Question 1

An expansion is a phase in the economic cycle that is characterized by _____ business investment and ______ employment opportunities.

Accepted Answer

An expansion is a phase in the economic cycle that is characterized by increasing business investment and increasing employment opportunities.

Question 2

Which of the following are parts of the economic cycle? (Select any two)

Accepted Answer

Expansion and Recession are two phases of the economic cycle.

Question 3

Which of the following is not one of the recommended SMART guidelines for personal financial goals?

Accepted Answer

The SMART guidelines for setting goals include Specific, Measurable, Achievable (or Attainable), Relevant (or Realistic), and Time-bound. "Manageable" is not part of the SMART criteria.

Question 4

Rosa graduated at the top of her high school class, and has set the following goal as part of her financial plan: "graduate from college with a B. S. in Business Management." Which aspect of the SMART goal model is missing from her goal?

Accepted Answer

The goal lacks a time frame for when Rosa plans to graduate, making it not time-specific.

Question 5

Andre graduated from college this year and obtained a well-paid job with a large accounting firm. Andre has developed the following goal: "save for retirement." This goal meets which criteria of the SMART goal model?

Accepted Answer

The goal "save for retirement" is not specific, measurable, or time-specific, as it lacks details on how much to save, by when, and how it will be achieved.

Question 6

Your goals will differ depending on your stage in the life cycle and your family makeup. Which is not an appropriate short-term savings goal?

Accepted Answer

The answer of Your goals will differ depending on your...

Question 7

For many households, repayment of high-interest debt is an important financial goal. Using the following table, estimate the payments necessary to pay off $2,500 in credit card debt in two years at 15% APR.

Accepted Answer

The answer of For many households, repayment of high-interest debt...

Question 8

Financial planners must have a

Accepted Answer

Financial planners must have a willingness to provide financial advice, as it is a fundamental aspect of their role. Other qualifications may vary depending on specific job requirements or certifications.

Question 9

Which of the following should not be a major factor when choosing a personal financial planner?

Accepted Answer

Affiliation should not be a major factor because it doesn't necessarily reflect the planner's competence or ability to meet your financial needs, unlike certification, education, and reputation.

Question 10

Which of the following has passed a comprehensive examination covering all the topic areas considered necessary in the practice of consumer financial planning and has at least three years of work experience in the field?

Accepted Answer

A Certified Financial Planner (CFP) has passed a comprehensive examination covering all necessary topics in consumer financial planning and has at least three years of work experience in the field.

Question 11

Integrity of the profession is essential to its long-term success. Which professional is not required to pass a comprehensive exam and adhere to a rigorous code of ethics?

Accepted Answer

All the listed professionals, CPAs, Attorneys, and CFPs, are required to pass comprehensive exams and adhere to a rigorous code of ethics to maintain the integrity of their respective professions.

Question 12

In a __________ arrangement, the planner is compensated for every financial product sold but does not receive any payment for developing a personal financial plan.

Accepted Answer

In a commission-only arrangement, the planner is compensated for every financial product sold but does not receive any payment for developing a personal financial plan.

Question 13

In a fee-only arrangement, the planner is typically compensated with an annual fee that is based on the

Accepted Answer

In a fee-only arrangement, the planner is compensated based on the value of the client's assets being managed, not on the number or value of financial products purchased or the number of meetings.

Question 14

Dolores's purchased 1,000 shares of the S&P 500 index (SPY) at $300 per share, inside her $1.1 million fee-only account this year. The planner's firm charges commissions of $0.27 per share and 1% on fee-based accounts. How much does her planner charge this year?

Accepted Answer

The answer of Dolores's purchased 1,000 shares of the S&P...

Question 15

Henry pays his financial planner a one percent fee based on the value of the assets in his investment account. He noticed on his year-end statement that the firm rebated a $1,200 credit to his account. His planner said that was because the firm made $1,200 in dealer concessions from an IPO that he purchased. What type of fee arrangement is this?

Accepted Answer

The fee offset by commission arrangement involves reducing the fee by the amount of commissions or concessions earned, as seen with the $1,200 rebate from the IPO.

Question 16

One of the biggest mistakes people make in their finances is that they are too _____ in their assumptions.

Accepted Answer

People often overestimate their future income or underestimate expenses, leading to financial mismanagement.

Question 17

If you are considering working part-time at a second job in addition to your regular one, you should only consider

Accepted Answer

When considering a second job, it's important to evaluate the marginal costs and marginal benefits, which are the additional costs and benefits of working the extra hours, rather than the total costs and benefits.

Question 18

You are considering adding a wood shop to your home. You enjoy woodworking and could make some items for sale. In considering this addition, you only look at the extra cost of the shop and the potential benefits of having the shop. This is an example of

Accepted Answer

This is an example of marginal reasoning, where you consider the additional costs and benefits of a decision, focusing on the incremental changes rather than the total costs and benefits.

Question 19

In deciding whether to attend graduate school full-time, estimating your lost earnings while you are in school is an example of

Accepted Answer

Opportunity cost refers to the potential benefits or earnings you forego when choosing one option over another, such as attending school instead of working.

Question 20

Desiree currently works as a manager of an electronics store earning an annual salary of $50,000. She noticed an internal job opening for a regional manager that pays $100,000 salary, but an MBA is required for consideration. The cost for a full-time MBA program in two years is $60,000. What is her opportunity cost for attending graduate school, without consideration for time value of money?

Accepted Answer

The opportunity cost is the salary Desiree would have earned if she had not attended graduate school. In this case, she would have earned $50,000 per year for two years, or $100,000 total. In addition, she would have to pay $60,000 for the MBA program. Therefore, her total opportunity cost is $100,000 + $60,000 = $160,000.

Quiz 1: The Financial Planning Process

An expansion is a phase in the economic cycle that is characterized by _ business investment and __ employment opportunities.