Question 1

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

Accepted Answer

It is important to have a positive cash flow in order to have money left over to save or invest in retirement accounts. If expenses exceed income, it can be difficult to set aside funds for future goals.

Question 2

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

It is recommended to maintain an adequate amount of liquid assets to meet your short-term liquidity needs, but keeping too much money in liquid assets will limit your potential to earn higher returns on other investments. By balancing your liquidity needs with your desire for higher returns, you can maximize your overall financial well-being.

Question 3

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

Accepted Answer

Insurance protects your assets and income from unexpected events, such as accidents or illnesses. Without insurance, these events could have a much larger negative impact on your net worth than the cost of the insurance itself. Therefore, insurance can ultimately contribute to a higher net worth over the long term.

Question 4

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 is financially advisable to pay off high-interest debt, such as credit card debt, before starting to save for an emergency fund. By paying off the credit card balance, Jack can save money on interest payments and free up more money each month to put towards building his emergency fund.

Question 5

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

Regularly reviewing your financial plan helps ensure that each component is working together effectively to help you achieve your financial goals.

Question 6

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 financing, you may have to make regular payments that can restrict your cash flow over time, making it harder to save for other goals.

Question 7

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 involves tracking your expenses and income to determine your financial situation. By understanding your financial situation, you can make informed decisions about how much money you can allocate towards investing in assets.

Question 8

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 generally considered to be more stable and established, meaning their stock prices experience less volatility and offer lower potential returns compared to growth companies, which are generally smaller and less established, but may offer higher returns (and also higher risk).

Question 9

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

The interest rate on the loan is higher (8%) than the interest rate offered by the investment (4%), so it would make financial sense to prioritize paying off the loan rather than investing in the lower-yield option.

Question 10

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

Accepted Answer

Budgeting decisions require individuals or organizations to weigh the short-term benefits of spending money today against the potential long-term benefits of saving or investing those funds for the future. This involves a trade-off between immediate gratification and future financial security.

Question 11

Debt is dangerous and should be avoided at costs.

Accepted Answer

While having too much debt can be detrimental to one's financial health, not all debt is necessarily dangerous or should be avoided at all costs. In some cases, taking on debt can be a strategic decision in order to finance investments, start a business, or make other long-term financial decisions. It is important to assess individual circumstances and weigh the potential risks and rewards before deciding to take on debt.

Question 12

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 events and goals change, a financial plan needs to be revised for effective financial management.

Question 13

An important Chapter of financial planning is making trade-offs between various important decisions.

Accepted Answer

Financial planning requires making trade-offs between various important decisions, such as prioritizing saving for retirement versus paying off debt or deciding how much to allocate towards discretionary spending versus essential expenses. These trade-offs help balance competing financial goals and ensure that individuals are making the most effective use of their financial resources.

Question 14

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

Accepted Answer

Maintaining documents in a safe place and leaving instructions on their location is still important in the high-tech age as electronic systems can fail, and physical documents may still be required for legal or other purposes.

Question 15

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

Accepted Answer

Small firms usually have less established businesses and financial stability, making their stocks more sensitive to market fluctuations and news. Additionally, small firms may have lower trading volumes and fewer buyers and sellers, making their stocks less liquid.

Question 16

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

Accepted Answer

Insurance is purchased precisely for events that are unlikely to happen, but could cause significant financial loss if they do. Insurance provides financial protection against the unexpected, such as accident, illness, theft, natural disasters, and more. Therefore, it is advisable to carry insurance coverage for events that have a low probability of happening but could potentially result in large losses.

Question 17

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

Accepted Answer

It is important to have a strong financial foundation with adequate emergency savings and insurance coverage before making investments. This helps to protect your existing assets in case of any unforeseen circumstances.

Question 18

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

Accepted Answer

A will is an important aspect of estate planning and ensuring that one's assets are distributed according to their wishes after death. Therefore, a financial plan is incomplete without a will.

Question 19

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 20

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 (LLP) is a program that allows you to withdraw funds from your RRSP to finance your education or training. The advantage of using the LLP is that the money you withdraw is not subject to regular income tax as long as you meet certain repayment conditions. Therefore, if you want to use funds from your RRSP for furthering your education, the LLP is the only way to do so without paying full tax on it.

Quiz 6: Synthesis of Financial Planning - Integrating the Components of a Financial Plan