Which of the following statements regarding cash flow statements is CORRECT?

1. The cash flow statement also helps to determine a client's savings level.
2. A cash flow statement represents a snapshot of a client's status as of a given date.
3. The three components of the cash flow statement are cash inflows, cash outflows, and net cash flow.
4. "For the period January 1, 20XX to December 31, 20XX" is an appropriate way to indicate the period covered by the cash flow statement.

A)

I and II

B)

I, II, III, and IV

C)

III and IV

D)

I, III, and IV

Which of the following statements regarding a financial planner's analysis of a client's cash flow statement is CORRECT?

1. The financial planner may encourage the client to reduce the variable expenses reported on the cash flow statement.
2. The analysis of the client's cash flow statement can help the planner determine whether the client is living within his financial means.
3. The analysis of the client's cash flow statement helps determine the client's net worth, or total cash surplus, by tracking cash inflows and outflows over a period of time.

A)

I, II, and III

B)

II only

C)

I and II

D)

I and III

You have gathered the following information from Sam's financial statements:

• Monthly gross income: $10,000
• Monthly net income: $7,400
• Total assets: $195,000
• Total debt: $30,000
• Monthly housing payment (PITI): $1,500
• Monthly consumer debt payments: $1,600

Based on this information, which of the following statements is CORRECT?

1. Sam's total debt ratio exceeds the generally recommended maximum.
2. Sam's consumer debt ratio exceeds the generally recommended maximum.

A)

Neither I nor II

B)

Both I and II

C)

I only

D)

II only

Which of the following should be considered a liquid asset for emergency fund purposes?

A)

Personal residences

B)

Savings accounts

C)

Stock mutual funds

D)

Life insurance cash values

Which of the following cash outflows is the best example of a variable outflow?

A)

Automobile loan payments

B)

Mortgage payments

C)

Clothing expenses

D)

Insurance premiums

Which of the following are examples of nondiscretionary expenses?

1. Taxes
2. Utility bills
3. Club dues
4. Automobile loan payments

A)

I, II, III, and IV

B)

II and IV

C)

I, II, and IV

D)

I only

Maury, age 30, has come to you for advice regarding college planning for his two-year-old son, Brandon. He has presented you with the following information:

• Current annual salary: $96,700
• Traditional IRA: $12,563 (no contribution/fully invested in a U.S. government bond fund)
• Section 401(k): $23,087 (6% contribution/2% match)
• Monthly rent payment: $1,235
• Credit card debt: $2,205 (14.9% fixed)
• Car: lease, fully paid by employer
• Checking account balance: $1,937
• Long-term disability insurance: 60% of salary to age 65, 90-day elimination period (group)
• Life insurance: 2 salary (group), $500,000, 20-year term (individual)

After completing a budget with Maury, you have determined that he has $250 per month in surplus cash flow. He tells you excitedly that the full amount may be used to fund a college plan for Brandon. Through a risk profile questionnaire, you determine he has a moderate to aggressive risk tolerance. Based on the information provided, what should Maury do first?

A)

Establish a college education plan for Brandon

B)

Pay off his credit card balance

C)

Purchase additional life insurance

D)

Establish an emergency fund

You have advised Brooke that she needs to increase her savings. What might you recommend as good savings strategies?

1. Limit her cell phone texting and calling
2. Use an overdraft feature on debit cards
3. Increase her deductible on her car insurance policy
4. Limit her credit card purchases to those she can pay off in full in one year

A)

I and III

B)

III and IV

C)

I and IV

D)

I, II, III, and IV

During the last year, John has made timely payments on three of his credit card accounts, all which have balances near the available credit limits. He did pay off a fourth credit card account, which he had for 15 years, and immediately closed it. Which of the following statements regarding John's credit score is CORRECT?

1. By immediately closing his long-standing account when it was paid off, John likely decreased his credit score.
2. Having three credit card account balances near their available credit limits will in all likelihood adversely affect John's credit score.

A)

Both I and II

B)

I only

C)

Neither I nor II

D)

II only

Jaylen and Tiana are refinancing their current 7.5% 30-year fixed-rate mortgage for $150,000 into a new 5.75% 30-year fixed rate mortgage for $150,000. How much is their original monthly payment, and how much will their new monthly payment be?

A)

Original payment: $1,875.82; new payment: $1,248.82

B)

Original payment: $1,408.82; new payment: $875.36

C)

Original payment: $1,048.82; new payment: $875.36

D)

Original payment: $1048.82; new payment: $785.36

Margo has debts listed as follows. She would like to reduce her debt by paying off the debt with the lowest balance first, then paying off the next-lowest balance, and so on. She currently has $50 in excess monthly cash flow to start this process. Using the snowball technique, what would she be able to pay on Credit Card D once the smaller loans have been paid off?

Debt	Balance	Minimum Payment
Credit Card A	$225	$25
Credit Card B	$575	$35
Credit Card C	$1,000	$50
Credit Card D	$3,200	$120
Auto loan	$12,000	$300

A)

$280

B)

$110

C)

$160

D)

$230

Which of the following statements regarding the decision to buy or lease a home is CORRECT?

1. Generally, more costs are associated with leasing a home, especially if this arrangement is short term.
2. A client who will be residing in the home for a short time period should lease the home.
3. The lower the marginal income tax bracket, the greater the advantage of owning a home.
4. The tax deduction for mortgage interest is a benefit of home ownership.

A)

I and II

B)

II and IV

C)

II, III, and IV

D)

I and III

John and Kelly recently moved to the East Coast. John is in the Navy and wishes to live off base for his next tour of duty, which is expected to last no more than four years. John and Kelly want to purchase a home; however, they expect to move when his tour of duty is complete. Which of the following mortgages is best for John and Kelly if they want to keep their monthly mortgage payments to a minimum?

A)

A 15-year fixed-rate mortgage

B)

An adjustable-rate mortgage (ARM) with an interest rate cap

C)

A 30-year fixed-rate mortgage

D)

A reverse mortgage

Today, Matteo purchased an oil painting for $50,000. He expects the painting's value to increase at a rate of 12%, compounded annually for the next five years. How much will the painting be worth at the end of the fifth year if Matteo's expectations are correct?

A)

$89,783

B)

$89,542

C)

$66,911

D)

$88,117

At daughter June's 13th birthday party, parents Ryan and Sherri give June a digital camera, and a promise that on her 15th birthday, they will pay her tuition to an after-school photography school. The tuition for the photography school is expected to be $2,000. How much should Ryan and Sherri invest on June's birthday this year at an annual interest rate of 4% compounded annually to fulfill their promise to June?

A)

$1,778

B)

$1,980

C)

$1,849

D)

$1,887

Maja invested $600 nine years ago. The investment is valued at 1,000 today. What is the average semiannual compound rate of return Maja realized on her investment?

A)

5.76%

B)

2.92%

C)

5.84%

D)

2.88%

Today, Emily put all of her cash into an account earning an annual interest rate of 9%, compounded monthly. Assuming she makes no withdrawals from or additions to this account, in approximately how many years will Emily double her money?

A)

9.00 years

B)

8.25 years

C)

7.73 years

D)

8.75 years

Martin would like to purchase a $250,000 home eight years from today. To meet this goal, approximately how much should Martin invest at the end of each six-month period if he expects to earn a 7% annual rate of return, compounded semiannually, on his investments?

A)

$11,386

B)

$11,518

C)

$11,921

D)

$12,183

Daniel secures a $350,000 30-year mortgage with an annual interest rate of 6%. How much total interest will Daniel have paid on the mortgage at the end of 25 years?

A)

$388,070

B)

$375,960

C)

$241,458

D)

$108,542

Calculate the following inflation-adjusted return based on an 11% rate of return and a 4% inflation rate.

A)

2.75%

B)

7.00%

C)

0.36%

D)

6.73%

Claude would like to travel around the world in six years and will need $200,000 for his adventure. He assumes inflation will average 4% annually and that he can earn a 9% compound annual after-tax rate of return on his investments. What serial payment should Claude invest at the end of the first year to attain his goal?

A)

$29,546

B)

$28,191

C)

$29,318

D)

$30,728

Stuart needs an income stream equivalent to $50,000 in today's dollars at the beginning of each year for the next 12 years to maintain his standard of living. He assumes inflation will average 4.5% over the long term and that he can earn a 9% compound annual after-tax rate of return on investments. Approximately what lump sum does Stuart need to invest today to fund his income need?

A)

$480,878

B)

$461,026

C)

$476,446

D)

$455,929

You are using internal rate of return (IRR) to evaluate several alternative investments for your client, Jerry. If Jerry's required rate of return is 8%, which of the following investments should he consider adding to his portfolio?

1. Investment 1 (IRR = 12%)
2. Investment 2 (IRR = 9%)
3. Investment 3 (IRR = 5%)

A)

I and II

B)

II only

C)

II and III

D)

I only

Leonid is considering the purchase of a rental real estate property for $80,000. Because of his area's slow real estate market, he anticipates he will not see any cash flow from this property until the end of the second year, when he estimates a cash inflow of $5,000. Leonid also anticipates a cash inflow of $5,000 at the end of the third year, with subsequent cash inflows of $7,500 at the end of the fourth year and $10,000 at the end of the fifth year. At the end of the fifth year, he believes he can sell the property for $120,000. If Leonid's required rate of return is 10%, what is the net present value (NPV) of this property?

A)

$15,653

B)

$13,731

C)

$23,104

D)

$6,957

Which of these individuals are required to register as an investment adviser under the Investment Advisers Act of 1940?

1. Juana provides advice regarding securities.
2. Candace receives compensation for providing advice.
3. Sergei is in the business of providing advice about securities.
4. Kate is a CFP practitioner who issues reports regarding securities.

A)

I, II, III, and IV

B)

II and IV

C)

II, III, and IV

D)

I and III