Introduction to Financial Planning Exam Bank
Course Introduction
Introduction to Financial Planning provides students with a foundational understanding of personal and professional financial management. The course covers key concepts such as budgeting, saving, investing, risk management, retirement planning, insurance, tax strategies, and estate planning. Students will explore the process of setting and achieving financial goals, analyze different financial products and services, and examine the ethical and legal considerations involved in financial planning. Practical case studies and real-world scenarios will be used to illustrate strategies for building financial security and making informed decisions, equipping students with essential skills for both personal finance and careers in financial services.
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 underlying goal of a household when making personal financial planning decisions is to:
A) Minimize expenditures
B) Minimize risk
C) Maximize cash inflows
D) Maximize leisure time
E) Maximize standard of living
Answer: E
Q2) Which of the following best defines household finance?
A) The study of how a household and the people in it develop the cash flows necessary to support operations and provide for the well-being of its members.
B) The study of how much it costs to purchase a home.
C) The study of how a household and the people in it can minimize the risk of bankruptcy.
D) The study of how the number of people in a household can be maximized.
E) The study of how a household and the people in it limit expenditures and maximize cash inflows.
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) 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) Which of the following characterizes communication?
A) It is the ability to transmit a message successfully to another person.
B) It is required to demonstrate to others that we possess desirable traits.
C) It is necessary even if you are honest, knowledgeable, and concerned.
D) All of the above.
E) None of the above.
Answer: D
Q2) 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
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Chapter 4: Household Finance
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Sample Questions
Q1) If an individual can earn $42 per hour and chooses to exercise ten hours a week rather than work, what is the individual's opportunity cost of time per week?
A) 10 hours.
B) $42
C) $420
D) All of the above are different ways of expressing the opportunity cost of time per week.
E) None of the above.
Q2) What does a household represent?
A) An organizational structure that unites its occupants.
B) A structure with a form that affects a business.
C) The combined financial actions of a family.
D) Logical decision making by a family.
E) None of the above.
Q3) Please provide a breakdown of alternative household structures and their effect on financial, legal, and tax matters.
Q4) 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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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) Which of the following is not applicable to a traditional household statement of cash flows?
A) Resembles business cash flow statement.
B) Calculates net cash flows properly.
C) Handles revenues properly.
D) It is simpler than a functional household statement of cash flows.
E) All of the above are applicable to a traditional household statement of cash flows.
Q3) Pension plans that pay out yearly income upon retirement are an example of:
A) Human-related assets.
B) Marketable investments.
C) Human assets.
D) Current assets.
E) None of the above.
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Page 7
Chapter 6: Cash Flow Planning
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Sample Questions
Q1) The ratio of discretionary expenses plus discretionary capital expenditures to cash flows before discretionary expenses is the:
A) Discretionary cost percentage.
B) Total operating percentage.
C) Discretionary payout percentage.
D) Nondiscretionary cost percentage.
E) None of the above.
Q2) The capacity to find a seller or buyer of an asset at its current value is:
A) Liquidity.
B) Liquidity substitute.
C) Marketability.
D) Emergency substitute.
E) None of the above.
Q3) 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.
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Chapter 7: Debt
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Sample Questions
Q1) Which of the following is true when the mortgage loan is an amortizing loan?
A) At the beginning of the term of the loan the largest part of the payment is a paydown of principal, but a payments progress a rising portion is applied to interest payments.
B) Interest payments and paydown of principal remain constant during the loan.
C) At the beginning of the term of the loan the largest part of the payment is interest, but a payments progress a rising portion is applied to the paydown of principal.
D) Paydown of principal occurs at the end of the loan.
E) None of the above.
Q2) Which of the following is not a characteristic of debt?
A) It may make it possible to balance the peaks and valleys in one's spending pattern.
B) It does not help one even out life cycle style needs.
C) It allows an outlay for a significant capital expenditure.
D) All of the above are characteristics of debt.
E) None of the above are characteristics of debt.
Q3) What are the advantages and disadvantages associated with fixed rate and variable rate mortgages?
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Page 9
Chapter 8: Non Financial Investments
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Sample Questions
Q1) When calculating the NPV, what discount rate should we use?
A) A discount rate equal to the investment return that could be earned on nonmarketable securities with similar risk characteristics.
B) A discount rate equal to the investment return that could be earned on marketable securities with similar risk characteristics.
C) A discount rate equal to the investment return that could be earned on low-risk marketable securities.
D) A discount rate equal to the investment return that could be earned on high-risk nonmarketable securities.
E) None of the above.
Q2) Which of the following is not an economic reason for leasing?
A) The lessor may absorb the risk of technological or fashion obsolescence or large unforeseen expenditures on the asset.
B) The lessor is sometimes able to develop efficiencies in specializing in that asset.
C) The business owner may receive tax benefits that the lessor will not.
D) All of the above are economic reasons for leasing.
E) None of the above is an economic reason for leasing.
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Chapter 9: Financial Investments
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Sample Questions
Q1) Which of the following best defines mean reversion?
A) Returns for securities tend to move toward higher performance when returns are examined over shorter time frames.
B) Returns for securities tend to move toward lower performance when returns are examined over shorter time frames.
C) Returns for securities tend to move toward average performance when returns are examined over longer time frames.
D) All of the above.
E) None of the above.
Q2) Which of the following is the furthest to the left of the security market line?
A) Government bonds.
B) High quality stocks.
C) Corporate bonds.
D) Risk-free rate.
E) None of the above.
Q3) Please list and explain nine strengths associated with mutual funds.
Q4) Please list and explain eleven fundamental risks associated with financial assets.
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11
Chapter 10: Risk Management
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Sample Questions
Q1) Which of the following is not a factor in determining the appropriate overall risk management tool to choose?
A) The cost of alternative risk management techniques.
B) The amount and likelihood of loss.
C) Convenience factors.
D) The risk tolerance of the risk management tool.
E) All of the above are factors.
Q2) Which of the following insurance categories provides coverage that makes payments to replace income of the insured once the person is incapacitated?
A) Life.
B) Long term care.
C) Health.
D) Disability.
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 offered by all three types of medical coverage?
A) Nonsurgical costs whether in or out of the hospital.
B) A basic surgical policy to pay for the surgeon's costs, whether in or out of the hospital.
C) A basic hospital policy for hospital costs such as room, board and ancillary services.
D) All of the above are offered by all three types of medical coverage.
E) None of the above is offered by all three types of medical coverage.
Q2) A hazard is best defined as:
A) An increase in the probability of peril.
B) The opposite of peril.
C) Uncertainty.
D) All of the above.
E) None of the above.
Q3) Which of the following is not an example of property and liability insurance?
A) Liability to others.
B) Umbrella insurance.
C) Homeowner's insurance.
D) All of the above are examples of property and liability insurance.
E) None of the above is an example of property and liability insurance.
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Chapter 12: Retirement Planning
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Sample Questions
Q1) Which of the following is not type of risk associated with planning for retirement?
A) Investment risk.
B) Inflation risk.
C) Longevity risk.
D) Health risk.
E) All of the above are types of risk associated with planning for retirement.
Q2) For each of the following competing instruments, compare the advantages of an annuity and the advantages of the competing instrument.
(a) CD
(b) Taxable Bond
(c) Municipal Bond
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) Which of the following is not a topic that should be discussed to assist clients in financial literacy in the area of investments?
A) Appreciating diversification and the benefits of long term investing.
B) Understanding the advantage of index funds for low maintenance supervision.
C) How to deal with impulsive investment behavior.
D) Explaining the most attractive way to purchase investment selections.
E) All of the above should be discussed to assist clients in financial literacy in the area of debt.
Q2) From an economic standpoint, financial literacy is important as:
A) Its absence can lead to a misallocation of resources that affects society's productivity.
B) Its absence can lead to financial ruin for the household.
C) Its absence can lead to lower accumulation of wealth for the household.
D) All of the above.
E) None of the above.
Q3) What are the steps in the educational policy statement process?
Q4) Please list and explain seven basic financial literacy principles.
Q5) For each of the following areas, please list important topics that should be discussed to help client's become financial literate:
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Chapter 14: Tax Planning
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Sample Questions
Q1) Dollar-for-dollar reductions in gross tax are:
A) Adjustments.
B) Other taxes.
C) Credits.
D) Total tax due.
E) None of the above.
Q2) Which of the following is not a factor that can lead to your marginal tax bracket varying from year to year?
A) Fluctuations in income earned.
B) Unusually high or low deductible expenses.
C) A change in the country's taxation methods or tax brackets.
D) All of the above are factors that can lead to your marginal tax bracket varying from year to year.
E) None of the above is a factor that can lead to your marginal tax bracket varying from year to year.
Q3) Please detail the principal components of the tax return.
Q4) 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) Fast growing assets:
A) Are often preferred gifting vehicles as they eliminate assets that can increase the estate's valuation.
B) Are not preferred gifting vehicles as they eliminate assets that can increase the estate's valuation.
C) Are often preferred gifting vehicles as they do not eliminate assets that can increase the estate's valuation.
D) Are not preferred gifting vehicles as they do not eliminate assets that can increase the estate's valuation.
E) None of the above.
Q2) For which of the following is life insurance in estate planning irrelevant?
A) Liquidity.
B) Relative assurance of payment.
C) Tax savings.
D) Only c is relevant.
E) All of the above are relevant.
Q3) What are the fourteen steps of estate planning?
Q4) Please list and describe eight factors for which a legally recognized will should be evaluated.
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Chapter 16: Stocks, Bonds and Mutual Funds
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Sample Questions
Q1) Which of the following is an approach that advocates purchasing stocks that have had large price movements relative to the market?
A) Relative investing.
B) Fundamental analysis.
C) Momentum investing.
D) Relative timing.
E) None of the above.
Q2) 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.
Q3) List and provide examples of eight types of specialized funds that concentrate in publicly traded securities.
Q4) List and provide a detailed explanation for nine types of bond funds.
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Chapter 17: Background Topics
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Sample Questions
Q1) A recession is defined as:
A) A three-quarter or longer decline in real overall output for the nation.
B) A two-quarter or longer decline in real overall output for the nation.
C) A three-quarter or longer decline in real industrial output for the nation.
D) A two-quarter or longer decline in real industrial output for the nation.
E) None 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) What is a fiduciary?
A) An officer of the law.
B) A trusted party who acts as an agent for another person.
C) A lawyer designated by the courts.
D) All of the above.
E) None of the above.
Q4) For each of the following types of business organizations, detail the organization's economic, taxation, legal, and life cycle characteristics.
Page 19
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Chapter 18: Capital Needs Analysis
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Q1) Total Portfolio Management:
A) Includes all assets and liabilities.
B) Includes financial assets and liabilities exclusively.
C) Includes only marketable assets and liabilities.
D) Both b and c.
E) None of the above.
Q2) Which of the following is not a question that should be asked to finalize the retirement needs analysis?
A) Are the assumptions those that you believe in?
B) Will you be able to carry out this plan?
C) Is this particular plan what you want to do, assuming you had resources that are currently unavailable to you?
D) Both a and b are not questions that should be asked.
E) Both b and c are not questions that should be asked.
Q3) Which of the following is a method that is commonly used to incorporate risk?
A) Avoid risky capital needs projections.
B) Use Monte Carlo simulation.
C) Be more conservative in our simple capital needs projections.
D) Both a and b.
E) Both b and c.
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Chapter 19: Behavioral Financial Planning
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Sample Questions
Q1) Why is knowledge of actual human behavior arguably more important for Personal Financial Planning (PFP) than for any other area of finance?
A) Due to PFP's closeness to human actions.
B) Due to PFP's emphasis on practicality.
C) Due to the irrational nature of most personal finance decisions.
D) Both a and b.
E) Both b and c.
Q2) 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.
Q3) Which of the following statements is inaccurate?
A) Life goals are based on basic emotions and higher level feelings.
B) Life goals extend beyond traditional finance.
C) Life goals do not have a financial component.
D) All of the above statements are accurate.
E) All of the above statements are inaccurate
Q4) Please list and describe six common heuristics.
Page 21
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Chapter 20: Completing the Process
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Sample Questions
Q1) 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.
Q2) What is the household resource problem?
A) What the household should do to generate resources.
B) What the household should do to spend resources.
C) What the household should do with its current and future cash flow.
D) Both a and b.
E) Both b and c.
Q3) Which of the following is not a tool that enhances the household's decision making function?
A) SWOT analysis.
B) Environmental analysis.
C) Sensitivity analysis.
D) Scenario analysis.
E) All of the above are tools that enhance the household's decision making function.
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