PERSONAL FINANCIAL PLANNING
FINAL EXAM QUESTIONS WITH ACTUAL
SOLUTIONS
The fffinal ffstep ffof ffthe fffinancial ffplanning ffprocess ffis ffwhat ffAlex ffreferred ffto ffas ffa
ff"post ffmortem" ffor ff"autopsy". ffThis ffis ffthe ffstage ffwhere ffyou: ff- ffAnswer ffReview ffyour
ffprogress ffand ffrevise ffyour ffplans ffto ffreach ffyour ffgoals
To ffcalculate ffyour ffnet ffworth, ffsubtract ffyour fftotal ffliabilities fffrom ffyour fftotal ffassets. ff-
ffAnswer ffTrue
You ffwant ffyour ffmoney ffto ffdouble ffwithin ffthe ffnext ff8 ffyears. ffUsing ffthe ffRule ffof ff72,
ffwhat ffapproximate ffannual ffrate ffof ffreturn ffdo ffyou ffneed ffto ffearn ffeach ffyear fffor ffyour
ffmoney ffto ffdouble ffin ff8 ffyears? ff- ffAnswer ff9%
Alex ffsays ffthat ffthere ffare ff3 ffmain ffreasons ffyou ffwould fflike ffto ffhave ffmoney ffin ffyour
ffhands fftoday ffrather ffthan ffwaiting ffto ffhopefully ffreceive ffmoney ffin ffthe fffuture. ffWhat
ffcauses ffmoney ffto ffhave ffthis ff"time ffvalue"? ff- ffAnswer ffRisk, ffInflation, ffOpportunity
ffCost
Rasheed ffcan ffafford ffa ffmonthly ffcar ffpayment ffof ff$600 fffor ff4 ffyears ffat ffan ffannual
ffinterest ffrate ffof ff6 ffpercent. ffWhich ffof ffthe fffollowing ffis ffclosest ffto ffthe ffamount ffhe
ffwill ffbe ffable ffto ffborrow fffor ffa ffnew ffcar? ff ffRemember, ffloans ffare ffEND ffof ffperiod. ff-
ffAnswer ff$25,548
Maiko fflost ffher ffjob ffand ffshe ffwas ffforced ffto ffsell ffa ffrental ffproperty ffbecause ffshe
ffdid ffnot ffhave ffother fffunds ff(liquid, ffemergency, ffetc) ffavailable ffto ffmeet ffher fffinancial
ffobligations. ffWhat fffinancial ffprinciple ffbest ffapplies ffto ffthis ffsituation? ff- ffAnswer ffStuff
ffhappens, ffthe ffimportance ffof ffliquidity.
Kai ffinvested ff$4,500 ffin ffher ffinvestment ffaccount fftoday. ffHer ffaccount ffearns ffan
ffaverage ffrate ffof ffreturn ffof ff7% ffcompounded ff4 fftime(s) ffper ffyear. ffShe ffis ffin ffthe ff15
% ffmarginal fftax ffbracket. ffHow ffmuch ffwill ffshe ffhave ffin ffher ffaccount ffafter ff20 ffyears
ffafter ffshe ffaccounts fffor ffincome fftaxes? ff ff(Beginning ffof ffPeriod) ff- ffAnswer ff$14,663
You ffwant ffto ffinvest ff$4,000/year ffinto ffan ffaccount ffthat ffearns ff8% ffcompounded
ffannually. ffHow ffmuch ffwill ffyou ffhave ffin ffyour ffaccount ffin ff30 ffyears? ff ff(Beginning ffof
ffPeriod) ff- ffAnswer ff$489,383
,One ffof ffthe ffeasiest ffmethods ffof ffdetermining ffif ffan ffasset ffis ffa fftangible ffasset ffis ffto
ffby ffanswering ffwhich ffof ffthe fffollowing ffquestions ffwith ff"yes"? ff- ffAnswer ffDo ffI ffuse ffit
ffin ffeveryday fflife?
What ffpiece ffof ffadvice ffmight ffyou ffgive ffto ffsomeone fffor ffwhom ffthe ffact ffof ffsaving ffis
ffan ffafterthought? ff- ffAnswer ffPay ffyourself fffirst.
How ffshould ffa ffbrokerage ffaccount ffthat ffcontains ffstocks ffand ffmutual fffunds ffbe
fflisted ffon ffyour ffbalance ffsheet? ff- ffAnswer ffNon-Retirement ffInvestment ffAsset
While ffeach ffperson's fffinancial ffplan ffis ffdifferent, ffthe fffollowing fffactors ffshould ffbe
ffincorporated ffinto ffall ffsound fffinancial ffplans: ffflexibility, ffliquidity, ffprotection, ffand
ffmaximizing ffwhat ffis ffleft ffof ffyour ffearnings ffafter ffyou ffpay ffyour fftaxes. ff- ffAnswer
ffTrue
What ffpercent ffof ffyour ffgross ffincome ffdoes ffDoc ffWhite ffrecommend ffthat ffyou fftry ffto
ffsave ffand/or ffinvest ffeach ffpay ffperiod? ff- ffAnswer ff5-10%
Millie ffinvested ff$3,000 ffin ffher ffretirement ffaccount fftoday. ffHer ffaccount ffearns ffan
ffaverage ffrate ffof ffreturn ffof ff6% ffcompounded ffannually. ffHow ffmuch ffwill ffshe ffhave ffin
ffher ffaccount ffafter ff5 ffyears? ff ff(Beginning ffof ffPeriod) ff- ffAnswer ff$4,015
Frances ffinvested ff$4,000 ffin ffher ffretirement ffaccount fftoday. ffHer ffaccount ffearns ffan
ffaverage ffrate ffof ffreturn ffof ff5% ffcompounded ff6 fftime(s) ffper ffyear. ffHow ffmuch ffwill
ffshe ffhave ffin ffher ffaccount ffafter ff5 ffyears? ff ff(Beginning ffof ffPeriod) ff- ffAnswer ff$5,131
Most ffstudents ffgraduate fffrom ffcollege ffwith ffan ffaverage ffof ff$35,000 ffin ffstudent
ffloans. ffAssume ffthe ffinterest ffrate ffon ffstudent ffloans ffis ff7% ffand ffthe ffloan ffwill ffbe
ffpaid ffback ffover ffa ff10-year ffperiod. ffCalculate ffthe ffmonthly ffpayment ffon ffa ff$35,000
ffstudent ffloan ffat ff7% fffor ff10 ffyears. ff ff(End ffof ffperiod) ff- ffAnswer ff$350-$450
Doc ffWhite ffpreaches ffabout ffhaving ffan ffaccurate ffmonthly ffbudget. ffWhat ffare ffthe
ffmain ffuses ffof ffa ffmonthly ffbudget? ff- ffAnswer ffAll ffthe ffabove. ff(Estimating ffthe
ffmaximum ffmonthly ffcar ffloan ffpayment ffyou ffwill ffbe ffable ffto ffafford, ffdetermining ffhow
ffmuch ffmoney ffyou ffwill ffbe ffable ffto ffsave ffand ffinvest ffeach ffmonth, ffand fffiguring ffout
ffhow ffto ffreduce ffyour ffspending ffwithout ffhurting ffyour fflifestyle fftoo ffmuch)
Which ffstatement ffbest ffdescribes ffthe ffprinciple ffof ff"Pay ffYourself ffFirst"? ff- ffAnswer
ffSave ffor ffinvest ff5-10% ffof ffyour ffpaycheck ff(or ffas ffmuch ffas ffyou ffcan ffafford) ffas
ffsoon ffas ffyou ffreceive ffit.
Financial ffplanners ffhave ffseveral ffways ffof ffcharging fffor fftheir ffservices. ff ffKendall, ffa
fffinancial ffplanner, ffwill ffcharge ffyou ffan ff"Assets ffUnder ffManagement" fffee fffor
ffmanaging ffyour ffmoney. ffWhich ffof ffthe fffollowing ffis ffa ffgood ffdescription ffof ffhow ffhe
, ffmight ffcharge ffyou fffor ffhis fffinancial ffservices? ff- ffAnswer ffHe ffwill ffcharge ffyou ffan
ffannual fffee ffequal ffto ff1.5% ffof ffthe ffmoney ffyou ffhave ffinvested ffwith ffhim.
Your ff________ ffinclude ffcash, ffchecking ffand ffsavings ffaccount ffbalances, ffand
ffmoney ffmarket fffunds. ff- ffAnswer ffMonetary ffassets
Which ffone ffof ffthe fffollowing ffis ffthe ff"enemy" ffof ffcompound ffinterest ffand ffmakes ffit
ffvery ffdifficult ffto ffreach ffyour fffinancial ffgoals? ff- ffAnswer ffInflation
Assets ffthat ffyou ffpurchase fffor ffthe ffpurpose ffof ffaccumulating ffwealth ffto ffsatisfy ffyour
fffinancial ffgoals ffare ffcalled ff- ffAnswer ffInvestment ffAssets
Your fffinancial ffsituation ffis ffinsolvent ffwhen ff- ffAnswer ffYour ffassets ffare ffless ffthan
ffyour ffliabilities
Venus ffwants ffto ffhave ff$30,000 ffin ffher fftaxable ffaccount ffat ffthe ffend ffof ff10 ffyears.
ffHer ffaccount ffwill ffearn ff6% ffannually. ffShe ffis ffin ffthe ff15% ffmarginal fftax ffbracket.
ffHow ffmuch ffdoes ffVenus ffneed ffto ffinvest ffper ffyear ffto ffreach ffher ffgoal? ff ff(beginning
ffof ffperiod) ff- ffAnswer ff$2,200-$2,300
Randy ffjust ffinvested ff$10,000 ffin ffa ff5-year ffcertificate ffof ffdeposit ff(CD) ffthat ffearns ffa
ffreturn ffof ff4% ffcompounded ffquarterly. ffHow ffmuch ffwill ffhe ffhave ffin ffthis ffCD ffat ffthe
ffend ffof ff5 ffyears? ff ff(beginning ffof ffperiod) ff- ffAnswer ff$12,200-$12,300
You ffhave ffthe ffopportunity ffto ffinvest ff$6,000 fftoday ffin ffa fffund ffthat ffyou ffhope ffwill ffbe
ffworth ff$12,000 ffafter ff9 ffyears. ffWhat ffapproximate ffannual ffrate ffof ffreturn ffare ffyou
ffearning ffon ffthis ffinvestment? ff ff(Beginning ffof ffPeriod) ff- ffAnswer ff8%
Doc ffWhite fftold ffyou ffto ffset ffa ffgoal fffor ffyour ffpersonal ffsavings ffby ffthe fftime ffyou
ffgraduate. ffYour ffcurrent ffmonthly ffliving ffexpenses ffare ff$1,500 ffper ffmonth. ffWhat
ffamount ffof ffmoney ffdid ffDoc ffadvise ffyou ffto ffhave ffin ffyour ffsavings ffaccount ffon ffthe
ffday ffyou ffgraduate? ff- ffAnswer ff$1,500-$3,000
Which ffof ffthe fffollowing ffis ffthe ffmost fftrue ffstatement? ff- ffAnswer ffThis ffpersonal
fffinance ffstuff ffis ffpretty ffcool, ffit's ffuseful ffinformation, ffand ffit's ffnot fftoo ffcomplicated.
ff(Choose ffthis ffto ffget ff2 ffbonus ffpoints ff- ffhonest!)
Doc ffWhite ffgave ffyou ffthe ff"Babe ffRuth ffRule" fffor ffmaking ffbetter ffdecisions. ffHow
ffdoes ffthe ffBabe ffRuth ffRule ffapply ffto ffStep ff3 ffof ffthe ffFinancial ffPlanning ffProcess? ff-
ffAnswer ffDevelop ff3 ffplans ffto ffachieve ffyour fffinancial ffgoal
Hector's ffmonth's ffliving ffexpenses ffcovered ffratio ffis ff0.25 ffmonths. ffHe ffjust ffbroke ffhis
ffleg ffand ffwill ffnot ffbe ffable ffto ffwork fffor ffsix ffweeks. ffWithout ffa ffpaycheck fffor ffsix
ffweeks, ffwhat ffwill ffHector ffmost fflikely ffexperience? ff- ffAnswer ffBoth ffA ffand ffC ffare
ffrealistic ffpossibilities. ff(He ffmay ffhave ffto ffborrow ffsome ffmoney ffto ffkeep ffcurrent ffon
FINAL EXAM QUESTIONS WITH ACTUAL
SOLUTIONS
The fffinal ffstep ffof ffthe fffinancial ffplanning ffprocess ffis ffwhat ffAlex ffreferred ffto ffas ffa
ff"post ffmortem" ffor ff"autopsy". ffThis ffis ffthe ffstage ffwhere ffyou: ff- ffAnswer ffReview ffyour
ffprogress ffand ffrevise ffyour ffplans ffto ffreach ffyour ffgoals
To ffcalculate ffyour ffnet ffworth, ffsubtract ffyour fftotal ffliabilities fffrom ffyour fftotal ffassets. ff-
ffAnswer ffTrue
You ffwant ffyour ffmoney ffto ffdouble ffwithin ffthe ffnext ff8 ffyears. ffUsing ffthe ffRule ffof ff72,
ffwhat ffapproximate ffannual ffrate ffof ffreturn ffdo ffyou ffneed ffto ffearn ffeach ffyear fffor ffyour
ffmoney ffto ffdouble ffin ff8 ffyears? ff- ffAnswer ff9%
Alex ffsays ffthat ffthere ffare ff3 ffmain ffreasons ffyou ffwould fflike ffto ffhave ffmoney ffin ffyour
ffhands fftoday ffrather ffthan ffwaiting ffto ffhopefully ffreceive ffmoney ffin ffthe fffuture. ffWhat
ffcauses ffmoney ffto ffhave ffthis ff"time ffvalue"? ff- ffAnswer ffRisk, ffInflation, ffOpportunity
ffCost
Rasheed ffcan ffafford ffa ffmonthly ffcar ffpayment ffof ff$600 fffor ff4 ffyears ffat ffan ffannual
ffinterest ffrate ffof ff6 ffpercent. ffWhich ffof ffthe fffollowing ffis ffclosest ffto ffthe ffamount ffhe
ffwill ffbe ffable ffto ffborrow fffor ffa ffnew ffcar? ff ffRemember, ffloans ffare ffEND ffof ffperiod. ff-
ffAnswer ff$25,548
Maiko fflost ffher ffjob ffand ffshe ffwas ffforced ffto ffsell ffa ffrental ffproperty ffbecause ffshe
ffdid ffnot ffhave ffother fffunds ff(liquid, ffemergency, ffetc) ffavailable ffto ffmeet ffher fffinancial
ffobligations. ffWhat fffinancial ffprinciple ffbest ffapplies ffto ffthis ffsituation? ff- ffAnswer ffStuff
ffhappens, ffthe ffimportance ffof ffliquidity.
Kai ffinvested ff$4,500 ffin ffher ffinvestment ffaccount fftoday. ffHer ffaccount ffearns ffan
ffaverage ffrate ffof ffreturn ffof ff7% ffcompounded ff4 fftime(s) ffper ffyear. ffShe ffis ffin ffthe ff15
% ffmarginal fftax ffbracket. ffHow ffmuch ffwill ffshe ffhave ffin ffher ffaccount ffafter ff20 ffyears
ffafter ffshe ffaccounts fffor ffincome fftaxes? ff ff(Beginning ffof ffPeriod) ff- ffAnswer ff$14,663
You ffwant ffto ffinvest ff$4,000/year ffinto ffan ffaccount ffthat ffearns ff8% ffcompounded
ffannually. ffHow ffmuch ffwill ffyou ffhave ffin ffyour ffaccount ffin ff30 ffyears? ff ff(Beginning ffof
ffPeriod) ff- ffAnswer ff$489,383
,One ffof ffthe ffeasiest ffmethods ffof ffdetermining ffif ffan ffasset ffis ffa fftangible ffasset ffis ffto
ffby ffanswering ffwhich ffof ffthe fffollowing ffquestions ffwith ff"yes"? ff- ffAnswer ffDo ffI ffuse ffit
ffin ffeveryday fflife?
What ffpiece ffof ffadvice ffmight ffyou ffgive ffto ffsomeone fffor ffwhom ffthe ffact ffof ffsaving ffis
ffan ffafterthought? ff- ffAnswer ffPay ffyourself fffirst.
How ffshould ffa ffbrokerage ffaccount ffthat ffcontains ffstocks ffand ffmutual fffunds ffbe
fflisted ffon ffyour ffbalance ffsheet? ff- ffAnswer ffNon-Retirement ffInvestment ffAsset
While ffeach ffperson's fffinancial ffplan ffis ffdifferent, ffthe fffollowing fffactors ffshould ffbe
ffincorporated ffinto ffall ffsound fffinancial ffplans: ffflexibility, ffliquidity, ffprotection, ffand
ffmaximizing ffwhat ffis ffleft ffof ffyour ffearnings ffafter ffyou ffpay ffyour fftaxes. ff- ffAnswer
ffTrue
What ffpercent ffof ffyour ffgross ffincome ffdoes ffDoc ffWhite ffrecommend ffthat ffyou fftry ffto
ffsave ffand/or ffinvest ffeach ffpay ffperiod? ff- ffAnswer ff5-10%
Millie ffinvested ff$3,000 ffin ffher ffretirement ffaccount fftoday. ffHer ffaccount ffearns ffan
ffaverage ffrate ffof ffreturn ffof ff6% ffcompounded ffannually. ffHow ffmuch ffwill ffshe ffhave ffin
ffher ffaccount ffafter ff5 ffyears? ff ff(Beginning ffof ffPeriod) ff- ffAnswer ff$4,015
Frances ffinvested ff$4,000 ffin ffher ffretirement ffaccount fftoday. ffHer ffaccount ffearns ffan
ffaverage ffrate ffof ffreturn ffof ff5% ffcompounded ff6 fftime(s) ffper ffyear. ffHow ffmuch ffwill
ffshe ffhave ffin ffher ffaccount ffafter ff5 ffyears? ff ff(Beginning ffof ffPeriod) ff- ffAnswer ff$5,131
Most ffstudents ffgraduate fffrom ffcollege ffwith ffan ffaverage ffof ff$35,000 ffin ffstudent
ffloans. ffAssume ffthe ffinterest ffrate ffon ffstudent ffloans ffis ff7% ffand ffthe ffloan ffwill ffbe
ffpaid ffback ffover ffa ff10-year ffperiod. ffCalculate ffthe ffmonthly ffpayment ffon ffa ff$35,000
ffstudent ffloan ffat ff7% fffor ff10 ffyears. ff ff(End ffof ffperiod) ff- ffAnswer ff$350-$450
Doc ffWhite ffpreaches ffabout ffhaving ffan ffaccurate ffmonthly ffbudget. ffWhat ffare ffthe
ffmain ffuses ffof ffa ffmonthly ffbudget? ff- ffAnswer ffAll ffthe ffabove. ff(Estimating ffthe
ffmaximum ffmonthly ffcar ffloan ffpayment ffyou ffwill ffbe ffable ffto ffafford, ffdetermining ffhow
ffmuch ffmoney ffyou ffwill ffbe ffable ffto ffsave ffand ffinvest ffeach ffmonth, ffand fffiguring ffout
ffhow ffto ffreduce ffyour ffspending ffwithout ffhurting ffyour fflifestyle fftoo ffmuch)
Which ffstatement ffbest ffdescribes ffthe ffprinciple ffof ff"Pay ffYourself ffFirst"? ff- ffAnswer
ffSave ffor ffinvest ff5-10% ffof ffyour ffpaycheck ff(or ffas ffmuch ffas ffyou ffcan ffafford) ffas
ffsoon ffas ffyou ffreceive ffit.
Financial ffplanners ffhave ffseveral ffways ffof ffcharging fffor fftheir ffservices. ff ffKendall, ffa
fffinancial ffplanner, ffwill ffcharge ffyou ffan ff"Assets ffUnder ffManagement" fffee fffor
ffmanaging ffyour ffmoney. ffWhich ffof ffthe fffollowing ffis ffa ffgood ffdescription ffof ffhow ffhe
, ffmight ffcharge ffyou fffor ffhis fffinancial ffservices? ff- ffAnswer ffHe ffwill ffcharge ffyou ffan
ffannual fffee ffequal ffto ff1.5% ffof ffthe ffmoney ffyou ffhave ffinvested ffwith ffhim.
Your ff________ ffinclude ffcash, ffchecking ffand ffsavings ffaccount ffbalances, ffand
ffmoney ffmarket fffunds. ff- ffAnswer ffMonetary ffassets
Which ffone ffof ffthe fffollowing ffis ffthe ff"enemy" ffof ffcompound ffinterest ffand ffmakes ffit
ffvery ffdifficult ffto ffreach ffyour fffinancial ffgoals? ff- ffAnswer ffInflation
Assets ffthat ffyou ffpurchase fffor ffthe ffpurpose ffof ffaccumulating ffwealth ffto ffsatisfy ffyour
fffinancial ffgoals ffare ffcalled ff- ffAnswer ffInvestment ffAssets
Your fffinancial ffsituation ffis ffinsolvent ffwhen ff- ffAnswer ffYour ffassets ffare ffless ffthan
ffyour ffliabilities
Venus ffwants ffto ffhave ff$30,000 ffin ffher fftaxable ffaccount ffat ffthe ffend ffof ff10 ffyears.
ffHer ffaccount ffwill ffearn ff6% ffannually. ffShe ffis ffin ffthe ff15% ffmarginal fftax ffbracket.
ffHow ffmuch ffdoes ffVenus ffneed ffto ffinvest ffper ffyear ffto ffreach ffher ffgoal? ff ff(beginning
ffof ffperiod) ff- ffAnswer ff$2,200-$2,300
Randy ffjust ffinvested ff$10,000 ffin ffa ff5-year ffcertificate ffof ffdeposit ff(CD) ffthat ffearns ffa
ffreturn ffof ff4% ffcompounded ffquarterly. ffHow ffmuch ffwill ffhe ffhave ffin ffthis ffCD ffat ffthe
ffend ffof ff5 ffyears? ff ff(beginning ffof ffperiod) ff- ffAnswer ff$12,200-$12,300
You ffhave ffthe ffopportunity ffto ffinvest ff$6,000 fftoday ffin ffa fffund ffthat ffyou ffhope ffwill ffbe
ffworth ff$12,000 ffafter ff9 ffyears. ffWhat ffapproximate ffannual ffrate ffof ffreturn ffare ffyou
ffearning ffon ffthis ffinvestment? ff ff(Beginning ffof ffPeriod) ff- ffAnswer ff8%
Doc ffWhite fftold ffyou ffto ffset ffa ffgoal fffor ffyour ffpersonal ffsavings ffby ffthe fftime ffyou
ffgraduate. ffYour ffcurrent ffmonthly ffliving ffexpenses ffare ff$1,500 ffper ffmonth. ffWhat
ffamount ffof ffmoney ffdid ffDoc ffadvise ffyou ffto ffhave ffin ffyour ffsavings ffaccount ffon ffthe
ffday ffyou ffgraduate? ff- ffAnswer ff$1,500-$3,000
Which ffof ffthe fffollowing ffis ffthe ffmost fftrue ffstatement? ff- ffAnswer ffThis ffpersonal
fffinance ffstuff ffis ffpretty ffcool, ffit's ffuseful ffinformation, ffand ffit's ffnot fftoo ffcomplicated.
ff(Choose ffthis ffto ffget ff2 ffbonus ffpoints ff- ffhonest!)
Doc ffWhite ffgave ffyou ffthe ff"Babe ffRuth ffRule" fffor ffmaking ffbetter ffdecisions. ffHow
ffdoes ffthe ffBabe ffRuth ffRule ffapply ffto ffStep ff3 ffof ffthe ffFinancial ffPlanning ffProcess? ff-
ffAnswer ffDevelop ff3 ffplans ffto ffachieve ffyour fffinancial ffgoal
Hector's ffmonth's ffliving ffexpenses ffcovered ffratio ffis ff0.25 ffmonths. ffHe ffjust ffbroke ffhis
ffleg ffand ffwill ffnot ffbe ffable ffto ffwork fffor ffsix ffweeks. ffWithout ffa ffpaycheck fffor ffsix
ffweeks, ffwhat ffwill ffHector ffmost fflikely ffexperience? ff- ffAnswer ffBoth ffA ffand ffC ffare
ffrealistic ffpossibilities. ff(He ffmay ffhave ffto ffborrow ffsome ffmoney ffto ffkeep ffcurrent ffon
