Question 1

Which of the following goals would be measurable?

Accepted Answer

Saving $100 per month to create a $4000 emergency fund is measurable as it includes a specific amount to be saved within a specific time period. The other options do not have specific measurements attached to them.

Question 2

At which life stage ages should a person start saving and retirement planning?

Accepted Answer

It is advisable to start saving and retirement planning as early as possible, preferably before the age of 30. Starting early allows for compounded interest and more time to build up a sufficient nest egg. Waiting until later in life, such as ages 45 to 59, may require larger contributions and sacrifices in order to catch up on savings. Waiting until age 55 to 60 may also mean a person has missed out on years of potential compound interest and may not have sufficient time to build up their retirement savings.

Question 3

A type of insurance that can be used to protect assets is

Accepted Answer

Home insurance can protect assets such as your home, personal belongings, and even liability against accidents that take place on your property. It is a crucial type of insurance to protect your assets from unexpected events such as fires, storms, or theft.

Question 4

Goals with a time frame of between one and five years are classified as

Accepted Answer

Goals with a time frame of between one and five years are often referred to as medium-term goals. Short-term goals typically have a time frame of less than one year, while long-term goals usually span more than five years. Unrealistic goals are those that are impossible to achieve within a reasonable timeframe.

Question 5

Which of the following is an example of money management?

Accepted Answer

Money management involves handling your finances wisely, and putting money in a savings account is a direct action of managing your money by saving it.

Question 6

Under which component of a financial plan would the following decision fall; determining how much you can afford to borrow, the length of the loan, and appropriate interest rate, when considering a large expenditure?

Accepted Answer

Determining how much you can afford to borrow, the length of the loan and appropriate interest rate are all part of the Financing component of a financial plan. This component involves understanding the different financing options available to you, assessing your ability to repay debts, and selecting the best financing option based on your needs and goals.

Question 7

The act of determining how wealth will be distributed before or upon death is

Accepted Answer

Estate planning involves creating a plan for the distribution of wealth and assets after death. Retirement planning focuses on saving and strategizing for retirement, but does not necessarily include planning for the distribution of wealth after death. Additionally, while not everyone needs complex estate planning, it is still a good practice to at least have a basic will in place to ensure assets are distributed according to one's wishes. "Disposition planning" is not a commonly recognized term in the context of wealth distribution.

Question 8

Retirement planning should take place

Accepted Answer

Retirement planning should take place well before you retire to ensure that you have enough money saved and invested to support yourself during retirement. Starting early allows you to take advantage of compound interest and make adjustments to your savings plan if needed.

Question 9

What are the options on whether to or how to protect against risk?

Accepted Answer

The options to protect against risk are to avoid it, reduce it, accept it, or share it. Avoiding it means not engaging in the activity that presents the risk. Reducing it means taking steps to minimize the likelihood or impact of the risk, such as wearing a seatbelt when driving. Accepting it means acknowledging that the risk exists and choosing not to take any additional mitigation measures. Sharing it means transferring the risk to someone else, such as through insurance or a contractual agreement. Of these options, the best choice is B because it allows for a range of strategies depending on the specific circumstances and preferences of the individual or organization. Self-insurance is one possible way to share the risk, but it is not the only option. Homeowner, car, life, and health insurance are examples of specific types of insurance that can be used to transfer the risk. However, these are not the only ways to protect against risk and may not be appropriate or necessary in all situations.

Question 10

Estate planning results in

Accepted Answer

Estate planning is the process of arranging for the distribution of an individual's estate after their death. One of the main goals of estate planning is to protect the individual's wealth against unnecessary taxes. This can be achieved through various strategies such as setting up trusts and making gifts. However, it is not possible to completely shelter one's wealth against all taxes, as there are certain taxes such as estate taxes that may be applicable. Estate planning also helps to ensure that the individual's assets are distributed according to their wishes and not according to intestacy laws, which apply when an individual dies without a valid will. While estate planning can help minimize controversy in a family, it cannot guarantee the complete elimination of all disagreements.

Question 11

Which of the following would be the primary objective of investing?

Accepted Answer

The primary objective of investing is to earn a return on your investment. While understanding your risk tolerance, maintaining liquidity, and choosing investment types are all important considerations when investing, the ultimate goal is to generate a return on your investment.

Question 12

Cash flows are affected by financial planning decisions. Which of the following is correct?

Accepted Answer

Cash outflows refer to the money that is spent or goes out of your account. Car payments you make are a direct cash outflow as you are spending money to pay for the car loan. Option B and C are incorrect as investments in stocks are cash outflows as you are spending money to purchase the stock, and routine monthly expenses are also cash outflows as you are spending money on necessary expenses. Option D is incorrect as income is a cash inflow, as it is money that comes into your account.

Question 13

Usually, people should first consider having a will and power of attorney in which life stage of financial planning?

Accepted Answer

The answer of Usually, people should first consider having a...

Question 14

Cash flows are affected by financial planning decisions. Which of the following is not correct?

Accepted Answer

Buying items on sale is not a cash inflow, it is a cash outflow as you are spending money to buy something at a discounted price. The other options are correct - insurance payments and investing in stock are cash outflows, and income is a cash inflow.

Question 15

John is in the early earnings life stage of financial planning. Which of the following is most important for John to address?

Accepted Answer

The early earnings life stage is characterized by the start of a career and the accumulation of savings. Therefore, the most important thing for John to address would be the pay yourself first principle. This means prioritizing saving a portion of his income before spending on other expenses. This habit will establish a foundation for future financial goals and enable John to achieve his long-term goals. While the other options may also be important, establishing a savings habit is the most crucial aspect of financial planning in this stage of life.

Question 16

Which of the following is a credit management decision?

Accepted Answer

Obtaining a student loan to attend college or university is a credit management decision because it involves borrowing money and managing the repayments over time. The other options are not credit management decisions as they do not involve borrowing or managing debt.

Question 17

Potential investments include all of the following instruments except

Accepted Answer

Lottery tickets are not considered a viable investment option due to their high uncertainty and low probability of generating significant returns. The other options, such as stocks, bonds, mutual funds, and real estate, can offer more stable and potentially profitable returns for investors.

Question 18

By establishing high and unrealistic financial goals, you will probably

Accepted Answer

Setting high and unrealistic financial goals can lead to discouragement and loss of interest when those goals are not met, as they may seem unattainable.

Question 19

In the early earnings life stage of financial planning, which is the most important to address?

Accepted Answer

In the early earnings life stage, balancing savings goals is crucial as it sets the foundation for future financial stability and growth.

Question 20

Which of the following is included in risk management?

Accepted Answer

Risk management involves identifying potential risks to your financial well-being and taking steps to mitigate or minimize those risks. Insurance planning is a key component of risk management, as it helps protect your assets and financial security in the event of unexpected events such as illness, injury, or accidents. Investing in the stock market or determining your risk tolerance are not directly related to risk management, while limiting the size of your mortgage may be a component of financial planning but does not necessarily address risk management specifically.

Quiz 1: Overview of a Financial Plan