Financial Counseling
Textbook Exam Questions
Course Introduction
Financial Counseling is a course designed to equip students with the knowledge and skills necessary to guide individuals and families in managing their personal finances effectively. The course covers fundamental topics such as budgeting, debt management, credit use, savings strategies, risk management, and retirement planning. Emphasis is placed on understanding client behavior, communication techniques, and ethical considerations in financial advising. Through practical case studies and interactive exercises, students learn to develop tailored financial plans, offer education on financial matters, and support clients in achieving their long-term financial goals.
Recommended Textbook
Personal Financial Planning 1st Edition by Lewis Altfest
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20 Chapters
651 Verified Questions
651 Flashcards
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Page 2
Chapter 1: Introduction to PFP
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Sample Questions
Q1) Market structure is the term used to describe:
A) The study of how people develop the cash flows necessary to support their operations and provide for their well-being.
B) Places where tangible goods and financial instruments like stocks and bonds are bought and sold.
C) A structure through which you can establish and integrate all of your goals and needs.
D) The economic operations of the business, the government, and the household that facilitate the purchase and sale of items.
E) None of the above.
Answer: D
Q2) Which of the following best defines personal finance?
A) The study of how people minimize risk for a given level of return
B) The study of how people maximize return for a given level of risk
C) The study of how people develop the cash flows necessary to support their operations and provide for their well-being
D) The study of how ethics should influence financial management decisions
E) The study of how people maximize risk for a given level of return
Answer: C
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Chapter 2: Time Value of Money
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Sample Questions
Q1) The present value of a sum is:
A) The value of the sum at the end of a given period of time.
B) The value of the sum at the beginning of a given period of time.
C) The value of investing the sum at the beginning of the given period of time rather than at the end.
D) The value of investing the sum at the end of the given period of time rather than at the beginning.
E) None of the above.
Answer: B
Q2) What is the future value of $25,000 invested today for the next 22 years if the interest rate is 17.5 percent?
A) $200,200.87
B) $868,506.50
C) $1,200,000.45
D) $1,250,000.54
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) The substance of the client interview typically begins with:
A) Small talk.
B) A simple question.
C) Probing questions.
D) Paraphrasing the client's questions.
E) None of the above.
Answer: B
Q2) Which discipline proposes that our goals are influenced by the way we were raised by our families and other groups of people in our environment?
A) Biology.
B) Sociology.
C) Psychology.
D) None of the above.
E) Both sociology and psychology, exclusively.
Answer: B
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Chapter 4: Household Finance
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Sample Questions
Q1) Which of the following is not true according to the life cycle theory?
A) Borrowing generally takes place early in the household's life, when income is low.
B) As income rises, people increase their debt rather than save for retirement.
C) Upon retirement savings are liquidated steadily to maintain their cost of living.
D) The goal is to "die broke."
E) All of the above are true according to the life cycle theory.
Q2) What is the goal of a household?
A) To earn as much money as it can.
B) To maximize utility.
C) To identify and manage revenues and expenses.
D) All of the above.
E) None of the above.
Q3) What is a nondiscretionary cost?
A) A variable cost.
B) A fixed cost.
C) A cost that cannot be estimated.
D) All of the above, depending on the accounting method used.
E) None of the above.
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Chapter 5: Financial Statements Analysis
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Sample Questions
Q1) What is the common rate?
A) The rate of annual increase that many household expenses share.
B) The inverse of the assumed future inflation rate.
C) Investment projections based on an assumed return.
D) All of the above.
E) None of the above.
Q2) Which of the following best defines a functional cash flow statement?
A) A detailed cash flow statement that separates cash flows by type of household activity.
B) A detailed cash flow statement that separates cash flows by household member.
C) A detailed cash flow statement that separates cash flows by discretionary and nondiscretionary expenses.
D) A summary of the household's actual cash flow statement, used to simplify analysis.
E) None of the above.
Q3) How are each of the following items recorded according to GAAP business?
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Chapter 6: Cash Flow Planning
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Sample Questions
Q1) Which of the following is not a step in the household budgeting process?
A) Compare budgeted with actual figures.
B) Review results for reasonableness and finalize budget.
C) Compare projected cash outflows with goals and adjust.
D) Compute net cash flow.
E) All of the above are steps in the household budgeting process.
Q2) Establishing how people differ in the way they spend their money is:
A) Of crucial importance to financial planners.
B) Generally not of concern to advisors.
C) The first step of the financial planning process.
D) The second step of the financial planning process.
E) The third step of the financial planning process.
Q3) Please list and describe eight different reasons for savings.
Q4) If net cash flow is $500, targeted savings are $400, total income is $2,000, and change in debt is $40, what is the gross savings percentage?
A) 47%
B) 57%
C) 20.5%
D) 12.5%
E) None of the above.
Page 8
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Chapter 7: Debt
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Sample Questions
Q1) What is the maximum amount of margin debt that the Federal Reserve allows one to borrow?
A) 50% of the fair market value of the securities on margin upon original purchase and 25% of the value of the collateral on an ongoing basis.
B) 25% of the fair market value of the securities on margin upon original purchase and 25% of the value of the collateral on an ongoing basis.
C) 25% of the fair market value of the securities on margin upon original purchase and 50% of the value of the collateral on an ongoing basis.
D) 75% of the fair market value of the securities on margin upon original purchase and 25% of the value of the collateral on an ongoing basis.
E) None of the above.
Q2) Which of the following is not included in the APR?
A) Closing fee.
B) Points.
C) Appraisal fees.
D) Undefined costs.
E) All of the above are included in the APR.
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Page 9
Chapter 8: Non Financial Investments
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Sample Questions
Q1) Dorothy owns a home that was worth $1,400,000 at the beginning of the year and $1,135,000 at year's end. The same house can be rented for $152,300 per year. Upkeep is $27,500 per year. What is Dorothy's return for the year?
Q2) The sum of real estate taxes, insurance, and interest and principal payments on a mortgage should not exceed:
A) 14 percent of your total income.
B) 42 percent of your total income.
C) 28 percent of your total income.
D) 36 percent of your total income.
E) None of the above.
Q3) Which of the following is not a use of home ownership?
A) Providing shelter.
B) Short-term investment.
C) Providing pleasure to its occupants.
D) All of the above are uses of home ownership.
E) Both b and c are not uses of home ownership.
Q4) What factors influence home affordability and whether the purchase of a home is realistic? For each, provides details as to why it is included on the list.
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Page 10
Chapter 9: Financial Investments
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Sample Questions
Q1) Please list and explain eleven fundamental risks associated with financial assets.
Q2) The expected rate of return is equal to:
A) The risk free rate divided by the risk premium.
B) The risk free rate minus the risk premium.
C) The risk premium minus the risk free rate.
D) The risk premium divided by the risk free rate.
E) None of the above.
Q3) 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.
Q4) Please list and explain nine strengths associated with mutual funds.
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11
Chapter 10: Risk Management
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Sample Questions
Q1) When a household revises its portfolio, it attempts to establish a risk/return strategy that:
A) Minimizes portfolio risk as much as possible while maintaining the current standard of living.
B) Will not lead to an audit by the tax authorities.
C) Optimizes portfolio income and brings about the highest standard of living possible.
D) All of the above.
E) None of the above.
Q2) Which of the following is not a risk faced by human-related assets?
A) Longevity - premature death.
B) Longevity - extended life.
C) Health and disability.
D) Macro and microeconomic risks.
E) All of the above are risks faced by human-related assets.
Q3) Please list and describe eight risk management approaches.
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Chapter 11: Other Insurance
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Sample Questions
Q1) What type of coverage is associated with a condominium and cooperative?
A) Basic coverage.
B) Broad coverage.
C) Unit owner's form.
D) Contents broad form.
E) None of the above.
Q2) Real property includes:
A) Structures that are affixed to land.
B) Land.
C) Assets that are not affixed to land.
D) All of the above.
E) None of the above.
Q3) Which of the following is used to only allow you to insure an item when you yourself would suffer a loss should the item be damaged?
A) Indemnity.
B) Screening of applicants.
C) Segregation of applicants.
D) Insurable interest.
E) None of the above.
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Page 13
Chapter 12: Retirement Planning
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Sample Questions
Q1) The point at which an employee is entitled to a stated amount of nonrevocable benefits from an employer is known as:
A) Limit point.
B) Statement date.
C) Vesting.
D) Pension date.
E) Either a or b.
Q2) Which of the following best defines heath risk as it pertains to financial matters?
A) The possibility of large unreimbursable costs.
B) The possibility of small unreimbursable costs.
C) The possibility of poor health following retirement.
D) Both a and c.
E) Both b and c.
Q3) Which of the following is a weakness of a traditional annuity?
A) You cannot outlive your annuity payments.
B) A payout guarantee from a company which itself is subject to bankruptcy risk.
C) Lack of liquidity once you annuitize.
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 third step of the educational policy statement process?
A) Estimate the total cost for parents.
B) Calculate the cost of education.
C) Establish investment policy.
D) Project the potential for financial aid.
E) None of the above.
Q2) For which of the following educational saving alternatives is there an age limitation for use?
A) Series EE.
B) Coverdell education savings.
C) 529 plans.
D) All of the above.
E) None of the above.
Q3) For which of the following educational savings alternatives is there no limitation?
A) Series EE.
B) IRA.
C) 529 plans.
D) There are limitations associated with all of the above.
E) There are limitations associated with none of the above.
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Page 15
Chapter 14: Tax Planning
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Sample Questions
Q1) The tax strategy technique of postponing capital gains until held more than one year is implemented through:
A) Delay selling an investment that has risen in value until the New Year.
B) Delaying selling an investment that has appreciated in value until it qualifies for favorable long-term capital gains treatment.
C) Selling investments with losses to reduce current taxes.
D) Selecting the year to declare a gain or loss to take tax advantage of a more favorable marginal tax bracket.
E) None of the above.
Q2) Purchasing municipal bonds in the state in which you reside is an example of:
A) Tax deferral.
B) Conversion.
C) Elimination of taxes.
D) Taking capital losses.
E) None of the above.
Q3) Please list and explain eight tax planning strategies.
Q4) Please detail the principal components of the tax return.
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Chapter 15: Estate Planning
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Sample Questions
Q1) The executor of a will is:
A) In charge of administering the estate, but is not in charge of complying with legal requirements and liquidating its assets.
B) In charge of administering the estate and complying with legal requirements, but is not in charge of liquidating its assets.
C) In charge of administering the estate, complying with legal requirements, and liquidating its assets.
D) Is in charge of people unable to care for themselves.
E) None of the above.
Q2) To bypass a bothersome, costly procedure that exposes assets to public scrutiny after the individual's death one should:
A) Prepare a will.
B) Identify a trustee.
C) Identify an executor.
D) Avoid placing assets in a trust.
E) None of the above.
Q3) 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) Which of the following is not a reason why the majority of actively managed mutual funds underperform the averages?
A) Significant expenses associated with actively managed funds to support analysts, portfolio managers, and other overhead costs as well as trading costs to shift investment holdings.
B) Mutual funds frequently keep 5 percent or more in cash for such reasons as meeting unusually larger redemptions.
C) The relative performance between categories does not differ substantially over extended periods of time.
D) Fund overhead expenses including direct management fees can provide benefits other than performance.
E) All of the above are reasons.
Q2) Due to changes in interest rates,
A) A premium bond has greater fluctuation in price than a discount bond.
B) A premium bond has identical fluctuation in price as a discount bond.
C) A discount bond has a greater fluctuation in price than a premium bond.
D) Both discount and premium bonds do not fluctuate in price.
E) None of the above.
Q3) List and provide a detailed explanation for nine types of bond funds.
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Page 18
Chapter 17: Background Topics
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Q1) For which of the following is income not taxed on the individual return?
A) Subchapter S corporation.
B) Limited liability partnership.
C) Partnership.
D) Income is taxed on the individual return for all of the above.
E) Income is not taxed on the individual return for all of the above.
Q2) Which of the following is characterized by limited liability?
A) Individual proprietorship.
B) Partnership.
C) Family limited partnership.
D) Both a and b.
E) Both b and c.
Q3) Which of the following financial institutions provide both deposits and loans?
A) Credit unions.
B) Trust companies.
C) Finance companies.
D) Both a and b.
E) All of the above.
Q4) For each of the following types of business organizations, detail the organization's economic, taxation, legal, and life cycle characteristics.
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Chapter 18: Capital Needs Analysis
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Q1) Which of the following methods presents probabilities of success?
A) Simple capital needs analysis.
B) Monte Carlo simulation.
C) Total Portfolio Management.
D) Both a and b.
E) Both b and c.
Q2) To bring current cash shortfall to future period when performing retirement needs calculations, which of the following rates do we use?
A) Investment rate.
B) Inflation rate.
C) Real rate.
D) Both a and b.
E) Both b and c.
Q3) What is the third step of a retirement needs analysis?
A) Establish risks and tolerance for them.
B) Determine rates and ages to be used for calculations.
C) Develop retirement income, expenses, and required capital withdrawals.
D) Calculate lump sum needed at retirement.
E) None of the above.
Q4) Please list the 11 steps associated with a retirement needs analysis.
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Chapter 19: Behavioral Financial Planning
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Sample Questions
Q1) Which of the following best defines money planning?
A) Planning whose goals are financial.
B) Planning whose goals include life planning objectives.
C) Planning whose goals are strictly financial and do not include life planning objectives.
D) None of the above.
E) Both a and b.
Q2) Which of the following is a component of behavioral financial planning operations?
A) Estate planning.
B) Traditional money planning and making more efficient financial decisions.
C) Life planning.
D) Both a and b.
E) Both b and c.
Q3) Which of the following is a basic feeling?
A) Close relationships.
B) Caring relationships.
C) Good health.
D) All of the above.
E) None of the above.
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21
Chapter 20: Completing the Process
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Sample Questions
Q1) Which of the following best describes a theory?
A) A detailed mathematical model that has little usefulness when making practical decisions.
B) A detailed mathematical model that has significant usefulness when making practical decisions.
C) A set of concepts that unifies a body of knowledge and helps you make better decisions in practice.
D) An untested idea.
E) None of the above.
Q2) By which of the following steps in the financial planning process do we ask "Have SWOT, sensitivity and scenario analysis been considered?"
A) Establishing the scope of the activity.
B) Gathering the data and identifying goals.
C) Compiling and analyzing the data.
D) All of the above.
E) None of the above.
Q3) Please list 8 distinguishing features of personal financial planning theory, and describe the benefit of each.
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