Michael has been dollar cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 7 years
QUESTION 1 Michael has been dollar cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 7 years. He earns an average annual compound return of 11% on this investment, compounded quarterly. How much is the fund worth today?
QUESTION 2 Which one of the following statements is wrong?
A Pell Grant is a federally funded grant awarded to undergraduate students who have not earned a Bachelors or graduate degree.
The EFC calculation, which is based on a student’s ACT score, is used to determine eligibility and / or award amount for a Pell Grant.
One type of Stafford loan is the direct Stafford loan that is provided directly to the student from the Department of Education.
One type of Stafford loan is the FFEL Stafford Loan, where funds are lent to the student through a lender who participates in the FFEL program.
QUESTION 3. Which of the following is/are incorrect regarding the Humanistic Paradigm?
The advisor needs a philosophical stance that humankind is basically bad and that people do not have the inherent capability of self-direction and growth under the right set of circumstances.
A Humanistic counselor would define mental health as having congruent and aligned thoughts, feelings and behavior.
Goals in treatment are centered on establishing congruence and acceptance of personal responsibility.
The majority of the Humanistic theories view clients as experts on themselves. None of the above.
QUESTION 4 Quantitative information that is gathered in the data gathering process might include banking and investment information, tax information, financial statements and attitudes regarding risk tolerance and charitable funding.
True
False
QUESTION 5 Which of the following are premises in Traditional Finance?
Markets are Inefficient. Investors are Irrational. Markets are Efficient. Investors are Rational. Both c and d.
QUESTION 6 You have been working with your client, Alex, for about 4 months. So far, you have developed a mission statement, goals, and objectives with Alex. You are now using Alex’s mission statement to construct a plan. Which approach to financial planning are you utilizing?
Life Cycle Approach
Metrics Approach
Strategic Approach
Three Panel Approach
QUESTION 7 Which of the following is not necessary to identify a client’s life cycle position?
Attitudes and/or beliefs. Marital status.
Dependents. Income level. Net worth.
QUESTION 8. Jerry and Jenny are 25 years old and plan on retiring at age 67 and expect to live until age
100. Jenny currently earns $150,000 and they expect to need $150,000 per year in today’s dollars in retirement. Jerry is a stay at home dad. They also expect that Social Security will provide $40,000 of benefits in today’s dollars at age 67. Jenny has been saving
$5,000 annually in her 401(k) plan. Their son, Jazz, was just born and is expected to go to college in 18 years. They want to save for Jazz’s college education, which they expect will cost $20,000 in today’s dollars per year and they are willing to fund 5 years of
college. They were told that college costs are increasing at 7% per year, while general inflation is 3%. They currently have $100,000 saved in total and they are averaging a 10% rate of return and expect to continue to earn the same return over time. Based on this information, what should they do?
They have saved enough to fund retirement and Jazz’s education and can stop saving if they wish.
They are doing just fine and should continue doing what they are doing.
They need to increase their annual savings by about $5,000 now if they want to fund college in addition to retirement.
They should increase their annual savings by about 10 percent and they should be fine.
QUESTION 9An example of internal data is?
The current tax rates.
The expected inflation.
The client’s goals.
The planner’s education.
QUESTION 10. What is one of the primary differences between a Coverdell Education Savings Account and 529 Savings Plan?
A Coverdell can be used for private elementary, middle or high school. A Coverdell does not have a phase-out limit for participation.
A 529 plan has a phase-out limit for participation.
A Coverdell allows a 5-year proration of contributions.
QUESTION 11. A savings rate between 10 and 13 percent of one’s gross pay is almost always sufficient to meet most financial goals.
True
False
QUESTION 12 Which of the following is most likely not classified as an investment amount on the Statement of Financial Position?
Cash value of permanent life insurance. Valuable antique furniture.
A 529 Plan for education.
The vested portion of a pension plan.
QUESTION 13. Which of the following theories or equations govern the premises of Traditional Finance: 1- Bottom Line Theory.
2- Prospect Theory.
3- The Behavioral Asset Pricing Model.
1 only.
1 and 3.
All of the above. None of the above.
QUESTION 14 Susan’s annual salary is $80,000. She contributes 10% of her salary to her 401(k) plan; and her employer contributes 5% of her salary to a profit sharing plan. She also contributes $2,500 per year to an IRA. What is Susan’s approximate savings rate?
5%.
10%.
15%.
18%.
QUESTION 15 All of the following statements are true, except:
The American Opportunity Tax Credit is only available for the first four years of postsecondary education.
The Lifetime Learning Credit is only available for the first two years of post-secondary education.
The American Opportunity Tax Credit is awarded on a per student basis. The Lifetime Learning Credit is awarded on a per family basis.
QUESTION 16 Jill would like to plan for her son’s college education. She would like for her son, who was born today, to attend college for 5 years, beginning at age 18. Tuition is currently
$12,000 per year and tuition inflation is 6%. Jill can earn an after-tax rate of return of 8%. How much must Jill save at the end of each year, if she wants to make the last payment at the beginning of her son’s first year of college?
$3,145.81. $3,745.31. $4,080.32. $4,406.75.
QUESTION 17. All of the following statements concerning educational fund 529 Savings Plans are correct EXCEPT:
Contributions are recognized on a five year pro rata basis.
Earnings grow on a tax deferred basis, unless used for qualified education expenses, and then distributions are tax free.
The primary benefit of a 529 Savings plan is the state income tax deduction for contributions.
Earnings are included in gross income and a 10% penalty is assessed if distributions are not used for qualified education expenses.
QUESTION 18. An engagement letter is a quasi-legal agreement between a professional or professional organization and a client.
True
False
QUESTION 19. Tracy and Brett are married.
Their current assets – $9,243 Their current liabilities – $6,921
Their monthly nondiscretionary expenses – $4,693 Their annual combined income – $70,000
Their annual debt payments (excluding monthly housing costs) – $22,084 What is Tracy and Brett’s emergency fund ratio in months?
1.2430.
1.3355.
1.9695.
3.1697.
QUESTION 20. According to the cash flow approach, each of the following recommendations will have a positive cash flow impact except:
Raise insurance deductibles. Reduce insurance coverage. Increase insurance coverage. Cancel insurance coverage.
QUESTION 21. Which of the following do NOT apply to the use of questionnaires?
They provide quick and easy information.
They ensure that subject areas are not left out or forgotten by the advisor.
They can be very thorough and cover many areas that must be covered during the acquisition of quantitative information from the client.
Long questionnaires are most desirable.
QUESTION 22. Mrs. Escovido has come to you for advice on financing her son’s college education at a state university. Even though her income exceeds $200,000, she has not saved enough for his college expenses. You advise her that her best opportunity to acquire education funds would be through:
Pell grants.
Subsidized Stafford Student Loans.
Supplemental education opportunity grants.
Parent loans for undergraduate students (PLUS).
QUESTION 23. Once the implementation of the financial plan is completed, the engagement is over and there are no further steps.
True
False
QUESTION 24 The future value of a lump sum amount is:
the value of a present lump sum multiplied by the interest rate.
the value of a present lump sum divided by the number of periods
the value of a present lump sum deposit after earning interest over a period of time.
the value of a present lump sum multiplied by the interest rate then divided by the number periods.
QUESTION 25. Frank and Stephanie have an 18-year-old son who is going to college this year for four years. The tuition is $15,000 per year and is expected to increase at 4% per year. They
believe they can earn 6% per year on their investment; what lump-sum amount must they deposit today to pay for their son’s education?
$55,095.18 $56,626.37 $57,222.71 $58,323.15
QUESTION 26. The estimated value of a real estate asset in a financial statement should be based upon the:
Income tax basis of the asset, after adjusting straight line and accelerated depreciation. The client’s estimate of current value.
Current replacement value of the asset.
The value that a well-informed buyer is willing to accept from a well-informed seller where neither is compelled to buy or sell.
QUESTION 27. Mitt was injured by a bus called “Move Forward.” He won a lawsuit and will receive $10,000 per month, at the beginning of each month, for the next 10 years. How much must “Move Forward” deposit into an account earning 5%, compounded monthly, to satisfy this judgment?
$946,742. $937,109. $942,814. $907,899.
QUESTION 28 Which of the following is / are correct?
1- The IRR is the discount rate which equates the present value of an investment’s expected costs to the present value of the expected cash inflows.
2- If the cost of capital for this investment is 9%, the investment should be rejected because its net present value will be negative.
1 only.
2 only.
Both 1 and 2.
Neither 1 nor 2.
QUESTION 29. Brandon buys a piece of equipment for $15,000. He pays $5,000 for upgrades in year 1 and the equipment generates $2,000 in cash flow for year 1. In year 2 the equipment generates $8,000, year 3 it generates $4,000, but Brandon sells it for $6,000 but also pays a $500 commission. What is his IRR?
-1.18%.
+1.18%.
-0.8%.
+0.8%.
QUESTION 30 “The present value of an ordinary annuity except that the payment is made at the beginning of the period” is the definition of which of the following:
Present value of an annuity due
Present value of an ordinary annuity Future value of an annuity due
Future value of an ordinanry annuity
QUESTION 31 Hannah has decided to save for a vacation in 18 months. She will save the money into a short-term investment account returning 4% annually. How much will she have to put away at the beginning of each month if the vacation cost is $15,000? (Round to the nearest dollar.)
$815. $810. $807. $800.
QUESTION 32. Holly’s salary is $120,000 per year. She contributes 12% of her salary to her 401(k) plan.
Her employer matches with 5% of her salary to a 401(k) plan. She also contributes
$2,500 per year to an IRA. Holly’s annual savings rate is?
12.00%
14.08%
17.00%
19.08%
QUESTION 33 Which one of the following statements is wrong?
A student must submit a FAFSA (Free Application for Federal Student Aid) form to be eligible to receive federal financial aid.
The four repayment plans for a Stafford loan are: standard repayment, extended repayment, graduated repayment, and income based repayment.
Factors used in calculation the EFC include taxable and nontaxable income, assets,
retirement funds, and benefits, such as unemployment and Social Security.
PLUS (Parent Loan for Undergraduate Students) loans are for parents to borrow to help pay
for a dependent’s undergraduate education expenses, and are based on financial need.
QUESTION 34. Robin is looking to buy a condo in 5 years for $300,000 in today’s dollars. She can earn an 8% return on her investments and she expects inflation to be 2.5%. What serial payment should Robin make at the end of the first year?
$53,894.14. $55,244.56. $52,415.36. $51,136.94.
QUESTION 35 Which of the following ratios is not used in a typical financial statement approach?
Liquidity ratios. Debt ratios.
Financial security goals ratios. Social Security to savings ratios.
QUESTION 361. Brian’s financial planner is preparing his balance sheet. Which of the following would be considered an “investment asset?”
A certificate of deposit with a maturity of exactly 1 year An education fund
The unvested portion of a pension plan
A vacation home
QUESTION 371. Risk tolerance and asset allocation are a separate issue from retirement planning and are not required to be integrated into a retirement plan.
True
False
QUESTION 38. Financial counselors or advisors must establish and maintain the advisor-client relationship based on their ability to:
Calculate earnings.
Understand financial statements. Communicate effectively.
Bring in business.
QUESTION 39 Which of the following is not considered a critical element of an engagement letter?
The scope of the work agreed upon. The time horizon for that work.
A description of the fees and costs.
All of the above are considered to be an element of an engagement letter.
QUESTION 40 Which of the following is inconsistent with respect to the gambler’s fallacy?
The gambler’s fallacy has nothing to do with probabilities.
When watching successive coin flips, if heads is the result successively, the belief is that the odds of that continuing to happen are lesser, and therefore it is a better probability to bet on
tails.
Because each flip of a coin is a separate action, the probability of the coin flip, using the
gambler’s fallacy, changes drastically from fifty (50%) percent.
None of the above.
QUESTION 411. Emily is considering purchasing a new home for $400,000. She intends to put 20% down and finance $320,000, but is unsure which financing option to select. Emily is considering the following options:
Option 1: Fixed rate mortgage over 30 years at 6% interest, zero points, or
Option 2: Fixed rate mortgage over 30 years at 4% interest, plus two discount points. How long would her financial planner recommend that she live in the house to break even using Option 2 presuming she is not financing the points?
18.3.
16.4.
12.5.
8.9.
QUESTION 42 Betty earns $100,000 working as a part time lawyer in New Orleans. The company provides a matching contribution in the 401(k) plan of 50% up to a maximum contribution of 4% of compensation. Her 401(k) plan account had $60,000 in it at the beginning of the year. She contributed $15,000 to the plan this year and the employermade the matching contribution before year-end. The ending balance of the account is$100,000. What is her return on investments this year?
6.675%
26.6%
29.2%
35%
QUESTION 43 One of the advantages of a professional financial planner is his or her expertise and their objectivity.
True
False
QUESTION 44 Which of the following is not considered to be in line with the Developmental paradigm or school of thought?
Human development occurs in stages over time.
Humans develop and progress in a predictable sequence.
Results of disruptions in any stage of an individual’s development are completely
unpredictable.
All of the above.
QUESTION 451. Which of the following statements, if any, is (are) correct?
1- Prepaid Tuition plans provide for the prepayment of college tuition at current tuition prices for future enrollment.
2- A disadvantage of a QTP (qualified tuition plan) is that the owner / contributor must relinquish control of the account, and share control of the funds with the student / beneficiary.
1 only.
2 only.
Both 1 and 2.
Neither 1 nor 2.
QUESTION 46 All of the following statements concerning educational funding are correct EXCEPT:
QTPs allow individuals to participate in prepaid tuition plans whereby tuition credits are purchased for a designated beneficiary for payment or waiver of higher education expenses, or participate in savings plans whereby contributions of money are made to an account to eventually pay for higher education expenses of a designated beneficiary.
Prepaid Tuition Plans are plans where prepayment of college tuition is allowed at current
prices for enrollment in the future.
A Savings Plan is a type of QTP where the owner of the account contributes cash to the
account so that the contributions can grow tax deferred.
One of the disadvantages of QTPs is that the owner/contributor shares control of the
account with the student/beneficiary.
QUESTION 471. A Coverdell Education Savings Account (ESA) is a tax deferred trust or custodial account established to pay for higher education or qualified elementary/secondary school expenses.
True
False
QUESTION 481. What is one of the primary differences between a Coverdell ESA and a 529 Savings Plan?
A Coverdell can be used for private elementary, middle, or high school. A Coverdell does not have a phase-out limit for participation.
A 529 Savings Plan has a phaseout limit for participation. A Coverdell allows 5-year proration of contributions.
QUESTION 491. Which of the following best describes Behavioral Finance?
Behavioral Finance concepts are more developed than Traditional Finance. Behavioral Finance streamlined financial data.
Traditional Finance’s introduction of scientific method into financial analysis has some
benefit to Behavioral Finance.
Behavioral Finance is very similar to Traditional Finance in its asset pricing models and
portfolio theories.
QUESTION 50 Tracy purchased a car for $19,500. She is financing the purchase at an 11% annual interest rate, compounded monthly for 3 years. What is the payment that Tracy is required to make at the end of each month?
$606.71. $632.61. $638.40.
$684.97.
QUESTION 51. According to the cash flow approach, all of the following recommendations will have a positive impact to cash flow except:
Raise insurance deductibles.
Reduce the amount of insurance coverage.
Payoff existing debts with non-cash balance sheet assets. Purchase new insurance to cover an existing risk.
QUESTION 52Which of the following is true?
Debt ratios measure the ability to meet short-term obligations. Liquidity ratios indicate how well a client manages debt.
Ratios for financial security determine the progress that he client is making toward
achieving short-term financial security goals.
Performance ratios determine the adequacy of returns on investments given the risks taken.
QUESTION 53 Calculate the NPV of a machine that is purchased for $5,000, sold at the end of year 4 for
$2,500, and produces the following cash flows:
Year 1: $700
Year 2: $800
Year 3: $900
Year 4: $1,000
Assuming that the appropriate discount rate is 6%, what is the NPV?
-$99.64. $99.64.
-$2,079.87. $2,079.87.
QUESTION 54. External data might include interest rates, housing trends, equity market outlook.
True False
QUESTION 55. One of the most reported interruptions or disruptions in passive listening is when: A seminar moderator interrupts the presentation.
A friend asks you questions about the presenter’s speech.
The listener is thinking about what he or she may say in response to what is being discussed
while the listener should instead be listening.
The speaker takes too many breaks.
QUESTION 56. Your client invested $10,000 in an interest bearing promissory note earning an 11% annual rate of interest, compounded monthly. How much will the note be worth at the end of 7 years, assuming that all interest is reinvested at the 11% rate?
$13, 788.43. $20,762.60. $21,048.52. $21,522.04.
QUESTION 57. Which of the following is not a method used to determine the Expected Family Contribution (EFC) for financial aide?
The regular formula The income method
The simplified method
The automatically assessed formula
QUESTION 58. Proper and practical communication skills and techniques in financial counseling can aid the financial planning advisor to understand:
Their clients.
What their clients’ perceptions of their own needs are. What their clients’ objectives are.
All of the above.
QUESTION 59. Ted has been dollar cost averaging in a mutual fund by investing $1,500 at the beginning of every quarter for the past 5 years. He has been earning an average annual compound return of 9% compounded quarterly on this investment. How much is the fund worth today?
$37,367.28. $38,208.04. $39,876.90. $41,342.56.
QUESTION 60. In what order should the steps in the financial planning process occur?
1- Gathering client data.
2- Establishing and defining the planner / client relationship.
3- Developing and presenting financial plan recommendations. 4- Analyzing and evaluating client’s financial status.
5- Monitoring the plan.
6- Implementing financial plan recommendations.
2,1,4,3,6,5.
2,1,3,4,5,6.
1,2,4,3,6,5.
1,2,3,4,5,6.
QUESTION 61. Alberto saved enough tip money from working at the casino to place $125,500 in an investment account generating 9.25% compounded monthly. He wants to collect a monthly income of $1,350 at the beginning of each month for as long as the money lasts. Approximately how many months will Alberto have this income coming to him?
139
145
152
162
QUESTION 62Judy recently purchased her first home for $220,000. She made a down payment of
$20,000, and financed the balance over 15 years, at 6% interest. If Judy’s first payment is due on October 1 of this year, approximately how much interest will she pay in this year?
$2,073.47. $2,989.67. $3,288.63. $5,885.09.
QUESTION 63. Seven years ago, Stan purchased 10 shares of an aggressive growth mutual fund at $90 per share, for a total of $900. Today he sold all 10 shares for $4,500. What was his average annual rate of return on this investment, before tax?
17.46%.
19.58%.
21.73%.
25.85%.
QUESTION 64
1. The three panel approach includes all of the following except: An identification of short-term liability and debt goals.
An identification of risk management issues and goals. An evaluation of investment performance and goals.
An identification and evaluation of long-term goals.
QUESTION 651. Which of the following statements is/are correct?
1- Net worth represents the personal equity that the individual has in his assets and can never beless than zero.
2- If Lisa purchased a car using 30% cash and 70% debt, her net worth would increase by 30%.
1 only.
2 only.
Both 1 and 2.
Neither 1 nor 2.
QUESTION 66 The Keller’s discovered that they could reduce their mortgage interest rate from 10% to 4%. The value of homes in their neighborhood has been increasing at the rate of 5% annually. If the Keller’s were to refinance their house with $3,000 in closing costs added to their current mortgage balance ($277,000) over a period of time which coincides with their chosen retirement age in 20 years, what would be their new monthly payment including principal and interest?
$1,672.99. $1,678.56. $1,691.11. $1,696.74.
QUESTION 67 Colleen’s grandfather set up a savings account for her with a $25,000 gift when she was first born. The account accumulated interest annually at a rate of 6% per year, and no other deposits were made to the account. Colleen is 21 years old today. To date, how much has accumulated in Colleen’s account?
$79,231.88 $84,989.09 $98,656.75 $101,378.92
QUESTION 68 Colin is trying to decide whether he should make his IRA contribution at the beginning of the year or at the end of the year. He wants to save $5,000 per year for 25 years in his IRA that can earn 7% per year. What would be the difference in his account value if he made the payments at the beginning of each year rather than at the end?
$338,382. $22,137. $28,041. $316,245.
QUESTION 69. Rob has just received a check for $32,595. This is a return from an investment that he made 18 years ago. He was told that the return was the equivalent of 11% per year. How much was his original investment?
$3,566.90. $4,981.24. $5,760.98. $2,954.70.
QUESTION 70 Tracy and Brett are married.
Their current assets – $9,243 Their current liabilities – $6,921
Their monthly nondiscretionary expenses – $4,693 Their annual combined income – $70,000
Their annual debt payments (excluding monthly housing costs) – $22,084 What is Tracy and Brett’s current ratio?
0.7958.
1.3355.
1.9695.
5.0387.
QUESTION 71 The Lifetime Learning Credit provides a tax deduction of up to $2,000 (2105) per family for an unlimited number of years for postsecondary education.
True
False
QUESTION 72 All of the following statements concerning educational funding are correct EXCEPT:
The American Opportunity Tax Credit is available for qualified tuition and enrollment fees incurred in the first four years of post-secondary education for the taxpayer, spouse, or dependent.
The Lifetime Learning Credit is a tax credit available to pay for tuition and enrollment fees
for undergraduate, graduate or professional degree programs.
If used to pay for qualified higher education expenses at an eligible institution or state
tuition plan, Series EE United States Savings Bonds bestow significant tax savings.
The Uniform Gift to Minor’s Act (UMGA) allows parents the option to put assets in a
custodial account for a child once the child exceeds the age of 14.
QUESTION 731. Which of the following are true about “why” questions?
1- “Why” questions are always the best questions to ask.
2- While the “why” questions are tempting and may help understand the client’s motives, the “why” question may be ill-advised because it could have limited benefit for the client. 3- A “why” question could place the client in a position of having to justify what was done, and that could put the client in a defensive posture.
1 only
2 only
2 and 3
All of the above
QUESTION 74. Fred and Louise are 38 years old and plan on retiring at age 67 and expect to live until age 95. Fred currently earns $150,000 and they expect to need $100,000 in retirement. Louise is a stay at home mom. They also expect that Social Security will provide $30,000 of benefits in today’s dollars at age 67. He has been saving $17,000 annually in his 401(k) plan. Their daughter, Ann, who was just born, is expected to go to college in 18 years. They want to save for Ann’s college education, which they expect will cost
$20,000 in today’s dollars per year and they are willing to fund 5 years of college. They were told that college costs are increasing at 7% per year, while general inflation is 3%. They currently have $400,000 saved in total and they are averaging a 7% rate of return and expect to continue to earn the same return over time. Based on this information, what should they do?
They have saved enough to fund retirement and Ann’s education and can stop saving if they wish.
They should continue to save what they are saving.
They need to increase their annual savings by about $5,000 now if they want to fund
college in addition to retirement.
They need to increase their annual savings by about 10 percent and they should be fine.
QUESTION 75 Byron and Mandy are married and have a net worth of $20,000 and total assets of
$150,000. If their revolving credit and unpaid bills total $8,000, how much are their total liabilities?
$122,000. $130,000. $138,000. $150,000.
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