Course Introduction
Financial Literacy Exam Preparation Guide
Financial Literacy provides students with the essential knowledge and skills to make informed and effective decisions regarding personal financial management. The course covers key topics such as budgeting, saving, investing, credit and debt management, understanding financial products and services, taxation, risk management, and planning for major life events. Through real-life scenarios and practical exercises, students will develop the confidence and competence to set financial goals, navigate the complexities of the financial system, and build a strong foundation for long-term financial well-being.
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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32 Verified Questions
32 Flashcards
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Sample Questions
Q1) Why do the disciplines of psychology and sociology have a role in the practice of personal financial planning?
A) They provide logical, rather than emotional, explanations for how people act.
B) They provide behavioral, rather than logical, explanations for how people act.
C) They explain how people should act.
D) They help us understand how people and households allocate scarce resources.
E) They provide therapies that can reduce the anxiety faced by clients.
Answer: B
Q2) Employee benefits are best defined as:
A) The satisfaction employees feel when working for a successful company.
B) The benefits that flow to employers from hiring additional employees.
C) Forms of employee compensation other than salary.
D) Tax-deductible compensation employees receive for retirement purposes.
E) None of the above.
Answer: C
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3
Chapter 2: Time Value of Money
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35 Flashcards
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Sample Questions
Q1) What is the future value of $15,000 invested today for the next 7 years if the interest rate is 17.5 percent, and the interest rate is compounded 12 times per year?
A) 45,600.98
B) 50,612.76
C) 22,205.44
D) 120,980.30
E) None of the above.
Answer: B
Q2) What is the nominal return?
A) The return on assets based on the actual number of dollars received.
B) The return on assets based on the inflation-adjusted number of dollars received.
C) The return on assets assuming compounding one time per year.
D) The return on assets based on the APR.
E) None of the above.
Answer: A
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4
Chapter 3: Beginning the Planning Process
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34 Verified Questions
34 Flashcards
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Sample Questions
Q1) Which of the following is typically not a characteristic of senior clients?
A) Focused on the accumulation of wealth.
B) High risk tolerance.
C) Increased cost of living regardless of medical and eldercare costs.
D) All of the above are typically characteristics of senior clients.
E) None of the above is typically a characteristic of senior clients.
Answer: E
Q2) The conclusion of the client interview typically includes:
A) The advisor indicating that the time is drawing to a close.
B) The advisor summing the points covered during the meeting.
C) The advisor establishing a date or other plan for action.
D) All of the above.
E) None of the above.
Answer: D
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Chapter 4: Household Finance
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34 Verified Questions
34 Flashcards
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Sample Questions
Q1) 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.
Q2) Why is the Total Portfolio Management approach unique?
A) It only analyzes marketable financial assets.
B) It analyzes all household assets and obligations.
C) It is dependent on the validity or lack of appropriateness of several practical interpretations of its principles.
D) It selects the best mix of assets to achieve this objective.
E) None of the above.
Q3) What are the similarities and differences between household and business financial processes for each of the following?
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Chapter 5: Financial Statements Analysis
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Sample Questions
Q1) 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.
Q2) What are operating activities?
A) The cash left over after our operating, capital expenditure, and debt activities.
B) Outlays on household related matters that provide benefit beyond the current year.
C) The day-to-day financial functions of the household.
D) Additions or subtractions from debt.
E) None of the above.
Q3) 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.
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7
Chapter 6: Cash Flow Planning
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Sample Questions
Q1) What is purchasing power?
A) The inverse of one plus the inflation rate.
B) The risk of having your money decline in what it can buy over time due to inflation.
C) The amount of goods and services a fixed sum of money will buy.
D) The added responsibility and opportunities of the leader of a household.
E) None of the above.
Q2) If total discretionary costs are $500, total income is $2,000, and discretionary capital expenditures are $500, what is the discretionary cost percentage?
A) 50%
B) 25%
C) 20%
D) 250%
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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35 Flashcards
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Sample Questions
Q1) 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.
Q2) What is a hybrid ARM?
A) An investment that is tied to mortgage rates which can be used to hedge the risk associated with an adjustable rate mortgage.
B) A mortgage that offers a fixed rate for a fixed period of years and then reverts to an adjustable rate.
C) A mortgage that offers an adjustable rate for a fixed period and then offers an adjustable rate for a period that is based on the principal outstanding.
D) All of the above are examples of hybrid ARMs.
E) None of the above.
Q3) For each of the following types of debt, please indicate whether the debt is (a) tax deductible and (b) secured.
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9
Chapter 8: Non Financial Investments
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33 Verified Questions
33 Flashcards
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Sample Questions
Q1) Is leasing presented as a liability on the household's balance sheet?
A) Yes.
B) No.
C) No, unless the household is attempting to qualify for a new loan.
D) Yes, unless the household is attempting to qualify for a new loan.
E) None of the above.
Q2) What is the Return on House for Period?
A) (Increase in House Value During Period - Rent Not Paid - Cost of Upkeep)/Market
Value of House Beginning of Period.
B) (Increase in House Value During Period - Rent Not Paid - Cost of Upkeep)/Market Value of House End of Period.
C) (Increase in House Value During Period + Rent Not Paid - Cost of Upkeep)/Market
Value of House Beginning of Period.
D) (Increase in House Value During Period + Rent Not Paid - Cost of Upkeep)/Market Value of House End of Period.
E) None of the above.
Q3) 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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Chapter 9: Financial Investments
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Sample Questions
Q1) 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.
Q2) Unsystematic risk is:
A) The risk of overall market factors.
B) The risk related to an individual company.
C) Given a benchmark value of 1.
D) Correlated with market returns.
E) None of the above.
Q3) Which of the following is not a question that is asked during the performance evaluation?
A) How did I do?
B) What were the reasons for the under or overperformance?
C) What can I do to improve future performance?
D) All of the above.
E) Only b and c.
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Page 11
Chapter 10: Risk Management
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Sample Questions
Q1) What are search costs?
A) Costs that the person desiring to be insured undertakes to find out which policy is best.
B) Costs that the insurance company incurs to attract clients.
C) The costs that the insured individual incurs when attempting to collect cash from the insurance company.
D) Overhead costs.
E) None of the above.
Q2) Which of the following is not a strength associated with a whole life policy?
A) The premiums remain level over time and thus aren't unaffordable in later years.
B) Higher payments than needed to cover mortality risk are an effective "forced savings" component for those who need it.
C) The policy is designed to commonly pay a cash benefit to the beneficiary in contrast to term's less frequent payout as temporary insurance.
D) All of the above are strengths associated with a whole life policy.
E) None of the above is a strength associated with a whole life policy.
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 statements is accurate?
A) Payments as reimbursement for property losses are not taxable.
B) Payments as reimbursement for property losses are not tax deductible.
C) Property losses are not tax deductible.
D) All of the above.
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) The minimum coverage generally associated with umbrella coverage is:
A) $250,000
B) $500,000
C) $750,000
D) $1 million.
E) There is no minimum coverage.
Q4) Please list the type of dwelling and type of coverage associated with the eight types of homeowner's policies.
Page 13
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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 categories are more likely to favor a later Social Security payout date?
A) Men.
B) People in low marginal tax brackets.
C) Women.
D) Those in weak health.
E) None of the above.
Q3) Which of the following is the second step of the retirement planning process?
A) Analyze retirement risks.
B) Familiarize yourself with retirement issues.
C) Develop goals.
D) Become knowledgeable about retirement structures.
E) None of the above.
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Chapter 13: Educational Planning
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31 Flashcards
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Sample Questions
Q1) 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.
Q2) What are the steps in the educational policy statement process?
Q3) As the starting date of the education approaches, allocation of education savings to bond and money markets should:
A) Not change
B) Decrease
C) Increase.
D) Represent 13.3% of the portfolio.
E) None of the above.
Q4) For each of the following areas, please list important topics that should be discussed to help client's become financial literate:
Q5) Please list and explain seven basic financial literacy principles.
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Page 15
Chapter 14: Tax Planning
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34 Flashcards
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Sample Questions
Q1) Which of the following is not an individual tax-advantaged investment?
A) Roth IRA.
B) Home.
C) Real estate investment.
D) Series EE bonds.
E) All of the above are individual tax-advantaged investments.
Q2) David expects taxable revenues of $110,333 in the current year. His adjustments to revenues are projected to be $18,222 this year. His deductions and exemptions are projected at $35,666. There is no state income tax where David resides, and his assumed tax bracket is 30%. What is his adjusted gross income?
A) $19,110.24.
B) $19,112.50.
C) $19,113.50.
D) $19,110.50.
E) None of the above.
Q3) Please detail the principal components of the tax return.
Q4) Please list and explain eight tax planning strategies.
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16
Chapter 15: Estate Planning
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Sample Questions
Q1) Which of the following assets do not bypass probate?
A) Those that are titled joint with right of survivorship.
B) Qualified pension plans such as IRA and 401.
C) Nonqualified deferred compensation plans.
D) Proceeds from life insurance on the decedent's life payable to a named beneficiary other than the decedent or the estate of the decedent.
E) All of the above bypass probate.
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 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.
Q4) What are the fourteen steps of estate planning?
Page 17
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Chapter 16: Stocks, Bonds and Mutual Funds
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33 Verified Questions
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Sample Questions
Q1) Sales charges that are covered under marketing fees for loan funds are:
A) 12b-1 fees.
B) 12a-1 fees.
C) 10b-1 fees.
D) 10a-1 fees.
E) None of the above.
Q2) A callable corporate bond may be retired if:
A) Interest rates rise sharply.
B) Interest rates decrease sharply.
C) Default rates rise sharply.
D) Default rates decrease sharply.
E) None of the above.
Q3) What is a load fund?
A) A fund that that does not offer sales commissions to the marketers of the funds.
B) A fund that provides a sales commission to the individual or brokerage firm that markets the fund.
C) A fund where the management company does not charge a load that they retain.
D) Both a and b.
E) Both b and c.
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Chapter 17: Background Topics
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Sample Questions
Q1) What was the highest annual inflation in a given year in the U.S. during the period 1950-2004?
A) 10.4%.
B) 11.0%.
C) 11.2%.
D) 13.6%.
E) None of the above.
Q2) Which of the following is not one of the factors in the index of leading indicators?
A) Stock prices.
B) Consumer expectations.
C) Money supply.
D) Initial unemployment claims.
E) All of the above are factors.
Q3) Giving up something that has value in return for an act or promise is:
A) Compromise.
B) Consideration.
C) Contract.
D) Offer.
E) Acceptance.
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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) 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.
Q3) Can Total Portfolio Management be used to determine asset selection alone?
A) Yes.
B) No.
C) Only when assets and liabilities are correlated.
D) Only when assets and liabilities are not correlated.
E) None of the above.
Q4) Which of the following is not a way through which to make integrated financial decisions?
A) Total portfolio management.
B) Capital needs risk management.
C) Simple capital needs analysis.
D) Capital needs analysis incorporating risk.
E) All of the above are ways through which to make integrated financial decisions.
Q5) Please list the 11 steps associated with a retirement needs analysis.
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Page 20
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) Please list and describe six common heuristics.
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.
Q4) What are the strengths and weaknesses of behavioral finance relative when compared to classical finance?
Q5) Please list and discuss seven methods that are helpful for maintaining control to achieve planned savings.
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Chapter 20: Completing the Process
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Sample Questions
Q1) Reviews of the financial plan should identify:
A) Cyclical differences.
B) Implementation differences.
C) Systematic differences.
D) All of the above.
E) None of the above.
Q2) The financial plan should be written:
A) Before the behavioral review.
B) After the behavioral review.
C) Both before and after the behavioral review.
D) During the beginning of the behavioral review.
E) None of the above.
Q3) Which of the following observes the effect of changes in multiple variables or in one variable that influences many situations?
A) Scenario analysis.
B) Sensitivity analysis.
C) SWOT analysis.
D) All of the above.
E) None of the above.
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Page 22