Deck 3: General Principles of Financial Planning

Question 1

Where would a financial planner find a snapshot of an individual's wealth at particular moment in time?

A)Balance Sheet
B)Pro forma Statement
C)Statement of Financial Position
D)Income Statement

Answer 1

Statement of Financial Position

Question 2

How many types of budgeting are there?

A)1
B)2
C)3
D)4

Answer 2

2

Question 3

What is the purpose of the balance sheet?

A)To show cash flow
B)To show solvency and income of the company in the current period
C)To provide information on revenue and expenses
D)To show the gross profit margin
E)To provide a snapshot of the company's financial condition

Answer 3

To provide a snapshot of the company's financial condition

Question 4

Which form of ownership is considered the most advantageous for shorter-termed projects or business ventures?

A)Corporations
B)General partnerships
C)Sole proprietorships
D)Limited liability partnerships or corporations
E)Stock ownership

Question 5

Between the balance sheet and the income statement, which financial statement(s) is/are impacted by depreciation?

A)The balance sheet
B)The income statement
C)Neither is impacted.
D)Both are impacted.
E)There is not enough information to determine the impact.

Question 6

In the statement of owner's equity, owner's equity or capital is calculated using:

A)Gross income
B)The positive or negative cash flow figure from the statement of cash flows
C)Assets
D)Total income from operating activities
E)Net income

Question 7

Retained earnings are revenue of a corporation that is:

A)Not paid out in dividends
B)Paid to shareholders
C)Considered gross profit
D)Shown in a trial balance
E)Issued in stock

Question 8

Another name for an income statement is a:

A)Statement of cash flows
B)Balance sheet
C)Operating statement
D)Statement of owner's equity
E)Profit and loss statement

Question 9

Which of the following choices would appear first under the assets category in a balance sheet?

A)Cash
B)Accounts receivable
C)Vehicles
D)Land
E)It depends. Accounts are usually listed alphabetically.

Question 10

Unearned revenue is considered a/an:

A)Asset
B)Liability
C)Revenue
D)Owner's equity
E)Profit

Question 11

Ken's Canaries shows current assets of $150,000 and current liabilities of $75,000. If Ken uses cash to purchase canaries that will be resold, which is true of his working capital and current ratio?

A)Current ratio increases; working capital does not change.
B)Both remain unchanged.
C)Current ratio increases; working capital decreases.
D)Current ratio does not change; working capital decreases.
E)Both will increase.

Question 12

If you are expecting to move within two years, what would be the best approach if you are looking for a place to live for those two years?

A)Buy a new home
B)Rent a home
C)Move in with in-laws
D)Move in with parents

Question 13

You want to borrow money from a bank and your house is used as a mortgage, which serves as a protection for the bank in case you default on your repayment. In a mortgage loan, the house represents what of the following?

A)A debt.
B)Collateral.
C)An interest from lending the money.
D)A credit risk.

Question 14

In economics, what concept is defined as a manifestation of a small price change causing a rather large change in the amount purchased?

A)Demand Curve
B)Price Elasticity
C)Price Inelasticity
D)Movement

Question 15

In economics, what term explains that higher prices reduce the demand for an item and lower prices increase the demand for an item?

A)Demand Curve
B)Price Elasticity
C)Price Inelasticity
D)Law of Demand

Question 16

In economics, what concept explains higher prices will increase the supply of a good?

A)Law of Supply
B)Price Elasticity
C)Price Inelasticity
D)Law of Demand

Question 17

In monetary policy, who controls the money supply via the required reserve ratio, open market operations, and discount rate?

A)The Internal Revenue Service
B)The Treasury Department
C)The National Bureau of Economics
D)The Federal Reserve

Question 18

In economics, when should an investor avoid interest-sensitive securities and long-term debt instrument that pay fixed amounts of interest?

A)During Inflation
B)During Deflation
C)During Recession
D)During Disinflation

Question 19

When should an investor purchase tangible assets?

A)During Inflation
B)During Deflation
C)During Recession
D)During Disinflation

Question 20

In economics, when does the Federal Reserve put money into circulation and expand the supply of credit?

A)During Inflation
B)During Deflation
C)During Recession
D)During Disinflation

Question 21

In 2007, the nominal Gross Domestic Product (GDP) of a small Asian country was 5% and the real GDP growth was 2%. What was the rate of inflation for this country?

A)3%
B)10and
C)7%

Question 22

A country's national economy has shown an 8% growth over the past 4 years. Before that, the economy moved from recession to stagnation over a period of 10 years. What is this economic fluctuation referred to?

A)business cycle
B)economic forecast
C)growth cycle
D)stagnation cycle

Question 23

Employees at the Jackson factory have been given a substantial income raise of over 5%. As a result, the real income of these employees has risen which lead directly to an increase in the consumption of goods. What is this effect referred to?

A)spending effect
B)thrift effect
C)growth effect
D)income effect

Question 24

Over the past 8 years, the Zimbabwean currency has lost 90% of its value. This is an example of the ____________ effects of inflation on a local economy.

A)retroactive
B)sliding
C)positive
D)negative

Question 25

When calculating unemployment figures in a given population, economists count those:

A)looking for paid work
B)early retirees seeking extra income
C)discouraged after long searches
D)incarcerated in prisons

Question 26

The following are types of unemployment EXCEPT:

A)seasonal
B)structural
C)frictional
D)dynamic

Question 27

A small Latin American country has been running a trade deficit for the past few years. A trade deficit occurs when:

A)a government exports more than it imports
B)a government imports more than it exports
C)a government imports raw goods only
D)a government exports manufactured goods only

Question 28

What type of policy in finance is based off the decisions of the President and Congress?

A)Price Stability Policy
B)Monetary Policy
C)Consumers Policy
D)Fiscal Policy

Question 29

What determines the size and rate of growth of the money supply that affects interest rates?

A)Price Stability Policy
B)Monetary Policy
C)Consumers Policy
D)Fiscal Policy

Question 30

What term presents macroeconomic statistics used by investors?

A)Price Indicators
B)GDP Indicators
C)Economic Indicators
D)Unemployment Indicators

Question 31

What is caused by the decline of general price levels caused by the reduction in the supply of money or credit?

A)Stagflation
B)Deflation
C)Inflation
D)National Indicator

Question 32

What term is defined by slow economic growth, high unemployment, increased prices, and inflation?

A)Stagflation
B)Deflation
C)Inflation
D)National Indicator

Question 33

What is measured by the Consumer Price Index and Producer Price Index indicating the general upward price movement of goods and services?

A)Price Indicator
B)Business Cycle
C)Inflation
D)National Indicator

Question 34

Economists postulate that there is a relationship between inflation and unemployment within societies. They state that when the real GDP of a country is high, actual unemployment rate falls below its natural level. What effect does this have on inflation?

A)it accelerates inflation
B)it decelerates inflation
C)it has an insignificant effect on inflation
D)it depends on the GDP

Question 35

With the introduction of government-funded health programs for the elderly and the poor, private health insurers have lost a substantial portion of their insured clients to these programs. The introduction of government-sponsored spending that curbs private investment is referred to as:

A)squeezing-out
B)crowding-in
C)crowding-out
D)squeezing-in

Question 36

The aggregate quantity of raw and manufactured goods demanded by consumers increases when the:

A)personal consumption increases
B)government spending decreases
C)foreign investment decreases
D)interest rates remain the same

Question 37

What is defined as the current worth of a future sum of money given a specific rate of return?

A)Present Value
B)Post Value
C)Net Present Value
D)Past Net Value

Question 38

What concept places a discount rate that gives a project a net present value that is equal to zero?

A)Internal Rate of Return
B)Serial Payments
C)Net Present Value
D)Uneven Cash Flows

Question 39

What determines how much money deposited today be worth at a specified time in the future?

A)Present Value
B)Future Value
C)Net Present Value
D)Past Net Value

Question 40

The going concern concept is defined as:

A)An accountant showing due diligence throughout the accounting cycle.
B)An owner showing interest and concern for his business.
C)An accounting concept in which preparing financial statements on a regular basis ensures that the company is in good standing.
D)An accounting concept that assumes the business is not shutting down in the foreseeable future.
E)An accounting concept in which the business will have regular audits.

Question 41

What type of savings strategy focuses on realistic and agreed upon family behavior?

A)Saving-first Approach
B)Self-rewarding Plan
C)Realistic Behavior Approach
D)Goal Setting

Question 42

How much emergency funds savings should there be?

A)3 - 6 months
B)6 - 12 months
C)18 - 24 months
D)24 - 48 months

Question 43

Individual consumer debt should not exceed what amount:

A)10%
B)15%
C)20%
D)25%

Question 44

How many types of consumer debt are there?

A)1
B)2
C)3
D)4

Question 45

What type of product has interest rates associated with benchmarks determined by Treasury Bills or prime-rates?

A)Conventional Mortgage
B)Adjustable Rate Mortgage
C)Ratio Mortgage
D)Unsecured debt

Question 46

What type of product has underlying terms and conditions that meet the funding criteria set by Fannie Mae and Freddie Mac?

A)Conventional Mortgage
B)Adjustable Rate Mortgage
C)Ratio Mortgage
D)Unsecured debt

Question 47

What type of mortgage is commonly referred to as "home equity debt?"

A)Home Equity Loan
B)Adjustable Rate Mortgage
C)Ratio Mortgage
D)Unsecured debt

Question 48

What type of mortgage loan allows homeowners to borrow against home equity as needed?

A)Home Equity Loan
B)Home Equity Line of Credit
C)Ratio Mortgage
D)Unsecured debt

Question 49

What type of mortgage does not require repayment?

A)Home Equity Loan
B)Home Equity Line of Credit
C)Ratio Mortgage
D)Reverse Mortgage

Question 50

Jenny owns a bakery that makes hot cross buns. She purchased a delivery van to deliver her buns to local restaurants. She pays $300 each month for her loan payment on the van. This payment is an example of:

A)Increasing a liability
B)Annualizing a debt
C)Highway robbery
D)Amortization
E)Depreciation

Question 51

What is the first step in the financial planning process?

A)Analyze data
B)Monitor the plan
C)Gather data
D)Establish the goal or relationship

Question 52

At what point in the financial planning process should you and the client determine how you will be paid?

A)After you analyze the client's financial status
B)When you present your recommendations to the client
C)When you establish the relationship with the client
D)After you gather all the client's data

Question 53

When should you discuss a client's financial goals?

A)When gathering the client's financial data
B)When analyzing the client's financial data
C)After analyzing the client's financial data
D)After analyzing the client's financial data and developing rough financial planning recommendations

Question 54

What types of information should you analyze about the client's current financial situation?

A)Tax strategies
B)Liabilities/expenses
C)Insurance coverage
D)All of the above

Question 55

When should you first present alternatives to the client?

A)Only if the client requests alternatives
B)When you present your financial planning recommendations
C)After presenting financial planning recommendations and receiving client feedback
D)After monitoring the client's progress towards goals for a specified period

Question 56

Who should implement any recommendations you present to the client?

A)A third party, to whom you refer the client
B)You, as the financial planner
C)The client
D)The person agreed to by you and the client, whether it is you, the client, or you acting as a coordinator

Question 57

What is always the last step in financial planning?

A)Gathering data
B)Analyzing financial status
C)Implementing a plan
D)Monitoring a plan

Question 58

Which of the following is part of cash flow management?

A)Planning an emergency fund
B)Choosing stock investments
C)Finding a retirement fund
D)Agreeing to a client's goals

Question 59

What, of the following, is the best way to fund a client's emergency fund?

A)Real estate investments
B)Stock investments
C)Savings account
D)Business investments

Question 60

What should you NOT estimate when budgeting?

A)Annual wages
B)Annual income from a business
C)Personal living expenses
D)Methods to increase income

Question 61

What is the first step in budgeting?

A)Record keeping
B)Reviewing income and expenses to estimate future income and expenses
C)Consider methods to increase income
D)Consider methods to decrease expenses

Question 62

When budgeting, what is an important step that many individuals miss?

A)Estimating income
B)Breaking down expenses between discretionary and non-discretionary
C)Considering methods to increase income
D)Considering methods to decrease expenses

Question 63

What is the usual recommendation for the size of an emergency fund?

A)$1,000
B)3-6 months' worth of expenses
C)$5,000
D)12-18 months' worth of expenses

Question 64

There are five stages of a client's life that should be considered in financing strategies. What is the age range for the "Prime Time Years"?

A)18-25
B)25-40
C)40-55
D)55-65

Question 65

In which stage of a client's life will education, employment, and debt management likely have a major impact on the client's financial status going forward?

A)Starting-Out Years
B)Nesting Years
C)Prime Time Years
D)Wealth Accumulation Years

Question 66

At what stage should the financial planner assist most in organizing and maintaining retirement income?

A)Nesting Years
B)Prime Time Years
C)Wealth Accumulation Years
D)Reinvention Years

Question 67

Which of the following is the calculation you should use to determine the present value of a lump sum?

A)[(Future value)/(i+1)ⁿ]
B)(Present value)*(i+1)ⁿ
C)[(Future value)/(iⁿ +1)]
D)(Present value)*(iⁿ +1)

Question 68

Which of the following is an example of an annuity due?

A)Lease payments
B)Quarterly dividends from a company
C)Partnership distributions
D)Interest payments from bond issuers

Question 69

Which of the following is true regarding financial planning?

A)You do not need to know anything about the client's family history in order to effectively develop a financial planning strategy.
B)Financial planning strategies are general; you can create one effective strategy that can be used for most of your clients.
C)You should learn a client's risk tolerance before creating a financial planning strategy for that client.
D)Clients are no more likely to implement recommendations where their personal values are reflected than recommendations that have worked for multiple others.

Question 70

Which of the following is NOT one of the three forms of change that clients turn to financial planners to help manage?

A)Environmental
B)Preferred
C)Volitional
D)Life Cycle

Question 71

Which of the following is a volitional change that a client may want you to help manage?

A)Paying for a child's education
B)Inheritance
C)Retirement
D)Disability

Question 72

What is the leading cause of disability?

A)Accidents at work
B)Car accidents
C)Physical illness
D)Depression

Question 73

What provides tools and insights that might help you with financial planning for your clients?

A)Attitudes
B)Values
C)Biases
D)Behavioral finance

Question 74

When were communication and counseling principles added to the Certified Financial Planner job task domains in the United States?

A)2000
B)2009
C)2012
D)2015

Question 75

What is the least effective way to learn communication and counseling skills?

A)Experience
B)Reading books on the topics
C)Practice
D)Working with others who have experience

Question 76

Which of the following is NOT an example of one of the theoretical principles that financial counselors and financial therapists use?

A)Strategic management
B)Psychobiology
C)Classical economic
D)Cognitive-behavioral

Question 77

What is at the center of the work that financial planners do on a daily basis?

A)Mathematics
B)Counseling
C)Research
D)Science

Question 78

What is the least effective, of the following, when working with clients?

A)Open-ended questions
B)Closed-ended questions
C)Probing questions
D)Cultural sensitivities

Question 79

Which of the following should you do in order to effectively communicate with your clients?

A)Mirror the client's gestures, speech patterns, etc.
B)Refrain from eye contact
C)Disregard the client's facial expressions
D)Use large hand gestures to ensure the client sees them

Question 80

Which is NOT involved in active listening?

A)Saying "okay" after every sentence
B)Repeating what a client stated
C)Paraphrasing a client's words
D)Reflecting on the meaning of a client's words