WGU D118 OBJECTIVE ASSESSMENT:
PERSONAL FINANCIAL PLANNING
COMPREHENSIVE EXAM QUESTIONS
AND CORRECT DETAILED ANSWERS
1. Which of the following best describes the ‘Liquidity Ratio’ in the context of personal
financial statement analysis?
A. Liquid assets divided by total debts.
B. Total assets divided by total liabilities.
C. Liquid assets divided by monthly expenses.
D. Annual savings divided by gross income.
Answer: C
Conceptual Explanation: The liquidity ratio indicates the number of months a household
could meet its current expenses using only liquid assets. It is calculated as liquid assets
divided by monthly expenses.
2. Under the Life Cycle Hypothesis of saving, at what stage does an individual typically
experience ‘dissaving’?
A. Early career stage due to high education debt.
B. Retirement stage when spending exceeds earned income.
,C. Mid-career stage when income is at its peak.
D. Late career stage while maximizing 401(k) contributions.
Answer: B
Conceptual Explanation: Dissaving occurs when consumption exceeds income, which
typically happens during retirement as individuals draw down accumulated wealth.
3. What is the primary difference between a Chapter 7 and a Chapter 13 bankruptcy?
A. Chapter 7 involves a repayment plan; Chapter 13 involves liquidation.
B. Chapter 7 is for corporations; Chapter 13 is for individuals only.
C. Chapter 7 stays on a credit report for 7 years; Chapter 13 stays for 10 years.
D. Chapter 7 liquidates non-exempt assets; Chapter 13 involves a 3-5 year repayment plan.
Answer: D
Conceptual Explanation: Chapter 7 is known as straight bankruptcy or liquidation, while
Chapter 13 is a wage-earner’s plan where the debtor keeps assets and pays back a portion
of debt over time.
4. If an investor is in the 24% marginal tax bracket, what is the tax-equivalent yield of a
municipal bond yielding 4%?
A. 3.04%
B. 4.00%
C. 6.12%
, D. 5.26%
Answer: D
Conceptual Explanation: Tax-equivalent yield = Tax-exempt yield / (1 - marginal tax
rate). 0.04 / (1 - 0.24) = 0.0526 or 5.26%.
5. A ‘durable power of attorney’ is unique because:
A. It only becomes active after the person dies.
B. It cannot be revoked once signed.
C. It remains in effect even if the principal becomes incapacitated.
D. It only covers medical decisions, not financial ones.
Answer: C
Conceptual Explanation: A ‘durable’ power of attorney specifically contains language that
allows the agent’s authority to continue if the principal becomes mentally incompetent or
physically unable to lead.
6. Which factor has the highest weight in determining a FICO credit score?
A. Payment history.
B. Amounts owed (credit utilization).
C. Types of credit used.
D. Length of credit history.
PERSONAL FINANCIAL PLANNING
COMPREHENSIVE EXAM QUESTIONS
AND CORRECT DETAILED ANSWERS
1. Which of the following best describes the ‘Liquidity Ratio’ in the context of personal
financial statement analysis?
A. Liquid assets divided by total debts.
B. Total assets divided by total liabilities.
C. Liquid assets divided by monthly expenses.
D. Annual savings divided by gross income.
Answer: C
Conceptual Explanation: The liquidity ratio indicates the number of months a household
could meet its current expenses using only liquid assets. It is calculated as liquid assets
divided by monthly expenses.
2. Under the Life Cycle Hypothesis of saving, at what stage does an individual typically
experience ‘dissaving’?
A. Early career stage due to high education debt.
B. Retirement stage when spending exceeds earned income.
,C. Mid-career stage when income is at its peak.
D. Late career stage while maximizing 401(k) contributions.
Answer: B
Conceptual Explanation: Dissaving occurs when consumption exceeds income, which
typically happens during retirement as individuals draw down accumulated wealth.
3. What is the primary difference between a Chapter 7 and a Chapter 13 bankruptcy?
A. Chapter 7 involves a repayment plan; Chapter 13 involves liquidation.
B. Chapter 7 is for corporations; Chapter 13 is for individuals only.
C. Chapter 7 stays on a credit report for 7 years; Chapter 13 stays for 10 years.
D. Chapter 7 liquidates non-exempt assets; Chapter 13 involves a 3-5 year repayment plan.
Answer: D
Conceptual Explanation: Chapter 7 is known as straight bankruptcy or liquidation, while
Chapter 13 is a wage-earner’s plan where the debtor keeps assets and pays back a portion
of debt over time.
4. If an investor is in the 24% marginal tax bracket, what is the tax-equivalent yield of a
municipal bond yielding 4%?
A. 3.04%
B. 4.00%
C. 6.12%
, D. 5.26%
Answer: D
Conceptual Explanation: Tax-equivalent yield = Tax-exempt yield / (1 - marginal tax
rate). 0.04 / (1 - 0.24) = 0.0526 or 5.26%.
5. A ‘durable power of attorney’ is unique because:
A. It only becomes active after the person dies.
B. It cannot be revoked once signed.
C. It remains in effect even if the principal becomes incapacitated.
D. It only covers medical decisions, not financial ones.
Answer: C
Conceptual Explanation: A ‘durable’ power of attorney specifically contains language that
allows the agent’s authority to continue if the principal becomes mentally incompetent or
physically unable to lead.
6. Which factor has the highest weight in determining a FICO credit score?
A. Payment history.
B. Amounts owed (credit utilization).
C. Types of credit used.
D. Length of credit history.
