Introduction to Financial Planning Study Guide Questions
Course Introduction
Introduction to Financial Planning provides students with a foundational understanding of personal and corporate finance strategies, focusing on the principles and processes involved in developing effective financial plans. This course covers key topics such as budgeting, saving, investment planning, risk management, insurance, retirement planning, and tax considerations. Students will explore the tools and techniques used to assess financial goals and construct comprehensive plans tailored to individual and organizational needs, preparing them to make informed financial decisions and to understand the ethical and regulatory environment of the financial planning profession.
Recommended Textbook
Personal Finance 2nd Edition by Robert B. Walker
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Page 2
Chapter 1: Money Matters: Values, vision, mission, and You
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Sample Questions
Q1) Which of the following is not a characteristic of the empty-nest life stage?
A)Paying for your children's current college education
B)Beginning to plan for retirement
C)Making more money than ever before
D)Investing more money in conservative investments
Answer: B
Q2) The rule for allocating your money that takes into account community responsibility and retirement is called the ________ rule.
A)90-5-5
B)82-8-10
C)60-20-20
D)80-10-10
Answer: D
Q3) What do you need to create a personal mission statement?
A)Money and family
B)Food and a car
C)Values and a vision of the future
D)Morals and logic
Answer: C
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Page 3
Chapter 2: Planning and Budgeting
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Q1) What is the last section on a standard budget worksheet?
A)End of Year Balance
B)Extraordinary Expenses
C)Variable Monthly Expenses
D)Fixed Payments
Answer: B
Q2) Which is an example of a budget?
A)Making a plan around your income,savings,and spending
B)Spending your money at will
C)Balancing your checkbook
D)Assuming someone will give you money every month
Answer: A
Q3) What is the first step of building your own budget?
A)List all of your fixed payments
B)Record your income and when you receive it
C)List all of your extraordinary expenses
D)List all of your variable monthly expenses
Answer: B
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4
Chapter 3: Financial Instruments and Institutions
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Sample Questions
Q1) ________ are similar to 401(k)plans as they are both funded with pretax earnings.
A)Roth IRAs
B)Traditional IRAs
C)Certificates of deposit
D)Mutual funds
Answer: B
Q2) Banks are required by law to send you a statement regarding your checking account.
A)True
B)False Answer: True
Q3) Which of the following is known as a negotiable instrument?
A)Checks
B)Cash
C)Credit card
D)Debit card
Answer: A
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Chapter 4: Time Value of Money
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Sample Questions
Q1) When interest is added to your initial deposit and you begin to earn interest on interest,this is known as
A)the annual percentage rate.
B)the time value of money.
C)compounding.
D)the future value of money.
Q2) You have a long-term goal of paying off your school loans in five years.You will graduate with a loan debt of $20,000 and an interest rate of 6%.How much will you need to pay each month to have the debt paid off in five years?
A)$386.66
B)$400.00
C)$390.17
D)$368.08
Q3) The process of discounting involves knowing how much money you would have had to deposit today in order to have a specific amount in the future.
A)True
B)False
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Chapter 5: Consumer Credit: Credit Cards and Student Loans
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Q1) Title loan lenders are required to show you their interest rates in annual percentages which can approach 300% depending upon the state.
A)True
B)False
Q2) The terms of a predatory loan are crafted to make it easy to roll over the loan and keep you in a cycle of debt.
A)True
B)False
Q3) What is an alternative to being taken advantage of through predatory lending?
A)Ask your bank for a personal loan
B)Obtain a cash advance on your credit card
C)Ask your employer for your check in advance
D)All of the options are correct.
Q4) For a good credit score,never carry a balance of more than ________ of your credit limit on your credit card.
A)25%
B)30%
C)50%
D)60%
Chapter 6: Credit Bureau Reports and Identity Theft
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Q1) Which of these measures is the most accurate predictor of your future payment performance?
A)Payment history
B)Length of credit history
C)Types of credit
D)Amount of money you can borrow
Q2) What is the percentage of accountability that is shown on your FICO score for how timely your payments have been?
A)40%
B)30%
C)35%
D)25%
Q3) What is the most common form of identity theft?
A)Unauthorized use of a credit card,debit card,or check
B)Using another person's personal information to obtain credit
C)Using another person's personal information to obtain a job
D)Using another person's personal information to travel to another country
Q4) The simplest,most common form of credit is a debit card.
A)True
B)False
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Chapter 7: Auto and Home Loans
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Q1) A real estate agent works for the ________.
A)buyer
B)seller
C)buyer or seller
D)buyer and seller
Q2) What is an adjustable-rate mortgage (ARM)?
A)A home loan in which the interest rate varies based on a benchmark plus an additional spread,called an ARM margin; also known as a "variable-rate mortgage" or a "floating-rate mortgage"
B)A loan that has a specified payment amount and a specified repayment schedule
C)A ratio expressing the amount of a first mortgage lien as a percentage of the total appraised value of real property
D)A mortgage with a strict rate
Q3) Which is not an advantage of buying a home?
A)It can provide tax advantages.
B)Full capital gains exclusion if you live in the house for less than two years before selling.
C)You can get a second mortgage home equity loan.
D)All of the choices are correct.
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Chapter 8: Debt,foreclosure,and Bankruptcy
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Sample Questions
Q1) What do you call altered mortgage terms that attempt to keep borrowers from foreclosure?
A)Forbearance
B)Reinstatement
C)Cramdown
D)Bankruptcy
Q2) What is the 10-second rule?
A)If you drop an item in a store,it's still safe to pick it up after 10 seconds
B)Hold an item for 10 seconds before you put it in your cart,asking yourself if you really need the item and,can afford to pay for it
C)Put an item in your cart and,if you don't want it after 10 seconds take it out
D)All of the choices are correct.
Q3) If you focus on paying off the largest balance first,you can gain momentum in getting out of debt by experiencing a "quick win".
A)True
B)False
Q4) Chapter 7 bankruptcy is also known as wage-earner bankruptcy.
A)True
B)False
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Chapter 9: Tax Management
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Sample Questions
Q1) One way to reduce tax liability is to take advantage of your cafeteria plan at work.
A)True
B)False
Q2) Which of the following is not included in a cafeteria plan?
A)Accident benefits
B)Car care
C)Dependent care
D)Adoption assistance
Q3) If you made $25,000 last year in income and paid $100 in gasoline tax,what percentage of your income goes towards 'gasoline' tax?
A)0.004%
B)0.4%
C)0.025%
D)0.25%
Q4) What is a cafeteria plan?
A)A meal plan at work
B)An employee-selected benefit plan
C)Mutual funds
D)None of the options are correct.
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Chapter 10: Insurance: Covering Your Assets
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Sample Questions
Q1) Which of the following is not a type of life insurance?
A)Term life insurance
B)Mid-term life insurance
C)Whole life insurance
D)Universal life insurance
Q2) Homeowner's insurance generally does not cover earthquakes or floods.
A)True
B)False
Q3) Health insurance requires a basic understanding of monthly premiums,deductibles,copayments,coinsurance,and exclusions.
A)True
B)False
Q4) How do independent agents differ from company insurance agents?
A)Company insurance agents may represent a single company provider who sells insurance from many companies.
B)Independent insurance agents represent more than one insurance company and can sell insurance from a wide range of insurance companies.
C)There is no difference between an independent and company insurance agent.
D)Independent insurance agents represent one insurance company.
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Chapter 11: Investment Basics
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Sample Questions
Q1) Which instrument does not have a zero default risk?
A)Federal Deposit Insurance Corporation (FDIC)account
B)National Credit Union Association (NCUA)account
C)Mutual fund account
D)U.S.Treasury bills
Q2) Which instrument is not typical for persons in the independent financial life stage?
A)Direct deposit into savings account
B)529 college savings plan
C)Quality stock
D)Roth IRA
Q3) Your tax liability is 30 percent of your $60,000 salary,and you contribute 7 percent annually to your 401(k).If your employer contributes $0.50 per dollar up to the first 5 percent of your salary,how much money is being deposited in total to your 401(k)by taking full advantage of the employer match?
A)$2,500
B)$4,500
C)$4,250
D)$5,700
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13
Chapter 12: Mutual Funds
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Sample Questions
Q1) Measuring fund performance against the S&P 500 can show the consistency of the fund's returns; only about ________ of the fund managers beat the S&P 500 consistently,and they usually have higher expense ratios than index funds.
A)5%
B)10%
C)15%
D)25%
Q2) Exchange-traded funds are like mutual funds in that they are often structured as an open-end investment company,but they also resemble stock as they are traded throughout the day on a stock exchange.
A)True
B)False
Q3) No-load funds often outperform load funds--especially when you consider that 100% of the investment is working for you.
A)True
B)False
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Chapter 13: Stocks
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Q1) Preferred stock ________.
A)provides voting rights
B)pays out dividends as a percentage of par value
C)is converted to common stock
D)has a lower priority than common stock
Q2) Calculate the ________ to assess a company's ability to cover its interest payments,as compared to its peers.
A)debt ratio
B)current ratio
C)times interest earned ratio
D)asset ratio
Q3) A(n)________ involves the sale of borrowed stocks.
A)bracket order
B)extended-hours order
C)good-til-cancelled order
D)short-sell order
Q4) Evaluation criteria to pull from the balance sheet and income statement should focus on liquidity and financial leverage.
A)True
B)False
Page 15
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Chapter 14: Bonds
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Sample Questions
Q1) Building a bond ladder is the process of buying bills,notes,and bonds that mature
A)at different rates
B)in different years
C)in your later years
D)in synchronization
Q2) Convertible bonds typically have low coupon rates but are of additional value through the option to convert the bond to stock and thereby participate in further growth in the company's equity value.
A)True
B)False
Q3) A bond ladder ________.
A)helps reduce the risk of interest rates changes by spacing out the maturities
B)refers to monthly contributions into a bond mutual fund
C)guarantees that you will always get the best interest rates on the bonds you invest in
D)is a strategy that helps you achieve your financial goals by "climbing the ladder"
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Chapter 15: Real Estate Investments
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Sample Questions
Q1) How is your income taxed in a rental partnership?
A)Individual tax
B)Corporation tax
C)Joint tax
D)Not taxed
Q2) A ________ is the ratio of money gained or lost on an investment relative to the amount of money invested.
A)return on investment
B)profit
C)investment yield
D)turnover
Q3) Which of the following activities can a landlord not do?
A)Ask for a reference
B)Talk to a tenant's previous landlord
C)Run a credit check
D)Be selective about which candidates he or she screens
Q4) A real estate investment trust pools funds from a group of individuals and invests it in real estate.
A)True
B)False
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Chapter 16: Retirement and Estate Planning
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Q1) A(n)________ is a document that expresses your wishes regarding medical treatment in the event of incapacitation.
A)advance directive
B)durable power of attorney for health care
C)estate plan
D)power of attorney
Q2) Charitable remainder trusts have tax advantages but provide no estate planning benefits.
A)True
B)False
Q3) Once you start drawing on your Social Security retirement funds,________.
A)your amount is set for life
B)you will receive an adjustment for inflation on your birthday
C)the amount you receive will be recalculated based on your life expectancy and your physician's report of your health
D)you will receive an annual adjustment each January for inflation most years
Q4) A bypass trust allows married people to avoid certain taxes after death.
A)True
B)False
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Chapter 17: Financial Planning for Life
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Sample Questions
Q1) To simplify material things that are physically and mentally exhausting,you should
A)prioritize,minimize,and socialize.
B)balance,prioritize,and minimize.
C)organize,energize,and economize.
D)prioritize,spiritualize,and minimize.
Q2) At the end of the year or with major events such as buying a new home,getting a new job,having a baby,or getting a raise,it is always a good idea to sit down and reassess your overall annual budget.
A)True
B)False
Q3) Which of the following is not a way to assess your financial plan against your values,vision,and life?
A)Prioritize
B)Minimize
C)Organize
D)Monopolize
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