity.

Question 13

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

Accepted Answer

Even in the high-tech age, it is important to maintain physical or digital copies of important documents and leave instructions on their location for easy access in case of emergencies. Technology can fail or be compromised, so having a backup plan is always a good idea.

Question 14

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

Accepted Answer

Positive cash flows refer to having more money coming in than going out. This excess of income can then be allocated towards savings or retirement. Therefore, having positive cash flows is an essential requirement for budgeting for savings or retirement.

Question 15

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

Accepted Answer

A power of attorney allows someone to make decisions on your behalf, but it does not guarantee the preservation of your net worth. The appointed person must act in your best interest, but financial outcomes can still vary.

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.

Accepted Answer

The Home Buyers' Plan (HBP) and Lifelong Learning Plan (LLP) allow for tax-free withdrawals from an RRSP, but withdrawals from a Registered Retirement Income Fund (RRIF) are taxable. However, the statement overlooks the fact that RRIF withdrawals are indeed subject to taxation, making the assertion that there are only three ways to withdraw funds tax-free incorrect.

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.

Accepted Answer

It's usually wise to pay off high-interest credit card debt first before starting to save for an emergency fund. The interest on the credit card balance will likely be higher than any interest earned on the savings, so paying it off will save more money in the long run.

Question 18

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

Accepted Answer

Budgeting decisions require deciding how to allocate finite resources, which often involves weighing the benefits of spending money in the present versus saving or investing for the future. Therefore, budgeting decisions do 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.

Accepted Answer

Insurance is meant to protect you from unexpected events that may happen in the future. While the likelihood of an event occurring may affect the cost of the insurance premium, it does not mean that insurance is unnecessary. It is always better to be prepared and protected in case something does 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.

Accepted Answer

While a durable power of attorney can be a useful tool for assigning someone to make financial decisions on behalf of the grantor, it is not the only option once someone has been deemed incompetent. Other options may include a court-appointed guardian or conservator.

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