Financial Planning
Textbook Exam Questions
Course Introduction
Financial Planning is a comprehensive course designed to introduce students to the fundamental principles and practices involved in managing personal and organizational finances. The course covers key topics such as budgeting, saving strategies, investment options, risk management, retirement and estate planning, and the ethical considerations inherent in financial decision-making. By engaging with real-world case studies and practical exercises, students will develop analytical skills to evaluate financial goals, construct sound financial plans, and make informed decisions that align with short- and long-term objectives. The course equips learners with the knowledge required to navigate the complexities of the financial landscape and prepares them for responsible financial stewardship in both personal and professional contexts.
Recommended Textbook
Personal Finance 4th Canadian Edition by Jeff Madura
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15 Chapters
1325 Verified Questions
1325 Flashcards
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Page 2
Chapter 1: Tools for Financial Planning - Applying Time
Value Concepts
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86 Verified Questions
86 Flashcards
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Sample Questions
Q1) Approximately how much would you need to invest today,to receive $200 in ten years,if you received an annual interest rate of ten percent?
A)$65
B)$77
C)$87
D)$97
Answer: B
Q2) John wants to have a $10 000 down payment for his car in three years.If he puts away $7000 today and gets a 12.7% annual return,he will have the money he needs.
A)True
B)False Answer: True
Q3) If you borrow money,you will receive interest.
A)True
B)False
Answer: False
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Page 3
Chapter 1: Tools for Financial Planning - Planning with Personal
Financial Statements
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) This month Joshua has $2000 income from his job and $100 interest income.His expenses are rent $500,food and entertainment $400,car expenses $600.He has $40 000 held in bonds and a car loan of $10000 .What is his net worth?
A)$30 000
B)$32 100
C)$30 600
D)$30 500
Answer: A
Q2) In order to have a successful budget experience,you must use both the envelope and the pay yourself first methods.
A)True
B)False
Answer: False
Q3) A liquidity ratio between 1 and 2 is ideal.
A)True
B)False
Answer: False
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Page 4
Chapter 1: Tools for Financial Planning - Using Tax Concepts for Planning
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) A capital gain results from profit on the sale of capital assets.
A)True
B)False Answer: True
Q2) If George is 65 and in a combined marginal tax bracket of 42 percent,then
A)he can save $840 on his taxes if he applies his son's $2000 of tuition amount.
B)he can save $840 on his taxes from his $2000 RRSP contribution.
C)he can save $840 on his taxes from his $2000 medical expenses.
D)All of the above are correct.
Answer: B
Q3) If a stock was purchased for $3000 in January 2003 and is sold in June 2003 for $4000,what is the taxable result?
A)Capital gain of $1000 and taxable income of $500
B)Business income of $1000 and taxable amount of $1000
C)Capital gain of $1000 and taxable income of $1000
D)Taxable capital gain of $1000
Answer: A
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Page 5
Chapter 2: Managing Your Financial Resources - Banking
Services and Managing Your Money
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86 Verified Questions
86 Flashcards
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Sample Questions
Q1) Which of the following financial institutions specialize in making personal loans to people who are perceived to have a higher risk of default?
A)Finance company
B)Commercial bank
C)Trust company
D)Credit union
Q2) Katie's overdraft fee is five dollars with a interest rate 21 percent.When she wrote a cheque that put her account in a $5000 overdrawn position for two weeks,she still saved money compared with a $40 NSF fee.
A)True
B)False
Q3) Describe how interest rates affect your personal budget,income statement,balance sheet,and choices when managing money and liquidity.What kinds of accounts do they affect? Give two specific examples.
Q4) In general,when an investment is more liquid,the return you receive will be
A)lower.
B)higher.
C)less predictable.
D)Liquidity does not affect return.
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Chapter 2: Managing Your Financial Resources -
Assessing,Managing and Securing Your Credit
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98 Verified Questions
98 Flashcards
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Sample Questions
Q1) What would be the real cost of borrowing in the following case? A home equity loan is advertised at three percent compounded monthly,however,there is a legal fee of $400 and appraisal fee of $450 to set up the house as collateral.If Sarah needs to borrow $20 000 for one year,at which time will be able to repay the full amount,what is the effective rate of borrowing the $20 000 for the year?
A)3)04%
B)7)29%
C)7)25%
D)4)25%
Q2) Identity theft is only conducted by individuals who do not have legitimate access to your information.
A)True
B)False
Q3) Which of the following is most accurate about second mortgages?
A)Most people have two mortgages on their homes.
B)The primary mortgage is for the down payment and the secondary mortgage is the main mortgage.
C)A home equity loan is commonly a second mortgage.
D)Second mortgages are last resort financing.
Page 7
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Chapter 2: Managing Your Financial Resources -
Purchasing and Financing a
Home
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86 Verified Questions
86 Flashcards
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Sample Questions
Q1) Due to the high interest rates charged,a vendor take-back mortgage is generally a worse option than a high ratio mortgage.
A)True
B)False
Q2) In order to qualify for a mortgage you must conform with both the gross debt service ratio and total debt service ratio.
A)True
B)False
Q3) Peter and Mary make a $25 000 down payment on a $400 000 home.
CMHC charges the following rates on the loan to value ratio: Up to and including 80 percent,2.40 percent; up to 85 percent,2.80 percent; up to 90 percent,3.10 percent; up to 95 percent 4.00 percent.
What will be the CMHC insurance premium?
Illustrate the calculation on the loan insurance premium that Peter and Mary have to pay.
Q4) It is possible to sell a house without paying a commission.
A)True
B)False
Page 8
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Chapter 3: Protecting Your Wealth - Auto and Homeowner's Insurance
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88 Verified Questions
88 Flashcards
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Sample Questions
Q1) If Eric's dog ran across a road and caused a driver to swerve and injure a passerby,Eric's umbrella personal liability coverage could cover the expenses of both the driver and the injured pedestrian.
A)True
B)False
Q2) Which of the following is the most important reason to carry significant third Chaptery liability coverage?
A)It would provide medical and rehabilitation coverage for you and the passengers in your car,to the limit you select,and if insufficient,you would be required to pay the difference.
B)It provides excess medical and rehabilitation coverage if you are not at fault.
C)It provides excess coverage for accidents caused by uninsured and under insured motorists,when you are not at fault and if insufficient,you would be required to pay the difference.
D)It provides coverage for any court ordered awards to injured parties if you are at fault and if your coverage is insufficient,you would be required to pay the difference.
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Chapter 3: Protecting Your Wealth - Health and Life Insurance
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95 Verified Questions
95 Flashcards
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Sample Questions
Q1) Which of the following statements is true regarding disability insurance?
A)You should have it even if you are retired and living on a pension.
B)The principle of indemnification will limit the amount of coverage you can get with an individual policy.
C)If you are self-employed,critical illness insurance would be a better option than disability.
D)Disability insurance from an employee group plan is the best coverage.
Q2) In comparing term insurance with mortgage life insurance,which of the following is true?
A)The premiums decrease with mortgage insurance but not with term insurance.
B)Mortgage insurance is less expensive because of the group discount.
C)The owner has more control with term insurance.
D)Mortgage insurance is guaranteed renewable.
Q3) The similarity between disability income and long-term care insurance is
A)they both require proof of income.
B)they both have a waiting period.
C)they both provide a death benefit.
D)they both extend benefits beyond age 65.
Q4) From the employer's perspective,describe four advantages for group health insurance plans.
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Chapter 4: Personal Investing - Investing Fundamentals
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89 Verified Questions
89 Flashcards
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Sample Questions
Q1) The return-risk relationship means
A)the ideal investment has high return and low risk.
B)the downside risk is all that really matters to investors.
C)the higher the return expectation of an investment,the greater the uncertainty.
D)a diversified mutual fund will have low risk.
Q2) You can reduce your investment risk most effectively through
A)asset allocation.
B)limiting the time horizon.
C)diversifying stocks.
D)maximizing the beta.
Q3) Explain how it is possible to add more risky assets to a portfolio and reduce the overall risk.Give a specific example of how this could be done for a conservative portfolio.
Q4) The returns on bond investments may come from A)fixed coupon interest only.
B)fixed coupon interest and bond price appreciation.
C)fixed coupon dividend and bond price appreciation.
D)bond price appreciation only.
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Chapter 4: Personal Investing - Investing in Stocks
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) Limit orders are always preferable to market orders.
A)True
B)False
Q2) An example of fraud in financial reporting would be
A)allowing orders to be cancelled.
B)arriving at a P/E using the weighted average number of shares outstanding during the year.
C)inflating revenues by recording income from contracts which will extend beyond one year.
D)advising your auditors about a change in accounting procedures.
Q3) What additional risk is involved when buying stock on margin?
A)The interest rate charge
B)The leverage
C)A margin call
D)The amount borrowed
Q4) A firm with a low debt ratio relative to the industry norm has a high degree of financial leverage and therefore may have a relatively high risk of default.
A)True
B)False
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Chapter 4: Personal Investing - Investing in Bonds
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86 Verified Questions
86 Flashcards
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Sample Questions
Q1) When considering the risk from investing in a 25-year government of Canada bond yielding 4 percent,the most significant risk is interest rate risk.
A)True
B)False
Q2) Which of the following government of Canada bonds (with all other features the same)would have the most interest rate risk?
A)A 3% coupon bond maturing in ten years
B)A 6% coupon bond maturing in ten years
C)A 3% coupon bond maturing in five years
D)A 6% coupon bond maturing in five years
Q3) Given the following ATT Ltd.bond information:$1000 par value,maturity Dec 22,2023,semi-annual coupon 7.75 percent,price 105.50 and yield 7.4 percent.How much interest does it pay annually?
A)$7.50
B)$77.50
C)$7.40
D)$74.00
Q4) List and describe three strategies to invest in bonds.
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Page 13
Chapter 4: Personal Investing - Investing in Mutual Funds
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85 Verified Questions
85 Flashcards
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Sample Questions
Q1) If Becky is going to retire soon,which of the following funds is most appropriate for her?
A)Income funds
B)Growth funds
C)Hedge funds
D)Small-cap funds
Q2) Compare three factors (such as level of diversification,MERs,management and/or performance)between segregated funds,ETFs and mutual funds.Provide your own opinion as to the advantages or disadvantages.
Q3) Advantages of investing in mutual funds include all of the following except
A)diversification of your investment.
B)professional management.
C)meeting specific investment goals.
D)eliminating systematic risk.
Q4) Which of the following bond mutual funds have both the highest default risk and interest rate risk?
A)Long-term AAA corporate bonds
B)Short-term BBB corporate bonds
C)Short-term high-yield corporate bonds
D)High-yield long-term corporate bonds
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Chapter 5: Retirement and Estate Planning - Retirement Planning
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) Which is a key difference between RRSPs and TFSAs?
A)TFSA withdrawals are taxed.
B)RRSPs' contribution limit accumulates.
C)TFSAs give tax deductions on contributions.
D)RRSP withdrawals are taxed.
Q2) Paul starts saving $1000 per year from age 25,while Harper starts saving $5000 per year at age 45.At a moderate rate of return of 7 percent,how much will each have at age 65?
Q3) The combination of Old Age Security and the Canada Pension plan provide sufficient income to support the retirement lifestyle of most individuals.
A)True
B)False
Q4) Arnie is 21 years old and earning $35 000 annually.If inflation averages three percent annually over his career,what will he have to earn at age 60 to equal his current pay?
A)$105 500
B)$114 171
C)$128 500
D)$110 846
Page 15
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Chapter 5: Retirement and Estate Planning - Estate Planning
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) A non-continuing power of attorney with a specified task
A)becomes enforceable as a will if the grantor dies.
B)becomes transferable if the attorney is incapacitated.
C)expires when the task or event has been completed.
D)has all-encompassing power if the grantor becomes incapacitated.
Q2) A living will is a simple legal document in which individuals specify their preferences if they become mentally or physically disabled.
A)True
B)False
Q3) When considering holding assets as joint ownership with rights of survivorship for estate planning purposes,it is important to understand
A)that capital gains taxes will be deferred on this transaction until the survivor passes.
B)how the spousal roll-over rules will impact capital gains taxation.
C)the implications of giving up your decision making power over the asset.
D)that naming a child as a joint owner of your principal residence will trigger capital gains taxes.
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Page 16
Chapter 6: Synthesis of Financial Planning - Integrating the Components of
a Financial Plan
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) Which of the following is true when comparing RRSPs and TFSAs?
A)An RRSP is generally considered to be a more flexible account than a TFSA.
B)A TFSA is generally considered to be a more flexible account than an RRSP.
C)TFSAs should be used primarily for short and long term saving needs instead of long term retirement savings.
D)RRSPs should be used primarily for short and long term saving needs instead of long term retirement savings.
Q2) To budget for savings or retirement,you need positive cash flows.
A)True
B)False
Q3) List three types of financing you have studied and an important consideration about each one of them
Q4) Which of the following accounts offers tax deferral,tax sheltering,and tax deduction for contributions?
A)Only TFSA
B)RRSP and TFSA
C)Only RRSP
D)RRSP and RESP
Page 17
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