Family Financial Planning
Textbook Exam Questions
Course Introduction
Family Financial Planning explores the principles and practices essential for effective management of family financial resources. This course covers budgeting, saving, investing, insurance, credit management, retirement planning, risk management, and estate planning, emphasizing the unique financial needs and goals of families throughout various life stages. Students will learn to develop comprehensive financial plans, apply decision-making strategies, and utilize tools for achieving financial security and stability within the family context. Through case studies and practical exercises, the course prepares students to address real-world financial challenges and make informed financial decisions for themselves and others.
Recommended Textbook
Personal Financial Planning 1st Edition by Lewis Altfest
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Chapter 1: Introduction to PFP
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Sample Questions
Q1) The buying and selling of tangible goods and financial instruments is a feature of:
A) a market
B) an investment
C) a household
D) a market structure
E) none of the above
Answer: A
Q2) What is the objective of financial integration?
A) To look at how actions in one part of personal financial planning can affect other areas.
B) To use corporate financial managerial techniques in personal financial planning.
C) To place cash flow into assets designed to provide future funds for consumption.
D) To look at the functioning of the entire economy or a major section of it.
E) To reduce risk in a tax efficient manner.
Answer: A
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Chapter 2: Time Value of Money
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Sample Questions
Q1) The APR:
A) Adjusts for inflation.
B) Is always compounded multiple times per year.
C) Adjusts for items such as loan processing fees, mortgage insurance, and points.
D) Is the rate associated with perpetual annuities.
E) None of the above.
Answer: C
Q2) If the value of the principal today is $17,567 and the interest rate is 0.93%, what is the total simple interest income at the end of fifteen years?
A) $17,567
B) $2,540.60
C) $82,765.65
D) $300.56
E) None of the above.
Answer: B
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4
Chapter 3: Beginning the Planning Process
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Sample Questions
Q1) Which of the following is typically not a characteristic of young clients?
A) They place great emphasis on their current standard of living.
B) Savings are given lower priority.
C) Low risk tolerance.
D) All of the above are typically characteristics of young clients.
E) None of the above is typically a characteristic of young clients.
Answer: C
Q2) Life cycle stages include:
A) Young, middle aged, and senior.
B) Child, adult, and elderly.
C) Student, employed, unemployed, retired.
D) Infant, child, adolescent, young adult, adult, elderly.
E) None of the above.
Answer: A
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Chapter 4: Household Finance
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Sample Questions
Q1) Which of the following best characterizes the household enterprise?
A) It attempts to earn as much money as possible.
B) It attempts to minimize pleasurable activities so as to maximize revenue-generating opportunities.
C) It attempts to maximize pleasurable activities so as to minimize time-wasting activities.
D) It attempts to run the household as efficiently as possible in order to provide as much time and money as possible for pleasurable activities.
E) None of the above.
Q2) Which of the following statements regarding the relation between finance and economics is inaccurate?
A) Finance places more stress on practicality in its analysis.
B) Finance describes most processes in tangible money terms.
C) Finance is able to look at how assets interact so as to provide an integrated solution to a problem.
D) Finance more often incorporates risk in decision making and can offer outcomes in combined risk-return terms.
E) All of the above statements are accurate.
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Chapter 5: Financial Statements Analysis
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Sample Questions
Q1) Which of the following tells you how you are doing today and sets the stage for any steps that need be taken to alter future activities?
A) Balance sheet.
B) Cash flow statement.
C) Projected cash flow statement.
D) Income statement.
E) None of the above.
Q2) Which of the following are not placed on the left-hand side of the balance sheet?
A) Bonds and bond funds.
B) IRAs.
C) Furniture and fixtures.
D) Household equity.
E) All of the above are placed on the left-had side of the balance sheet.
Q3) Which of the following are placed on the right-hand side of the balance sheet?
A) Credit card debts.
B) Taxes outstanding.
C) Mortgage debt.
D) All of the above.
E) None of the above.
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Page 7
Chapter 6: Cash Flow Planning
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Sample Questions
Q1) What is the pure life cycle motive?
A) To take advantage of investment opportunities that can make achievement of our financial goals easier.
B) To provide monies for the down payment or full purchase of longer-lived assets such as durable goods or educational expenditures.
C) To provide monies to even out differences in earnings over time.
D) To provide a fund to cover future uncertainties such as fluctuating income, sickness, inflationary effects on expenditures, etc.
E) To sacrifice today so that your future lifestyle can improve.
Q2) The ability to turn an asset into cash quickly at a reasonable transaction cost and without loss of principal is:
A) Liquidity.
B) Liquidity substitute.
C) Marketability.
D) Emergency substitute.
E) None of the above.
Q3) Please list and describe eight different reasons for savings.
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Chapter 7: Debt
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Sample Questions
Q1) What is the expected result of the Bankruptcy Abuse Prevention and Consumer Act of 2005?
A) It will be more difficult for a lender to collect unpaid principal when a borrower files for bankruptcy.
B) It will be more difficult to file for bankruptcy.
C) It will be easier to file for bankruptcy.
D) The number of Chapter 14 bankruptcy filings will increase.
E) Both a and d above.
Q2) Which of the following factors will result in a lower credit score?
A) Married.
B) Children.
C) One wage earner.
D) Favorable credit history.
E) All of the above will result in a higher credit score.
Q3) Under which form of personal bankruptcy are all existing debts wiped out?
A) Chapter 7.
B) Chapter 13.
C) Chapter 14.
D) All of the above.
E) None of the above.
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Chapter 8: Non Financial Investments
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Sample Questions
Q1) Which of the following is an advantage associated with renting a dwelling?
A) Mandatory repayment of debt.
B) The necessity of a capital commitment.
C) Flexibility in changing your dwelling site.
D) Both a and b.
E) Both b and c.
Q2) Which of the following factors makes auto leasing less attractive than ownership?
A) Selling an automobile is time-costly.
B) Inspection standards.
C) Mileage charges.
D) Both a and b.
E) Both b and c.
Q3) What are capital expenditures?
A) Outlays for financial assets.
B) Outlays that provide benefits over an extended period of time.
C) Outlays that can be used for purchasing new assets but not improving existing ones.
D) Both a and b.
E) Both b and c.
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10
Chapter 9: Financial Investments
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Sample Questions
Q1) What is the risk premium?
A) The extra risk that compensates you for the additional amount of return you are taking with a particular security over a completely safe one.
B) The extra return that compensates you for the additional amount of risk you are taking with a particular security over a completely safe one.
C) The extra risk that compensates you for the additional amount of return you are taking with a particular security over the market return.
D) The extra return that compensates you for the additional amount of risk you are taking with a particular security over the market risk.
E) None of the above.
Q2) Which of the following characterizes a defensive stock?
A) The company grows more rapidly in sales and earnings than the overall economy.
B) The company is less affected by cyclical business conditions.
C) The company grows at average or below-average rates.
D) Both a and b.
E) Both b and c.
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Chapter 10: Risk Management
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Sample Questions
Q1) Why is it so difficult to identify a group of assets or other techniques that can fully eliminate portfolio risk?
A) They types of assets that can eliminate portfolio risk are only available to professional money managers.
B) The lack of a full hedge for the lifetime work-related income streams we call human assets.
C) The volatility of portfolio returns over time.
D) All of the above.
E) None of the above.
Q2) Which of the following best describes self-insurance?
A) Actively setting aside money to fund any losses should that occur.
B) Using precautionary savings to purchase insurance.
C) Diversifying activities to minimize risk.
D) All of the above are descriptions of self-insurance.
E) None of the above.
Q3) Please list and describe eight risk management approaches.
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Chapter 11: Other Insurance
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Sample Questions
Q1) Which of the following is not part of an automobile insurance policy?
A) Liability.
B) Medical.
C) Damage.
D) All of the above are part of an automobile insurance policy.
E) None of the above is part of an automobile insurance policy.
Q2) The risk of a person behaving negligently because he or she has insurance coverage is associated with which of the following?
A) Household risk.
B) Moral hazard.
C) Morale hazard.
D) Pure risk.
E) None of the above.
Q3) Which of the following homeowner's policies covers the most risk?
A) HO1.
B) HO2.
C) HO3.
D) All of the above cover equal risk.
E) None of the above.
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Page 13
Chapter 12: Retirement Planning
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Sample Questions
Q1) Which of the following is not an advantage of a fixed annuity versus a taxable bond?
A) Tax deferral.
B) Lack of fluctuation in principal.
C) Higher pretax return.
D) All of the above are advantages of a fixed annuity versus a taxable bond.
E) None of the above is an advantage of a fixed annuity versus a taxable bond.
Q2) Which of the following is a strength of a traditional annuity?
A) They can significantly reduce longevity risk.
B) Annuities allow you to receive a fixed sum of money each year.
C) Lack of liquidity once you annuitize.
D) Both a and b.
E) Both b and c.
Q3) Which of the following is not a feature of a defined benefit plan?
A) Tax Deferral on Income and Capital Gains.
B) Taxation of Pension Payout of Original Deposit.
C) Typically Indexed for Inflation.
D) Both a and b.
E) Both b and c.
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Chapter 13: Educational Planning
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Sample Questions
Q1) What is the overall goal of educational planning?
A) To provide the highest quality education possible regardless of costs.
B) To choose the education that enables the recipient to minimize educational costs.
C) To provide a quality education that enables the recipient to receive a high return on investment.
D) To provide the least education possible for a given return on investment objective.
E) None of the above.
Q2) Which of the following is not a qualified withdrawal associated with qualified tuition plans?
A) Tuition.
B) Supplies required by the college.
C) Reasonable costs for room and board for students attending college at least half time.
D) Reasonable costs for room and board for students attending college at least one quarter time.
E) All of the above are qualified withdrawals.
Q3) What are the steps in the educational policy statement process?
Q4) Please list and explain seven basic financial literacy principles.
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15
Chapter 14: Tax Planning
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Sample Questions
Q1) Which of the following represents the total marginal tax bracket?
A) Marginal federal bracket - Marginal state bracket - Marginal local bracket + Marginal federal bracket * (Marginal state bracket + Marginal local bracket).
B) Marginal federal bracket + Marginal state bracket + Marginal local bracket - Marginal federal bracket * (Marginal state bracket + Marginal local bracket).
C) Marginal federal bracket - Marginal state bracket - Marginal local bracket - Marginal federal bracket * (Marginal state bracket + Marginal local bracket).
D) Marginal federal bracket - Marginal state bracket + Marginal local bracket - Marginal federal bracket * (Marginal state bracket - Marginal local bracket).
E) None of the above.
Q2) Share decline in the interim while waiting to sell is the risk associated with:
A) Tax deferral.
B) Postponing capital gains to the New Year.
C) Increasing deductible expenses and credits.
D) All of the above.
E) None of the above.
Q3) Please list and explain eight tax planning strategies.
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Page 16
Chapter 15: Estate Planning
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Sample Questions
Q1) Which of the following is not an advantage associated with a trust?
A) Tax advantages.
B) Allows the bypassing of probate.
C) Lower cost.
D) Control advantages.
E) All of the above are advantages.
Q2) A testamentary trust:
A) Is not provided for in the will and comes about after death.
B) Is provided for in the will and comes about before death.
C) Is not provided for in the will and comes about before death.
D) Is provided for in the will and comes about after death.
E) None of the above.
Q3) Which of the following is an advantage of a bequest over a gift?
A) Bequests allow the grantor to maintain all assets for household use.
B) Bequests postpone providing assets to younger people.
C) Bequests allow you to observe the benefits of your bequest.
D) Both a and b.
E) Both b and c.
Q4) What are the fourteen steps of estate planning?
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Chapter 16: Stocks, Bonds and Mutual Funds
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Sample Questions
Q1) For which of the following categories of bonds is the risk for a given change in interest rates generally classified as low?
A) Money market.
B) Short term.
C) Intermediate term.
D) Long term.
E) None of the above.
Q2) For which of the following is a bond's classification based on the likelihood that the bond will fulfill its obligation to pay interest and repay the amount owed at maturity?
A) Duration.
B) Risk.
C) Quality.
D) Credit.
E) None of the above.
Q3) List and provide a detailed explanation for nine types of bond funds.
Q4) List and provide examples of eight types of specialized funds that concentrate in publicly traded securities.
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18
Chapter 17: Background Topics
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Sample Questions
Q1) Which of the following is not an action that the Federal Reserve can take to influence economic activity?
A) Open market operations.
B) Changes in the inflation rate.
C) Changes in the reserve ratio.
D) Moral suasion.
E) All of the above are actions that the Federal Reserve can take.
Q2) When the economy reaches bottom, it is in a:
A) Trough.
B) Gutter.
C) Ditch.
D) Depression.
E) Recession.
Q3) Which of the following is not an effect of inflation?
A) Redistribute wealth.
B) Change economic behavior and bring about inefficient economic activity.
C) Result in action by the Federal Reserve to stop the inflationary spiral.
D) Increased uncertainty about the future.
E) All of the above are effects of inflation.
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Page 19
Chapter 18: Capital Needs Analysis
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Sample Questions
Q1) Please indicate whether Monte Carlo simulation and Total Portfolio Management includes each of the following:
Q2) Which of the following is not a major category of retirement risk?
A) Longevity risk.
B) Extraordinary expenses.
C) Liquidity risk.
D) Inflation risk.
E) All of the above are major categories of retirement risk.
Q3) What is financial integration?
A) Using all assets and liabilities, all cash flows, all household activities, and all future plans to arrive at decisions.
B) Including all current and future resources and information in decision making.
C) Making one decision at a time based strictly on the merits of that item.
D) Both a and b.
E) Both b and c.
Q4) Please list the 11 steps associated with a retirement needs analysis.
Q5) Please detail the steps associated with retirement needs calculations, and indicate whether the investment rate, inflation rate, or real rate is used in the step.
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Chapter 19: Behavioral Financial Planning
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Sample Questions
Q1) Which of the following best defines behavioral financial planning?
A) The analysis of individual conduct and the development of practical techniques to improve decision making.
B) The analysis of individual conduct and the development of practical techniques to eliminate decision making.
C) The analysis of market conduct and the development of practical techniques to improve decision making.
D) The analysis of market conduct and the development of practical techniques to eliminate decision making.
E) None of the above.
Q2) A weakness of behavioral finance relative to classical finance is that it is characterized by:
A) Less firm conclusions.
B) Less satisfying financial conclusions.
C) Being less scientific in a financial sense.
D) Both a and b.
E) All of the above.
Q3) Please list and discuss seven methods that are helpful for maintaining control to achieve planned savings.
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Page 21
Chapter 20: Completing the Process
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Sample Questions
Q1) For which part of the financial plan is "sets planning focus" a key contribution?
A) Statement of goals.
B) Summary of plan recommendations.
C) Summary.
D) Integration.
E) None of the above.
Q2) For which of the following operating segments of the financial plan is the cash relationship characterized as an outflow?
A) Revenues.
B) Living costs.
C) Retirement planning.
D) Both a and b.
E) Both b and c.
Q3) To what do the letters in the acronym SWOT refer?
A) Strategy, weaknesses, opportunity, threat.
B) Strengths, wants, opportunity, threat.
C) Strengths, weaknesses, opportunities, threats.
D) Strengths, weaknesses, opportunities, timeline.
E) None of the above.
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Page 22