Introduction to Financial Planning Test
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Course Introduction
Introduction to Financial Planning provides students with a foundational understanding of the principles and practices involved in managing personal and household finances. The course covers essential topics such as budgeting, saving, investment strategies, risk management, retirement planning, tax planning, and insurance. Emphasis is placed on developing practical skills for setting financial goals, creating comprehensive financial plans, and making informed decisions to achieve long-term financial security. Through case studies and real-world applications, students gain the knowledge necessary to navigate the complexities of financial products and markets, preparing them for personal financial management and introductory roles in the financial services industry.
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) Which of the following designations does not have a broad educational requirement in financial planning?
A) Chartered Financial Consultant (ChFC)
B) Personal Financial Specialist (PFS)
C) Chartered Financial Analyst (CFA)
D) Certified Financial Planner (CFP)
E) National Association of Personal Financial Advisors (NAPFA) Registered Financial Advisor
Answer: C
Q2) Which of the following characterizes personal financial planning services before 1970?
A) It was widely available to the general population.
B) It was primarily available to the very wealthy.
C) It primarily focused on tax issues.
D) It primarily focused on insurance issues.
E) None of the above characterizes personal financial planning services before 1970.
Answer: B
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Chapter 2: Time Value of Money
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Sample Questions
Q1) 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
Q2) The future value of a sum is a function of:
A) The amount invested at the beginning of the period.
B) The interest rate.
C) The number of compounding periods.
D) All of the above.
E) None of the above.
Answer: D
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Chapter 3: Beginning the Planning Process
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Sample Questions
Q1) Economists quantify goals in:
A) Financial terms.
B) Utility terms.
C) Leisure terms.
D) Behavioral terms.
E) None of the above.
Answer: B
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) Into which of the following categories do personal support costs such as eating, non-business clothing, and personal care belong?
A) Maintenance costs.
B) Overhead costs.
C) Leisure outlays
D) All of the above.
E) Both a and b.
Q2) How does a multiperson household lead to financial efficiencies?
A) Reduction in income fluctuation.
B) Specialization of task.
C) Economies of scale.
D) All of the above.
E) Only b and c.
Q3) 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.
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Page 6
Chapter 5: Financial Statements Analysis
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Sample Questions
Q1) Why is it useful for a footnote to the balance sheet to give the cost of investment assets individually?
A) To avoid double taxation when taxes are filed.
B) To permit estimation of the effect of taxation on the gain upon ultimate sale.
C) As investment assets often cannot be turned into cash immediately without penalty.
D) All of the above.
E) None of the above.
Q2) What is a traditional cash flow statement?
A) A cash flow statement that groups all inflows and outflows together.
B) A cash flow statement that distinguishes between flows based on operating, capital expenditures, and debt repayment.
C) A cash flow statement that lumps together paydown of debt and interest payments.
D) All of the above.
E) Both a and c 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) 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) What is the gross savings percentage?
A) (new cash flow + total income + change in debt)/targeted savings.
B) (new cash flow + targeted savings + change in debt)/total income.
C) (total income + targeted savings + change in debt)/new cash flow.
D) (new cash flow + targeted savings + total income)/change in debt.
E) None of the above.
Q3) Please list and describe eight different reasons for savings.
Q4) 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.
Page 8
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Chapter 7: Debt
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Sample Questions
Q1) Which of the following is not a reason for the popularity of credit cards?
A) Convenience.
B) It can be used to even out flows of expenditures.
C) It is an alternative to holding large cash balances.
D) Bank loans are more costly for amounts under a few thousand dollars when fixed costs and transaction costs are included.
E) All of the above are reasons for the popularity of credit cards.
Q2) Why is it easier for homeowners to qualify to purchase a larger house with an adjustable rate mortgage?
A) Because lenders tend to look at total interest costs in relation to household income in the first year of the loan.
B) Because lenders tend to look at total interest costs in relation to household expenses in the first year of the loan.
C) Because lenders tend to look at total interest costs in relation to household income in the first five years of the loan.
D) Because lenders tend to look at total interest costs in relation to household expenses in the first five years of the loan.
E) None of the above.
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Chapter 8: Non Financial Investments
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Sample Questions
Q1) Which of the following ranges reflects total home ownership rates in 2004?
A) 20-30%
B) 30-40%
C) 40-50%
D) 50-60%
E) 60-70%
Q2) Real assets differ from financial assets as:
A) Real assets generally decline in value over time while financial assets often maintain or increase in value over time.
B) Financial assets generally decline in value over time while real assets often maintain or increase in value over time.
C) Real assets are generally used in the household currently while financial assets may be reserved for future use.
D) Both b and c.
E) Both a and c.
Q3) The mortgage payments for a house you are considering purchasing are $2,500 a month and the taxes and insurance on the home are $7,300 per year. You earn $100,000 per year before taxes and had no other debt. Can you qualify for the bank loan and afford the home?
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Page 10
Chapter 9: Financial Investments
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Sample Questions
Q1) Greater potential returns and greater risk is a characteristic of which of the following?
A) Smaller capitalization companies.
B) Medium capitalization companies.
C) Larger capitalization companies.
D) All of the above.
E) None of the above.
Q2) Which of the following is not a step in the planning system for asset allocation?
A) Consider personal factors.
B) Identify and review investment alternatives.
C) Employ portfolio management principles.
D) All of the above are steps in the planning system.
E) None of the above is a step in the planning system.
Q3) Please list and explain eleven fundamental risks associated with financial assets.
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) Tangible assets that the household owns are:
A) Real assets.
B) Human assets.
C) Financial assets.
D) All of the above.
E) None of the above.
Q2) Which of the following is an adjustment required for a needs analysis?
A) A decline in overall living costs caused by the reduction in household members.
B) Future education costs for children.
C) Repayment of the mortgage to reduce overhead costs and insurance needs resulting from a decline in overall living costs.
D) All of the above.
E) None of the above.
Q3) 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.
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Page 12
Chapter 11: Other Insurance
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Sample Questions
Q1) The risk of a person behaving negligently because he or she has insurance coverage is associated with which of the following?
A) Household risk.
B) Moral hazard.
C) Morale hazard.
D) Pure risk.
E) None of the above.
Q2) 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.
Q3) Medicaid is an example of:
A) Liability insurance.
B) Government insurance.
C) Property insurance.
D) Personal insurance.
E) None of the above.
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Page 13
Chapter 12: Retirement Planning
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Sample Questions
Q1) The percentage of the elderly population is expected to:
A) Rise from 15 percent in 2000 to 20 percent in 2030.
B) Rise from 5 percent in 2000 to 25 percent in 2030.
C) Fall from 20 percent in 2000 to 15 percent in 2030.
D) Fall from 25 percent in 2000 to 5 percent in 2030.
E) None of the above.
Q2) Which of the following is a strength of a traditional annuity?
A) They can significantly reduce longevity risk.
B) Annuities allow you to receive a fixed sum of money each year.
C) Lack of liquidity once you annuitize.
D) Both a and b.
E) Both b and c.
Q3) 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.
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Chapter 13: Educational Planning
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Sample Questions
Q1) What are the disadvantages for educational savings associated with Series EE?
A) Little investment flexibility.
B) Income limitation.
C) Small amount of deposit allowed.
D) Both a and b.
E) Both b and c.
Q2) For Series EE, what was the income eligibility for a joint filing in 2005?
A) $61,200-$91,850.
B) $61,200-$76,200.
C) $91,850-$121,850.
D) $61,200-$121,850.
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.
Q4) What are the steps in the educational policy statement process?
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Chapter 14: Tax Planning
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Sample Questions
Q1) New Series EE bonds purchased will earn a fixed rate of interest effective:
A) May 2005.
B) May 1995.
C) April 1995.
D) April 2005.
E) None of the above.
Q2) The fact that taxes influence the timing of transactions and preparation for payment of sums due is an example of the tax impact on:
A) Investments.
B) Cash flow planning.
C) Financing.
D) Risk management.
E) None of the above.
Q3) Placing money into a 401(k) pension plan is an example of:
A) Tax deferral.
B) Conversion.
C) Elimination of taxes.
D) Taking capital losses.
E) None of the above.
Q4) Please detail the principal components of the tax return.
Page 16
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Chapter 15: Estate Planning
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Sample Questions
Q1) Which of the following is not an alternative name for a credit shelter trust?
A) Type B trust.
B) Type C trust.
C) Bypass trust.
D) Exemption-equivalent trust.
E) All of the above are alternative names.
Q2) Can the estate planning process be the same for large and small estates?
A) Yes.
B) No.
C) Yes, though the amount of supervision varies.
D) No, though the amount of supervision does not vary.
E) None of the above.
Q3) A revocable trust:
A) Can be changed by the grantor for a short period following probate.
B) Can be revoked by the grantor for a short period following probate.
C) Usually has no impact on gift or estate taxes.
D) Usually has a large impact on gift and estate taxes.
E) None of the above.
Q4) Please list and describe eight factors for which a legally recognized will should be evaluated.
Page 17
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Chapter 16: Stocks, Bonds and Mutual Funds
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Sample Questions
Q1) The risk premium is equal to which of the following:
A) Risk free rate + maturity risk.
B) Liquidity risk + risk free rate.
C) Liquidity risk + maturity risk + default risk.
D) Liquidity risk + risk free rate + maturity risk + default risk.
E) None of the above.
Q2) The maturity of a Treasury bond is:
A) 0-1 years.
B) 2-10 years.
C) 10 years or more.
D) All of the above.
E) None of the above.
Q3) A mutual fund composed of a blend of stocks and bonds can be categorized as which of the following?
A) Industry fund.
B) Sector fund.
C) Balanced fund.
D) Hedge fund.
E) None of the above.
Q4) List and provide a detailed explanation for nine types of bond funds.
Page 18
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Chapter 17: Background Topics
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Sample Questions
Q1) Which of the following categories of financial are the largest depository institutions in the U.S.?
A) Savings banks.
B) Savings and loans.
C) Commercial banks.
D) Insurance companies.
E) Credit unions.
Q2) Which period of time is associated with the longest expansion in the U.S. economy between 1945 and 2001?
A) November 1973-March 1985.
B) July 1981-November 1994.
C) March 1991-March 2001.
D) Both a and b.
E) None of the above.
Q3) Which of the following is characterized by a limited life cycle?
A) Subchapter S corporation.
B) Limited liability partnership.
C) Partnership.
D) All of the above.
E) None of the above.
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Chapter 18: Capital Needs Analysis
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Sample Questions
Q1) To which of the following is the real rate equal?
A) ((1 + inflation rate)/(1 + investment rate) - 1) x 100.
B) ((1 + investment rate)/(1 + inflation rate) - 1) x 100.
C) ((1 - investment rate)/(1 - inflation rate) + 1) x 100.
D) ((1 - inflation rate)/(1 - investment rate) + 1) x 100.
E) None of the above.
Q2) Which of the following is an advantage associated with being more conservative in one's simple capital needs projections?
A) You have no benchmark to determine how much to alter each calculation.
B) Errors associated with this approach will not change one's lifestyle.
C) It is easy to understand and to execute.
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) Behavioral economics and behavioral finance:
A) Consider the "ideal" person.
B) Consider the "irrational" person.
C) Examine people as they actually are.
D) Both a and b.
E) None of the above.
Q2) Which of the following is not a common nonfinancial need of people that financial planners can help with?
A) To find an interested person.
B) To understand.
C) To reward.
D) To feel secure.
E) To help establish goals.
Q3) When a client feels understood by the financial planner,
A) The client is more receptive to a recommendation.
B) The client is more understanding of the cost of the session.
C) The client will be patient during periods of poor performance.
D) All of the above.
E) None of the above.
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) 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.
Q2) What is the goal of personal financial planning?
A) To maximize the revenue of household "member-owners" over their life cycle.
B) To minimize the expenses of household "member-owners" over their life cycle.
C) To minimize the degree of risk faced by household "member-owners" over their life cycle.
D) To provide the highest standard of living possible for household "member-owners" over their life cycle.
E) All of the above.
Q3) Please list 8 distinguishing features of personal financial planning theory, and describe the benefit of each.
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