FPQP EXAM SCRIPT TESTED QUESTIONS
FULL SOLUTION PREMIUM STUDY
MATERIAL
●● What are the steps in the Financial Planning process?
Answer: - Understand the client's situation
- Identify the goals of the clients
- Analyze the client's course & potential alternative courses
- Develop financial planning recommendations
- Present recommendations
- Implement the recommendations
- Monitor progress & update the implemented recommendations
●● Basic Liquidity Ratio
Answer: = Liquid Assets/Monthly Expenses
- should be 3% or above
●● Savings Ratio
Answer: = savings & investments / annual gross income
,- should have a minimum of 10%
●● Front-End Debt-to-Income Ratio
Answer: = PITI (housing costs) / annual gross income
- housing cost ratio
- should be maximum of 28% of gross income
●● What is PITI in the front-end ratio?
Answer: - Principle, Interest, Taxes, Insurance
- Principle & Interest = mortgage loan payment
●● Back-End Debt-to-Income Ratio
Answer: = annual debt repayments / annual gross income
- total debt ratio
- debt repayment = any loan payment (home, auto, student, etc.)
●● Nonmortgage Debt-to-Income Ratio
Answer: = annual non-mortgage debt repayment / annual net income
- consumer ratio
,- should be maximum of 20% of net income
- non-mortgage = non-home (auto, student, etc.)
●● Fair Credit Billing Act
Answer: Provides consumers with a means to dispute a billing error on
open-ended credit accounts (credit and charge cards)
●● What is included on the Statement of Financial Position (SFP)?
Answer: Assets, Liabilities & Net Worth
●● What is the SFP also known as?
Answer: Balance Sheet
●● What is included in the Assets portion of the SFP?
Answer: - cash/cash equivalents
- invested assets
- use assets
●● What is an invested asset?
Answer: Assets that are not for personal use of the family and cannot be
readily converted into cash in case of an emergency.
, ex. stocks & bonds, 401k, IRA, vested pension benefits, investment real
estate, etc.
●● What is a use asset?
Answer: Asset that is intended primarily for the personal use or
enjoyment of the family.
ex. personal property, automobiles, family residence, etc.
●● What is included on the Cash Flow Statement (CFS)?
Answer: Inflows & Outflows
●● What are the different types of outflows on a CFS?
Answer: - fixed (rent, alimony, child support, loan payments, etc.)
- variable (utilities, food, transportation, entertainment, etc.)
●● What are the types of personal risk?
Answer: - Unemployment
- Disability
- Death
- Divorce
- Catastrophic Losses (medical expenses, natural disasters, etc.)
- Negligence
FULL SOLUTION PREMIUM STUDY
MATERIAL
●● What are the steps in the Financial Planning process?
Answer: - Understand the client's situation
- Identify the goals of the clients
- Analyze the client's course & potential alternative courses
- Develop financial planning recommendations
- Present recommendations
- Implement the recommendations
- Monitor progress & update the implemented recommendations
●● Basic Liquidity Ratio
Answer: = Liquid Assets/Monthly Expenses
- should be 3% or above
●● Savings Ratio
Answer: = savings & investments / annual gross income
,- should have a minimum of 10%
●● Front-End Debt-to-Income Ratio
Answer: = PITI (housing costs) / annual gross income
- housing cost ratio
- should be maximum of 28% of gross income
●● What is PITI in the front-end ratio?
Answer: - Principle, Interest, Taxes, Insurance
- Principle & Interest = mortgage loan payment
●● Back-End Debt-to-Income Ratio
Answer: = annual debt repayments / annual gross income
- total debt ratio
- debt repayment = any loan payment (home, auto, student, etc.)
●● Nonmortgage Debt-to-Income Ratio
Answer: = annual non-mortgage debt repayment / annual net income
- consumer ratio
,- should be maximum of 20% of net income
- non-mortgage = non-home (auto, student, etc.)
●● Fair Credit Billing Act
Answer: Provides consumers with a means to dispute a billing error on
open-ended credit accounts (credit and charge cards)
●● What is included on the Statement of Financial Position (SFP)?
Answer: Assets, Liabilities & Net Worth
●● What is the SFP also known as?
Answer: Balance Sheet
●● What is included in the Assets portion of the SFP?
Answer: - cash/cash equivalents
- invested assets
- use assets
●● What is an invested asset?
Answer: Assets that are not for personal use of the family and cannot be
readily converted into cash in case of an emergency.
, ex. stocks & bonds, 401k, IRA, vested pension benefits, investment real
estate, etc.
●● What is a use asset?
Answer: Asset that is intended primarily for the personal use or
enjoyment of the family.
ex. personal property, automobiles, family residence, etc.
●● What is included on the Cash Flow Statement (CFS)?
Answer: Inflows & Outflows
●● What are the different types of outflows on a CFS?
Answer: - fixed (rent, alimony, child support, loan payments, etc.)
- variable (utilities, food, transportation, entertainment, etc.)
●● What are the types of personal risk?
Answer: - Unemployment
- Disability
- Death
- Divorce
- Catastrophic Losses (medical expenses, natural disasters, etc.)
- Negligence
