FIN 430 Exam 3 questions and Answers

Document Content and Description Below

FIN 430 Exam 3 questions and Answers Question 1 1 / 1 point An investment policy statement is created to: 1. Outline the general rules for the advisor. 2. Lists the client's objectives and cons... traints. 3. Assists with future investment advisors understanding the past investment positions. 4. Risk is part of the list of objectives. 1) 1, 2, and 4. 2) 1, 3, and 4. 3) 2, 3, and 4. 4) All of the above. Question 2 1 / 1 point Jerry, age 72, is retired. Jerry's primary investment objective is generating income. Based on the results of Jerry's risk tolerance questionnaire, he is a conservative investor. Generally, which of the following asset allocation strategies is most appropriate for Jerry's retirement investments? 1) 50% Equities and 50% Bonds. 2) 80% Bonds and 20% Equities. 3) 80% Equities and 20% Bonds. 4) 100% Bonds and 0% Equities. Question 3 1 / 1 point Unsystematic risk can be reduced by buying: 1) Stock in less interest rate sensitive companies. 2) Stock of companies in the same industry. 3) Stocks in numerous unrelated industries. 4) Stocks in natural resource companies. Question 4 1 / 1 point Which of the following statements regarding investment risk is correct? 1. Beta is a measure of systematic, non-diversifiable risk. 2. Rational investors will form portfolios and eliminate systematic risk. 3. Rational investors will form portfolios and eliminate unsystematic risk. 4. Systematic risk is the relevant risk for a well-diversified portfolio. 5. Beta captures all the risk inherent in an individual security. 1) 2 and 5. 2) 1, 2, and 4. 3) 1, 3, and 4. 4) 2, 3, and 4. Random Section 9 Question 5 0 / 1 point Which of the following statements regarding life insurance needs is / are correct? 1. The human life value approach looks forward for information. 2. The capitalization of income approach looks at right now only for information. 3. The needs approach looks at future needs of dependents but does not consider the estate that the decedent would have built had he lived. 1) 1 only. 2) 1 and 2. 3) 1 and 3. 4) 1, 2, and 3. Question 6 1 / 1 point Jade is looking for an insurance policy for her home. Her friend, Shamus, who is an attorney, just told her that the policy is a contract and has some unique characteristics. Which of the following terms applies to the insurance contract? 1. Indemnity. 2. Res ipsa loquitur. 3. Adhesive. 1) Statement 1 and 3. 2) Statement 2 only. 3) Statements 2 and 3. 4) Statements 1, 2 and 3. Question 7 1 / 1 point Tina owns a home and an automobile. She has property insurance, but does not have disability insurance through her employer. She does not know that much about disability, except that a friend of hers told her that she needed to acquire it. Which of the following are important elements of a disability policy? 1) The definition of disability. 2) Coverage for accidents and untimely death. 3) The exclusion ratio. 4) All of the above. Random Section 2 Question 8 1 / 1 point An ________ is a legal agreement (a contract) between a professional organization (the planner) and a client that defines their business relationship. 1) Investment Policy Statement 2) Prospectus 3) Engagement Letter 4) ADV Part 1 and 2 Random Section 4 Question 9 1 / 1 point Which of the following options best completes this sentence: "In the event that a client is trying to communicate a message that is not clear, then the advisor will want to …" 1) Take a break. 2) Reschedule the meeting for another day. 3) Move on. 4) Clarify what the client is trying to communicate with a clarifying statement. Question 10 1 / 1 point Which of the following is/are incorrect regarding the Humanistic Paradigm? 1) 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. 2) A Humanistic counselor would define mental health as having congruent and aligned thoughts, feelings and behavior. 3) Goals in treatment are centered on establishing congruence and acceptance of personal responsibility. 4) The majority of the Humanistic theories view clients as experts on themselves. 5) None of the above. Question 11 1 / 1 point Which of the following is incorrect with respect to heuristics in the realm of financial advice? 1) In the financial advisor-client relationship, one challenge lies in delivering good advice that is accepted by the client. 2) Recommendations must pass through the wealth of emotions, biases and heuristics that the client possesses. 3) There is no benefit to the advisor to have a general understanding of the cognitive biases that are prevalent in the realm of financial decision-making. 4) All of the above. Random Section 16 Question 12 1 / 1 point CFP® designee agrees to be bound by Continuing Education (CE) Requirements established by Certified Financial Planner Board of Standards. The CE Requirements for a regular continuing designee (not a new designee or a designee who has been inactive) are as follows: 1) 40 hours of CE every year. 2) The number of CE hours required by other designations the designee may hold. 3) 30 hours of CE every year. 4) 30 hours of CE every two years. Question 13 0 / 1 point Paul recently applied for CFP® Certification. Which of the following would always bar him from certification? 1) Two or more personal bankruptcies. 2) Felony conviction for perjury last year. 3) Felony conviction for aggravated assault. 4) Prior revocation of a real estate license. Question 14 1 / 1 point Which of the following statements concerning a CFP® designee's disclosure of confidential client data is generally correct? 1. Disclosure may be made to any state agency without subpoena. 2. Disclosure may be made to any party on consent of the client. 3. Disclosure may be made to comply with an IRS audit request. 1) 1 only. 2) 2 only. 3) 3 only. 4) 1, 2, and 3. Random Section 10 Question 15 1 / 1 point 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? 1) $13, 788.43. 2) $20,762.60. 3) $21,048.52. 4) $21,522.04. Question 16 1 / 1 point 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? 1) $53,894.14. 2) $55,244.56. 3) $52,415.36. 4) $51,136.94. Question 17 1 / 1 point As a financial advisor, what will you tell your client, Ryan, he should be willing to pay for an investment property that he plans to buy today and hold for 5 years and then sell, given the following cash flows and the fact that he expects 11% on any investment he makes? Inflows Outflows Net Initial Outlay $0 Year 1 $45,000(Inflow) $55,000(Outflow) -$10,000(Net) Year 2 $55,000(Inflow) $20,000(Outflow) $35,000(Net) Year 3 $55,000(Inflow) $20,000(Outflow) $35,000(Net) Year 4 $255,000(Inflow) $35,000(Outflow) $220,000(Net) 1) $189,910.29. 2) $194,589.33. 3) $178,656,73. 4) $191,231,57. Random Section 13 Question 18 0 / 1 point Which of the following statements is / are correct? 1. For an income tax itemizer, medical expenses are fully deductible if prescribed by a doctor. 2. For an income tax itemizer, the cost of a professional to prepare the federal income tax return is fully deductible. 1) 1 only. 2) 2 only. 3) Both 1 and 2. 4) Neither 1 nor 2. Question 19 1 / 1 point All of the following federal income tax penalties are correct except: 1) There is a 5% penalty per month for failure to file. 2) There is a 0.5% penalty per month for failure to pay. 3) There is a 20% penalty for accuracy related errors. 4) There is a 20% penalty per month for fraud up to 100% of under payment. Question 20 1 / 1 point On June 2, Ashley purchased 100 shares of stock for $10,000. When it was worth $20,000, on December 25th of the same year, she gifted all the stock to her nephew, Richard. Richard sold the stock the following October, for its fair market value of $25,000. What is Richard's tax consequence? 1) $5,000 short-term capital gain. 2) $5,000 long-term capital gain. 3) $15,000 short-term capital gain. 4) $15,000 long-term capital gain. Random Section 11 Question 21 1 / 1 point Which of the following statements, if any, is (are) correct? 1. Aside from risk tolerance, the time horizon is one of the most important factors to consider when deciding in which securities to invest, and how much and when to invest. 2. QTPs generally require a decrease in the risk level of investments, the closer the student / beneficiary gets to the beginning of college. 1) 1 only. 2) 2 only. 3) Both 1 and 2. 4) Neither 1 nor 2. Random Section 7 Question 22 1 / 1 point Which of the following statements is/are correct? 1. The emergency fund ratio metric should be 3 to 6 months of non-discretionary cash flows. 2. When calculating the savings rate for a family, any contributions to retirement made by the employer should be included. 1) 1 only. 2) 2 only. 3) Both 1 and 2. 4) Neither 1 nor 2. Question 23 1 / 1 point Which of the following statements is/are correct? 1. Property titled Joint Tenants with Rights of Survivorship (JTWROS) can only be owned by married couples. 2. Property titled Tenants by the Entirety can only be owned by married couples. 1) 1 only. 2) 2 only. 3) Both 1 and 2. 4) Neither 1 nor 2. Random Section 6 Question 24 1 / 1 point The balance sheet equation is: 1) a. Total Assets ÷ Total Liabilities = Net Worth. 2) b. Total Assets x Total Liabilities = Net Worth. 3) c. Total Assets - Total Liabilities = Net Worth. 4) d. Total Assets + Total Liabilities = Net Worth. Random Section 1 Question 25 0 / 1 point A young and upcoming advertising agent named Donald Draper is working with a CERTIFIED FINANCIAL PLANNER™ Professional. Which of the following statements is/are correct regarding the relationship between Donald and his financial planner? 1. The planner will gather external financial data from Donald including historical tax returns, investment portfolios, past expenses, insurance policies, and even the health of the family members. 2. Donald and the planner will agree on the specifics of the relationship by using an engagement letter. 3. The CFP® Professional will be required to follow the fiduciary standard of care when working with Donald. The fiduciary of care means that a CFP® Professional must always, at a minimum, provide recommendations that are suitable for Donald. 1) 1 and 2 2) 2 Only 3) 3 Only 4) 2 and 3 5) 1,2, and 3 Random Section 8 Question 26 1 / 1 point With pure risk there is an equal chance of experiencing a gain or loss. 1) True 2) False Question 27 1 / 1 point An example of moral hazard is not locking the doors of your home when you are out of town for two weeks because you have insurance, while an example of morale hazard is burning down your house to collect insurance. 1) True 2) False Question 28 0 / 1 point A risk that is as big as or bigger than untimely death is early disability. 1) True 2) False Random Section 5 Question 29 1 / 1 point Andrew and Michelle Reynolds have come to you with questions about their financial situation. The provided you with the following data Total 401(k) plan contribution $16,500 His annual salary $100,000 Current liabilities $24,000 Housing costs (P&I&T&I) monthly $2,167 Cash & Cash equivalents $18,000 Monthly nondiscretionary cash flows $6,000 Monthly debt payments other than housing $500 *employer matches $1 for $1 up to 3% his salary in his 401(k) plan. Based on the information above, calculate the client's current ratio in numbers. 1) 0.75 : 1. 2) 1 : 1. 3) 1 : 1.3. 4) 2 : 1. Question 30 1 / 1 point Rock and roll legend Mick Jager and his new spouse have provided you with the following expenses and account balances: Mick's annual 401(k) plan contribution $16,500 Mick's annual salary $100,000 Current liabilities $24,000 Housing costs (P&I&T&I) monthly $2,167 Cash & Cash equivalents $18,000 Monthly nondiscretionary cash flows $6,000 Monthly debt payments other than housing $500 * Mick'semployer matches $1 for $1 up to 3% of Micks salary in his 401(k) plan. Based on the information above, calculate their housing ratio 2. 1) 28%. 2) 30%. 3) 32%. 4) 34%. Question 31 0 / 1 point Shasta has worked at Elf Department Store for 5 years. She recievies a salary of $100,000 working in upper managment. Elf provides a matching contribution to Shasta's retirement plan of 50% of her contribution up to a maximum contribution of 4% of compensation. Shasta saved $15,000 to the plan for this taxavble year. The department store made the matching contribution before year-end. What is Shasta's savings rate this year? 1) 15%. 2) 19% 3) 22.5%. 4) 35%. Random Section 14 Question 32 1 / 1 point A durable power of attorney for health care allows the agent to make health care decisions for the principal in the event that the principal is incapacitated and unable to make health care decisions for himself. 1) True 2) False Question 33 1 / 1 point A disclaimer clause attempts to discourage disappointed heirs from contesting the will by substantially decreasing or eliminating a bequest to them. 1) True 2) False Random Section 15 Question 34 0 / 1 point Which of the following statements, if any, represents a benefit of the probate process? 1. The cost of probate is generally not very high, depending on the jurisdiction. 2. The probate process results in clear title passing to the legatees. 1) 1 only. 2) 2 only. 3) Both 1 and 2. 4) Neither 1 nor 2. Question 35 1 / 1 point Which of the following statements is / are correct? 1. A power of attorney is a power to act by an agent for the benefit of a principal. 2. A power of appointment is the power to appoint someone to act for the principal. 1) 1 only. 2) 2 only. 3) Both 1 and 2. 4) Neither 1 nor 2. Question 36 0 / 1 point Mr. and Mrs. Meyer own 800 acres of farmland titles as "joint tenants with rights of survivorship, not as tenants in common." Currently the land is appraised at $5,000 per acre. In addition, Mr. Meyer holds a $200,000 CD in his name only, and Mrs. Meyer holds a $200,000 CD in her name only. Mr. and Mrs. Meyer have no debts. Mrs. Meyer's last will and testament provides that "all of my assets at my death shall be divided in three equal portions among my two children and my husband." Mrs. Meyer dies unexpectedly, leaving her husband and two children as her sole heirs. Which of the following statements is true? 1) The children will inherit two-thirds of Mrs. Meyer's interest in the CD and her 50% interest in the farm. 2) The children will inherit two-thirds of Mrs. Meyer's interest in the CD and no interest in the farm. 3) The children will inherit two-thirds of Mrs. Meyer's interest in the CD and two-thirds of her 50% interest in the farm. 4) The children will inherit her CD only. Random Section 3 Question 37 1 / 1 point The benefits that accrue to a client from using a financial planner to prepare a financial plan include all of the following except: 1) The financial planner is subjective and knowledgeable. 2) A professional planner will include metrics. 3) A financial planner will identify risks in the process. 4) Increased awareness on client's part as to opportunity costs. Question 38 1 / 1 point An example of internal data is… 1) The current tax rates. 2) The expected inflation. 3) The client's goals. 4) The planner's education. Question 39 1 / 1 point If your financial planning client uses phrases like: "see what I mean" or "imagine that," your client's learning style is most likely… 1) Auditory. 2) Visual. 3) Both auditory and visual. 4) Neither auditory nor visual. Question 40 1 / 1 point If your financial planning client talks about situations, expresses emotions verbally, enjoys listening (but cannot wait to talk), and tends to move lips or sub-vocalize when reading, then, their learning style is most likely … 1) Auditory. 2) Visual. 3) Both auditory and visual. 4) None of the choices. [Show More]

Last updated: 2 years ago

Preview 1 out of 12 pages