Personal Financial Planning
Exam Questions
Course Introduction
Personal Financial Planning introduces students to the principles and practices of managing personal finances effectively. The course covers key topics such as budgeting, saving, investing, credit management, insurance, retirement planning, and tax strategies. Through practical exercises and real-world case studies, students will learn how to set financial goals, evaluate financial products, and make informed decisions to enhance their financial well-being throughout different life stages. This course equips students with essential skills and knowledge to build a solid financial foundation and achieve long-term financial security.
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
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Sample Questions
Q1) Which of the following statements about personal financial planning is inaccurate?
A) Personal financial planning is used by people to anticipate and plot their future actions to reach their goals.
B) Personal financial planning is used to solve a problem or to structure a plan for the future.
C) Personal financial planning is the analysis and decision-making extension of personal finance.
D) All of the above statements are accurate.
E) None of the above statements are accurate.
Answer: D
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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Page 3
Chapter 2: Time Value of Money
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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) If the value of the principal today is $17,567 and the interest rate is 0.93%, what is the total simple interest income at the end of fifteen years?
A) $17,567
B) $2,540.60
C) $82,765.65
D) $300.56
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) Financial advisors should set aside judgments for the balance of the consultation when:
A) The client expresses dismay over the advisor's fee.
B) The advice extends beyond hard financial practices and the client's wishes to the advisor's own preferences.
C) The advice does not maximize the advisor's own interests.
D) All of the above.
E) None of the above.
Answer: B
Q2) For which type of planning do we require current projected income and expenses?
A) Income tax planning.
B) Cash flow planning.
C) Estate planning.
D) Specialized planning.
E) None of the above.
Answer: B
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Chapter 4: Household Finance
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Sample Questions
Q1) Which of the following is a characteristic of a firm?
A) It purchases inputs to produce its offerings.
B) The business concentrates on revenues and not costs.
C) If strives to identify the optimum level of profits that provides the most production.
D) All of the above.
E) None of the above.
Q2) Which of the following is a characteristic of the life cycle theory of savings?
A) It assumes that utility cannot be measured in money terms.
B) It says that our spending decisions are based on the amount of income we earn currently.
C) Is says that before we establish our lifetime resources, we try to maintain a constant level of expenditures throughout our life cycle.
D) All of the above.
E) None of the above.
Q3) What are the similarities and differences between household and business financial processes for each of the following?
Q4) Please provide a breakdown of alternative household structures and their effect on financial, legal, and tax matters.
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Chapter 5: Financial Statements Analysis
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32 Verified Questions
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Sample Questions
Q1) What are capital expenditures?
A) Additions or subtractions from debt.
B) Outlays on household related matters that provide benefit beyond the current year.
C) The day-to-day financial functions of the household.
D) Cash flows that come from changes in debt.
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) Please list and describe eight different reasons for savings.
Q2) What is the pure life cycle motive?
A) To take advantage of investment opportunities that can make achievement of our financial goals easier.
B) To provide monies for the down payment or full purchase of longer-lived assets such as durable goods or educational expenditures.
C) To provide monies to even out differences in earnings over time.
D) To provide a fund to cover future uncertainties such as fluctuating income, sickness, inflationary effects on expenditures, etc.
E) To sacrifice today so that your future lifestyle can improve.
Q3) Which of the following is not a step in the household budgeting process?
A) Compare budgeted with actual figures.
B) Review results for reasonableness and finalize budget.
C) Compare projected cash outflows with goals and adjust.
D) Compute net cash flow.
E) All of the above are steps in the household budgeting process.
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8
Chapter 7: Debt
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Sample Questions
Q1) Consider a situation where you borrow $40,000. The interest paid is $3,000, and is deducted at the beginning of the period. What is the interest rate?
A) 12.11%
B) 7.5%
C) 8.11%
D) 11.5%
E) 0
Q2) Which of the following types of borrowers are constantly seeking more funds and may have to take any payment terms offered?
A) Unrational borrowers.
B) Rational borrowers.
C) Discrete borrowers.
D) Surplus borrowers.
E) None of the above.
Q3) What are the advantages and disadvantages associated with fixed rate and variable rate mortgages?
Q4) For each of the following types of debt, please indicate whether the debt is (a) tax deductible and (b) secured.
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Page 9
Chapter 8: Non Financial Investments
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Sample Questions
Q1) The higher one's tax bracket,
A) The greater the "government subsidy" for tax-deductible real estate taxes and interest expense.
B) The lower the "government subsidy" for tax-deductible real estate taxes and interest expense.
C) The greater the amount of non-mortgage debt outstanding.
D) The lower the amount of non-mortgage debt outstanding.
E) None of the above.
Q2) What distinguishes a house from most durable goods?
A) It has no unique physical characteristics.
B) It does not last long.
C) It has no tax benefits.
D) It has appreciation potential.
E) None of the above.
Q3) Which of the following is an advantage associated with renting a dwelling?
A) Mandatory repayment of debt.
B) The necessity of a capital commitment.
C) Flexibility in changing your dwelling site.
D) Both a and b.
E) Both b and c.
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Chapter 9: Financial Investments
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Sample Questions
Q1) How does standard deviation differ from semi-variance?
A) Standard deviation includes fluctuations that result in both gains and losses while semi-variance only measures fluctuations resulting in losses.
B) Standard deviation includes fluctuations that result in both gains and losses while semi-variance only measures fluctuations resulting in gains.
C) Semi-variance includes fluctuations that result in both gains and losses while standard deviation only measures fluctuations resulting in losses.
D) Semi-variance includes fluctuations that result in both gains and losses while standard deviation only measures fluctuations resulting in gains.
E) None of the above.
Q2) Which of the following is a weakness associated with mutual funds?
A) Overhead costs.
B) Tax.
C) Diversification.
D) Both a and b.
E) Both b and c.
Q3) Please list and explain nine strengths associated with mutual funds.
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Chapter 10: Risk Management
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32 Verified Questions
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Sample
Questions
Q1) The feature that allows an insured to swap a term policy in the future for a whole life policy is designated:
A) Convertible term.
B) Swap term.
C) Flexible swap.
D) Convertible swap.
E) None of the above.
Q2) Which of the following is not a risk associated with human-related assets?
A) Health.
B) Integrity of pension assets.
C) Anticipated gifts.
D) All of the above are risks associated with human-related assets.
E) Both b and c are not risks associated with human-related assets.
Q3) Which of the following best describes self-insurance?
A) Actively setting aside money to fund any losses should that occur.
B) Using precautionary savings to purchase insurance.
C) Diversifying activities to minimize risk.
D) All of the above are descriptions of self-insurance.
E) None of the above.
Q4) Please list and describe eight risk management approaches.
Page 12
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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) 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.
Q3) What is business risk?
A) A risk that carries no financial reward.
B) A risk taken for financial reward.
C) The risk that the insurance company will not meet its obligations.
D) The risk that the insurance holder will not meet its obligations.
E) None of the above.
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Page 13
Chapter 12: Retirement Planning
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Sample Questions
Q1) What is the major difference between pre- and post-retirement planning?
A) The opportunity to enhance cash inflows is limited or nonexistent post-retirement.
B) Individuals tend to have more cash available than expected post-retirement.
C) Post-retirement planning is primarily focused are largely focused on revenues.
D) All of the above are major differences.
E) None of the above is a major difference.
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 an advantage of a fixed annuity versus a taxable bond?
A) Tax deferral.
B) Lack of fluctuation in principal.
C) Higher pretax return.
D) All of the above are advantages of a fixed annuity versus a taxable bond.
E) None of the above is an advantage of a fixed annuity versus a taxable bond.
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Chapter 13: Educational Planning
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Sample Questions
Q1) Which of the following is not a qualified withdrawal associated with qualified tuition plans?
A) Tuition.
B) Supplies required by the college.
C) Reasonable costs for room and board for students attending college at least half time.
D) Reasonable costs for room and board for students attending college at least one quarter time.
E) All of the above are qualified withdrawals.
Q2) 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.
Q3) 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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Page 15
Chapter 14: Tax Planning
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Sample Questions
Q1) Purchasing municipal bonds in the state in which you reside is an example of: A) Tax deferral.
B) Conversion.
C) Elimination of taxes.
D) Taking capital losses.
E) None of the above.
Q2) The tax strategy of timing income and expenses is implemented through:
A) Delay selling an investment that has risen in value until the New Year.
B) Delaying selling an investment that has appreciated in value until it qualifies for favorable long-term capital gains treatment.
C) Selling investments with losses to reduce current taxes.
D) Selecting the year to declare a gain or loss to take tax advantage of a more favorable marginal tax bracket.
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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Page 16
Chapter 15: Estate Planning
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Sample Questions
Q1) For each of the following estate planning tools, provide details regarding their characteristics, material tax advantages, principal advantages, and principal disadvantages.
Q2) When children are under 14,
A) The first $800 of income on investments owned is taxed at the child's low tax rate and the next $800 is not taxable.
B) The first $700 of income on investments owned is taxed at the child's low tax rate and the next $700 is not taxable.
C) The first $800 of income on investments owned is not taxable and the next $800 is taxed at the child's low tax rate.
D) The first $700 of income on investments owned is not taxable and the next $700 is taxed at the child's low tax rate.
E) None of the above.
Q3) Please list and describe eight factors for which a legally recognized will should be evaluated.
Q4) What are the fourteen steps of estate planning?
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Chapter 16: Stocks, Bonds and Mutual Funds
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Sample Questions
Q1) As bond maturity increases, the bond's risk:
A) Increases.
B) Decreases.
C) Does not change.
D) Sometimes increases and sometimes decreases.
E) Is inversely related to the value of the bond.
Q2) 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.
Q3) Due to changes in interest rates,
A) A premium bond has greater fluctuation in price than a discount bond.
B) A premium bond has identical fluctuation in price as a discount bond.
C) A discount bond has a greater fluctuation in price than a premium bond.
D) Both discount and premium bonds do not fluctuate in price.
E) None of the above.
Q4) List and provide examples of eight types of specialized funds that concentrate in publicly traded securities.
Page 18
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Chapter 17: Background Topics
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Sample Questions
Q1) During which of the followings decades was the average real GDP growth highest in the U.S.?
A) 1950-1959.
B) 1960-1969.
C) 1970-1979.
D) 1980-1989.
E) 1990-1999.
Q2) The rate of inflation is equal to which of the following?
A) 100 x current price - (price in previous periods x price in previous periods).
B) 100 x (price in previous periods - current price)/price in previous periods.
C) 100 x (current price - price in previous periods)/price in previous periods.
D) 100 x price in previous periods - (current price/price in previous periods).
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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Page 19
Chapter 18: Capital Needs Analysis
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Sample Questions
Q1) 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.
Q2) What is financial integration?
A) Using all assets and liabilities, all cash flows, all household activities, and all future plans to arrive at decisions.
B) Including all current and future resources and information in decision making.
C) Making one decision at a time based strictly on the merits of that item.
D) Both a and b.
E) Both b and c.
Q3) Please indicate whether Monte Carlo simulation and Total Portfolio Management includes each of the following:
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) Which of the following is not a criticism of behavioral finance?
A) It has no scientific underpinning.
B) Its generalizations come from laboratory experiments and questionnaires.
C) Its generalizations come from how people act in real life.
D) All of the above are criticisms.
E) None of the above is a criticism.
Q2) Please list and describe six common heuristics.
Q3) Please list and discuss seven methods that are helpful for maintaining control to achieve planned savings.
Q4) 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.
Q5) What are the strengths and weaknesses of behavioral finance relative when compared to classical finance?
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Chapter 20: Completing the Process
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Sample Questions
Q1) Which of the following best describes integration in the context of personal financial planning?
A) Evaluating costs and benefits over time to find the best path to our goals.
B) Incorporating all members of the household into investment decision making.
C) Thoroughly diversifying investments geographically.
D) Updating the personal financial plan on a periodic basis.
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) You desire to provide funds to educate your children. Is this a liability?
A) No.
B) Yes.
C) Yes, if there is a legal obligation to do so.
D) No, unless you have already accumulated the necessary funds.
E) None of the above.
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Page 22