Question 1
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents $15,000
Short-term debts $8,000
Long-term debts $133,000
Tax expense $7,000
Auto note payments $4,000
Invested assets $60,000
Use assets$188,000
What is her net worth?
A) $137,000
B) $122,000
C) $263,000
D) $111,000
CORRECT ANSWER
B) $122,000
Question 2
At the end of last year, Bill Greer has the following financial information:
Salaries $70,000
Auto payments $5,000
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,Insurance payments $3,800
Food $8,000
Credit card balance $10,000
Dividends $1,100
Utilities $3,500
Mortgage payments $14,000
Taxes $13,000
Clothing $9,000
Interest income $2,100
Checking account $4,000
Vacations $8,400
Donations $5,800
What is the cash flow surplus or (deficit) for Bill?
A) $10,700
B) $6,500
C) $2,700
D) ($500)
CORRECT ANSWER
C) $2,700
Question 3
Which of the following are correct statements about income replacement percentages?
I. Income replacement percentages are typically much higher for those with higher
preretirement incomes.
II. Income replacement percentages vary between low-income and high-income retirees.
III. Income replacement ratios should not be used as the only basis for planning.
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,IV. Income replacement ratios are useful for younger clients as a guide to their long-range
planning and investing.
A) I and IV
B) II and III
C) I and II
D) II, III, and IV
CORRECT ANSWER
D) II, III, and IV
The inverse of Option I is true. Those with a lower preretirement income typically need a
much higher income replacement percentage in retirement.
Question 4
If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by their
retirement date in 25 years, what level annual end-of-year savings amount will they need
to deposit each year, assuming their savings earn 7% annually?
A) $55,692
B) $54,130
C) $31,621
D) $29,552
CORRECT ANSWER
C) $31,621
Set your calculator to the "End" mode and "1 P/Yr." Inputs: FV = 2000000, I/YR = 7, N =
25, PV = 0, then PMT = $31,621
Question 5
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, Bill and Lisa have determined that they will need a monthly income of $6,000 during
retirement. They expect to receive Social Security retirement benefits amounting to $3,500
per month at the beginning of each month. Over the 12 remaining years of their
preretirement period, they expect to generate an average annual after-tax investment
return of 8%; during their 25-year retirement period, they want to assume a 6% annual
after-tax investment return compounded monthly. They want to start their monthly
retirement withdrawals on the first day they retire.
What is the lump sum needed at the beginning of retirement to fund this income stream?
A) $598,504
B) $388,017
C) $931,241
D) $389,957
CORRECT ANSWER
D) $389,957
The monthly retirement income need is not specified as "today's dollars," and no
inflation rate specified; therefore, it must be assumed that the $2,500 net monthly
income need represents retirement dollars, and the retirement period income stream is
level. To calculate the lump sum needed at the beginning of retirement, discount the
stream of monthly income payments at the investment return rate:
10BII+ PVAD calculation:
Set calculator on BEG and 12 periods per year, then input the following:
2,500 [PMT]
25 [SHIFT] [N]
6 [I/YR]
0 [FV]
Solve for PV = $389,957
Question 6
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Mary Goodwin's financial situation is as follows:
Cash/cash equivalents $15,000
Short-term debts $8,000
Long-term debts $133,000
Tax expense $7,000
Auto note payments $4,000
Invested assets $60,000
Use assets$188,000
What is her net worth?
A) $137,000
B) $122,000
C) $263,000
D) $111,000
CORRECT ANSWER
B) $122,000
Question 2
At the end of last year, Bill Greer has the following financial information:
Salaries $70,000
Auto payments $5,000
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,Insurance payments $3,800
Food $8,000
Credit card balance $10,000
Dividends $1,100
Utilities $3,500
Mortgage payments $14,000
Taxes $13,000
Clothing $9,000
Interest income $2,100
Checking account $4,000
Vacations $8,400
Donations $5,800
What is the cash flow surplus or (deficit) for Bill?
A) $10,700
B) $6,500
C) $2,700
D) ($500)
CORRECT ANSWER
C) $2,700
Question 3
Which of the following are correct statements about income replacement percentages?
I. Income replacement percentages are typically much higher for those with higher
preretirement incomes.
II. Income replacement percentages vary between low-income and high-income retirees.
III. Income replacement ratios should not be used as the only basis for planning.
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,IV. Income replacement ratios are useful for younger clients as a guide to their long-range
planning and investing.
A) I and IV
B) II and III
C) I and II
D) II, III, and IV
CORRECT ANSWER
D) II, III, and IV
The inverse of Option I is true. Those with a lower preretirement income typically need a
much higher income replacement percentage in retirement.
Question 4
If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by their
retirement date in 25 years, what level annual end-of-year savings amount will they need
to deposit each year, assuming their savings earn 7% annually?
A) $55,692
B) $54,130
C) $31,621
D) $29,552
CORRECT ANSWER
C) $31,621
Set your calculator to the "End" mode and "1 P/Yr." Inputs: FV = 2000000, I/YR = 7, N =
25, PV = 0, then PMT = $31,621
Question 5
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, Bill and Lisa have determined that they will need a monthly income of $6,000 during
retirement. They expect to receive Social Security retirement benefits amounting to $3,500
per month at the beginning of each month. Over the 12 remaining years of their
preretirement period, they expect to generate an average annual after-tax investment
return of 8%; during their 25-year retirement period, they want to assume a 6% annual
after-tax investment return compounded monthly. They want to start their monthly
retirement withdrawals on the first day they retire.
What is the lump sum needed at the beginning of retirement to fund this income stream?
A) $598,504
B) $388,017
C) $931,241
D) $389,957
CORRECT ANSWER
D) $389,957
The monthly retirement income need is not specified as "today's dollars," and no
inflation rate specified; therefore, it must be assumed that the $2,500 net monthly
income need represents retirement dollars, and the retirement period income stream is
level. To calculate the lump sum needed at the beginning of retirement, discount the
stream of monthly income payments at the investment return rate:
10BII+ PVAD calculation:
Set calculator on BEG and 12 periods per year, then input the following:
2,500 [PMT]
25 [SHIFT] [N]
6 [I/YR]
0 [FV]
Solve for PV = $389,957
Question 6
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