Test Bank for Personal Financial Planning, 2nd Edition
Chapter 01
Test Bank Questions, Chapter 1
1. Which of the following is the market-established worth of a product or a financial
instrument?
a. Market value
b. Fair value
c. Cash flow
d. Investments
e. Book value
Answer: a
2. Which of the following best defines personal finance?
a. The study of how people minimize risk for a given level of return
b. The study of how people maximize return for a given level of risk
c. The study of how people develop the cash flows necessary to support their
operations and provide for their well-being
d. The study of how ethics should influence financial management decisions
e. The study of how people maximize risk for a given level of return
Answer: c
3. 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
4. Which of the following is not a step in the personal financial planning decision
making process?
a. Establish the scope of the activity
b. Identify and report tax evasion to the authorities
c. Gather data and identify goals
1
,Test Bank for Personal Financial Planning, 2nd Edition
Chapter 01
d. Compile and analyze the data
e. All of the above are steps in the personal financial planning decision making
process
Answer: b
5. The underlying goal of a household when making personal financial planning
decisions is to:
a. Minimize expenditures
b. Minimize risk
c. Maximize cash inflows
d. Maximize leisure time
e. Maximize standard of living
Answer: e
6. Which of the following is not a reason why financial planning procedures must be
monitored and reviewed periodically?
a. Incomes change
b. Life situations change
c. Individual goals change
d. The financial environment changes
e. All of the above are reasons why financial planning procedures must be
monitored and reviewed periodically
Answer: e
7. What is the objective of financial integration?
a. To look at how actions in one part of personal financial planning can affect other
areas.
b. To use corporate financial managerial techniques in personal financial planning.
c. To place cash flow into assets designed to provide future funds for consumption.
d. To look at the functioning of the entire economy or a major section of it.
e. To reduce risk in a tax efficient manner.
Answer: a
8. Which of the following designations does not have a broad educational requirement
in financial planning?
a. Chartered Financial Consultant (ChFC)
2
,Test Bank for Personal Financial Planning, 2nd Edition
Chapter 01
b. Personal Financial Specialist (PFS)
c. Chartered Financial Analyst (CFA)
d. Certified Financial Planner (CFP)
e. National Association of Personal Financial Advisors (NAPFA) Registered
Financial Advisor
Answer: c
9. 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
10. The buying and selling of tangible goods and financial instruments is a feature of:
a. a market
b. an investment
c. a household
d. a market structure
e. none of the above
Answer: a
11. Which of the following best defines household finance?
a. The study of how a household and the people in it develop the cash flows
necessary to support operations and provide for the well-being of its members.
b. The study of how much it costs to purchase a home.
c. The study of how a household and the people in it can minimize the risk of
bankruptcy.
d. The study of how the number of people in a household can be maximized.
e. The study of how a household and the people in it limit expenditures and
maximize cash inflows.
Answer: a
3
, Test Bank for Personal Financial Planning, 2nd Edition
Chapter 01
12. Why do the disciplines of psychology and sociology have a role in the practice of
personal financial planning?
a. They provide logical, rather than emotional, explanations for how people act.
b. They provide behavioral, rather than logical, explanations for how people act.
c. They explain how people should act.
d. They help us understand how people and households allocate scarce resources.
e. They provide therapies that can reduce the anxiety faced by clients.
Answer: b
13. Which of the following is not a personal finance issue?
a. Consumption and savings
b. Risk management
c. Investments
d. Financing
e. All of the above are personal finance issues
Answer: e
14. In practice, most clients ask their personal financial planner to:
a. Provide free consultation
b. Provide assistance with a specific problem
c. Recommend a lawyer or accountant
d. Provide tax advice
e. Provide a comprehensive financial plan
Answer: b
15. Which of the following issues can be categorized as a consumption and savings
issue?
a. The need to resolve a debt problem.
b. The desire to improve investment returns.
c. Discomfort with the current risk profile.
d. All of the above.
e. None of the above.
Answer: e
16. A financial planner establishes the scope of the activity during the personal financial
planning process through:
4
Chapter 01
Test Bank Questions, Chapter 1
1. Which of the following is the market-established worth of a product or a financial
instrument?
a. Market value
b. Fair value
c. Cash flow
d. Investments
e. Book value
Answer: a
2. Which of the following best defines personal finance?
a. The study of how people minimize risk for a given level of return
b. The study of how people maximize return for a given level of risk
c. The study of how people develop the cash flows necessary to support their
operations and provide for their well-being
d. The study of how ethics should influence financial management decisions
e. The study of how people maximize risk for a given level of return
Answer: c
3. 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
4. Which of the following is not a step in the personal financial planning decision
making process?
a. Establish the scope of the activity
b. Identify and report tax evasion to the authorities
c. Gather data and identify goals
1
,Test Bank for Personal Financial Planning, 2nd Edition
Chapter 01
d. Compile and analyze the data
e. All of the above are steps in the personal financial planning decision making
process
Answer: b
5. The underlying goal of a household when making personal financial planning
decisions is to:
a. Minimize expenditures
b. Minimize risk
c. Maximize cash inflows
d. Maximize leisure time
e. Maximize standard of living
Answer: e
6. Which of the following is not a reason why financial planning procedures must be
monitored and reviewed periodically?
a. Incomes change
b. Life situations change
c. Individual goals change
d. The financial environment changes
e. All of the above are reasons why financial planning procedures must be
monitored and reviewed periodically
Answer: e
7. What is the objective of financial integration?
a. To look at how actions in one part of personal financial planning can affect other
areas.
b. To use corporate financial managerial techniques in personal financial planning.
c. To place cash flow into assets designed to provide future funds for consumption.
d. To look at the functioning of the entire economy or a major section of it.
e. To reduce risk in a tax efficient manner.
Answer: a
8. Which of the following designations does not have a broad educational requirement
in financial planning?
a. Chartered Financial Consultant (ChFC)
2
,Test Bank for Personal Financial Planning, 2nd Edition
Chapter 01
b. Personal Financial Specialist (PFS)
c. Chartered Financial Analyst (CFA)
d. Certified Financial Planner (CFP)
e. National Association of Personal Financial Advisors (NAPFA) Registered
Financial Advisor
Answer: c
9. 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
10. The buying and selling of tangible goods and financial instruments is a feature of:
a. a market
b. an investment
c. a household
d. a market structure
e. none of the above
Answer: a
11. Which of the following best defines household finance?
a. The study of how a household and the people in it develop the cash flows
necessary to support operations and provide for the well-being of its members.
b. The study of how much it costs to purchase a home.
c. The study of how a household and the people in it can minimize the risk of
bankruptcy.
d. The study of how the number of people in a household can be maximized.
e. The study of how a household and the people in it limit expenditures and
maximize cash inflows.
Answer: a
3
, Test Bank for Personal Financial Planning, 2nd Edition
Chapter 01
12. Why do the disciplines of psychology and sociology have a role in the practice of
personal financial planning?
a. They provide logical, rather than emotional, explanations for how people act.
b. They provide behavioral, rather than logical, explanations for how people act.
c. They explain how people should act.
d. They help us understand how people and households allocate scarce resources.
e. They provide therapies that can reduce the anxiety faced by clients.
Answer: b
13. Which of the following is not a personal finance issue?
a. Consumption and savings
b. Risk management
c. Investments
d. Financing
e. All of the above are personal finance issues
Answer: e
14. In practice, most clients ask their personal financial planner to:
a. Provide free consultation
b. Provide assistance with a specific problem
c. Recommend a lawyer or accountant
d. Provide tax advice
e. Provide a comprehensive financial plan
Answer: b
15. Which of the following issues can be categorized as a consumption and savings
issue?
a. The need to resolve a debt problem.
b. The desire to improve investment returns.
c. Discomfort with the current risk profile.
d. All of the above.
e. None of the above.
Answer: e
16. A financial planner establishes the scope of the activity during the personal financial
planning process through:
4
