Question 1

Which of the following is also known as the back-end ratio?&#10;A) ARM Ratio.&#10;B) Debt-to-Income Ratio.&#10;C) PITI Ratio.&#10;D) Savings Ratio.

Accepted Answer

The Debt-to-Income Ratio is also known as the back-end ratio, as it includes all of the borrower's monthly debt payments in addition to their housing expenses (which are calculated in the front-end ratio).

Question 2

Homes tend to be a / an _____ asset.&#10;A) Appreciating.&#10;B) Depreciating.&#10;C) Investment.&#10;D) Retirement.

Accepted Answer

Homes tend to appreciate in value over time, especially in desirable areas with growing demand. This makes them a valuable asset for homeowners, as they can potentially sell their home for a higher price than what they paid for it.

Question 3

A home equity lines of credit is a line of credit (HELOC) extended to a _____ in exchange for collateral. The limit on the deductibility of a HELOC for the construction or improvement to the home is _____.

A) Banker / $50,000.
B) Homeowner / $50,000.
C) Banker / $100,000.
D) Homeowner / $100,000.

Homeowner / $100,000.

Accepted Answer

A home equity line of credit (HELOC) is extended to a homeowner, not a banker, and the limit on the deductibility of interest for a HELOC used for the construction or improvement of the home is $100,000.

Question 4

Which of the following is not an assumption addressed in the PFP process?&#10;A) Client assumptions.&#10;B) Inflation assumptions.&#10;C) Plyometric assumptions.&#10;D) Tax rate assumptions.

Accepted Answer

The PFP (Personal Financial Planning) process addresses various assumptions about a client's financial situation, goals, and market variables such as inflation and taxes. However, plyometric assumptions are not relevant to financial planning, as plyometrics are a form of exercise training.

Question 5

Which of the following are examples of variable expenses?
I. Automobile maintenance.
II. Automobile loan payments.
III. Home maintenance.
IV. Utilities.

A) I, II.
B) II, III.
C) I, III, IV.
D) II, III, IV.

Accepted Answer

Variable expenses are costs that can vary in amount from month to month, such as automobile maintenance, home maintenance, and utilities. Automobile loan payments are typically fixed expenses, as they remain the same each month.

Question 6

Which of the following types of Bankruptcy results in a complete discharge of debts?&#10;A) Chapter 3.&#10;B) Chapter 7.&#10;C) Chapter 11.&#10;D) Chapter 13.

Accepted Answer

Chapter 7 bankruptcy results in a complete discharge of debts.

Question 7

Which of the following is not an example of gross income?&#10;A) Alimony.&#10;B) Employment (salary/wages).&#10;C) Contributions to a qualified plan.&#10;D) Investment income received.

Accepted Answer

Contributions to a qualified plan are not considered as gross income as they are made with pre-tax dollars and are not taxable until they are withdrawn at a later time. Alimony, employment income, and investment income are all examples of gross income.

Question 8

The PSFP is an essential component of personal financial planning because it helps monitor a client's progress&#10;A) ACH.&#10;B) PITI.&#10;C) PSFP.&#10;D) SSPFPS, 1.

Accepted Answer

PSFP stands for Personal Financial Statement and Planning, which involves tracking a person's income, expenses, assets, and liabilities over time. By regularly updating and reviewing the PSFP, clients can see their progress towards achieving their financial goals and adjust their plan accordingly. This makes it an essential component of personal financial planning. ACH (Automated Clearing House) and PITI (Principal, Interest, Taxes, and Insurance) are not directly related to tracking progress in personal financial planning, and the option D is not a recognized term in financial planning.

Deck 4: Fundamentals of Personal Financial Planning