Personal Financial Planning 2nd Edition By Altfest - Test Bank

Test Bank Questions, Chapter 3 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 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) 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 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: a. Determining the number of people in the household. b. Defining the specific financial planning services that will be provided. c. Determining the cash inflow to the household. d. Determining the number of years until the client expects to retire. e. None of the above. Answer: b 17. During the personal financial planning process, a financial planner will not gather data related to: a. Household financial assets. b. Household income and expenditures. c. Age and health of members in the household. d. The household’s tolerance of risk e. Data will be gathered in relation to all of the above. Answer: e 18. Which of the following steps in the personal financial planning process comes last? a. Implement. b. Monitor and review. c. Compile and analyze data. d. Establish scope of activity. e. Develop solutions and present the plan. Answer: b 19. Planning for yourself and others while you are alive, and for current and former members of your household and other people or institutions upon your death, is designated: a. Special circumstances planning b. Retirement planning c. Estate planning d. Cash flow planning e. Investment planning Answer: c 20. What is the goal of cash flow planning? a. To plan income and expense flows so that work, cost of living, savings and investment and financing issues interact in an optimal way to provide the highest returns possible. b. To minimize payments to the government. c. To enable our net cash flows to grow as rapidly as possible, subject to our tolerance for risk. d. To present a current picture of the household’s financial condition. e. None of the above. Answer: a 21. Which of the following is not a finance tool? a. Time value of money b. Cash flow analysis c. Investment models of behavior d. Optimization e. All of the above are finance tools Answer: e 22. Which of the following are not considered part of the financial plan? a. Tax planning b. Investment planning c. Capital budgeting d. Risk Management e. Employee benefits Answer: c 23. Financial planners are best characterized as: a. People with designations, education, and experience, who are trained to practice personal financial planning. b. People with households that recognize that they must plan for their household’s financial future. c. People that integrate macroeconomic theories into capital budgeting decisions using a logical, scientific approach. d. People that integrate psychology and sociology theories into investment decisions using a behavioral approach. e. None of the above characterizes financial planners. Answer: a 24. Which of the following is not an example of a service that financial planners typically provide? a. Comprehensive financial plan construction. b. Elimination of debt difficulties. c. Retirement planning. d. Taxes reduction through planning, products and structures. e. All of the above are examples of services that financial planners typically provide. Answer: e 25. Similar to a medical doctor, a financial planner: a. Is typically compensated through an insurance company. b. Must be familiar with the overall state of the client’s financial health, regardless of the service being provided. c. Must specialize in one area. d. All of the above. e. None of the above. Answer: b 26. Employee benefits are best defined as: a. The satisfaction employees feel when working for a successful company. b. The benefits that flow to employers from hiring additional employees. c. Forms of employee compensation other than salary. d. Tax-deductible compensation employees receive for retirement purposes. e. None of the above. Answer: c 27. Market structure is the term used to describe: a. The study of how people develop the cash flows necessary to support their operations and provide for their well-being. b. Places where tangible goods and financial instruments like stocks and bonds are bought and sold. c. A structure through which you can establish and integrate all of your goals and needs. d. The economic operations of the business, the government, and the household that facilitate the purchase and sale of items. e. None of the above. Answer: d 28. Risk management is best defined as: a. The uncertainty of outcomes. b. The process of controlling the level of household risk. c. The activity of minimizing household risk. d. The risk of minimizing the household’s activity. e. The outcome of uncertainty. Answer: b 29. What factor explains expanded financial planning services in the 1970s? a. A middle class with increased discretionary income. b. The growing complexity of financial instruments and services. c. Personal financial planning developing as a profession. d. Magazines and other media that increased awareness of personal finance issues. e. All of the above. Answer: e 30. Capital is best defined as: a. The places where tangible goods and financial instruments like stocks and bonds are bought and sold. b. The economic operation of the organization based on the cash it generates. c. The real, financial, and human related assets that are generated by individuals and organizations or bought and sold in the marketplace. d. None of the above. e. All of the above. Answer: c Essay questions: 31. Personal financial planning must satisfy four broad categories of personal-finance decisions: consumption and savings, investments, financing, and risk management. Into which category does each of the following five examples belong? • Inability to save properly. • Need to resolve a debt problem. • Desire to improve investment returns. • Desire to retire comfortably on time. • Discomfort with present risk profile. Answer: The five examples and their corresponding categories are as follows: • Inability to save properly: Consumption and saving • Need to resolve a debt problem: Financing • Desire to improve investment returns: Investing • Desire to retire comfortably on time: Multiple categories • Discomfort with present risk profile: Risk Management 32. Outline the origins of personal financial planning. Your outline should include details regarding finance tools, other disciplines used in financial planning, personal finance categories, and the parts of personal financial planning. Answer: The origins of personal financial planning are best described in a flow chart. Personal financial planning flows from personal finance, which flows from both finance tools and other disciplines. Parts of personal financial planning include cash flow, tax, investments, retirement, estate, special circumstances, and education planning, as well as risk management and employee benefits planning. Categories of personal finance include consumption and savings, investments and capital budgeting, financing, and risk management. Finance tools include time value of money, cash flow analysis, optimization, market pricing, analysis of risk, and investment models of behavior. Other disciplines include microeconomics, macroeconomics, accounting, law and taxation, mathematics and statistics, business and government, and psychology and sociology. 1. What is the first step in the financial planning process? a. Gather data. b. Communicate investment objectives to client. c. Identify household spending. d. Identify household goals and needs. e. None of the above. Answer: d 2. Behavioral finance can best be defined as: a. How to improve people’s decision-making abilities so that they can more easily achieve the goals they set. b. The study of human actions in financial matters. c. How to understand people’s decision-making abilities so that they can more easily achieve the goals they set. d. The study of how behavior is shaped by an individual’s financial well-being. e. None of the above. Answer: b 3. Understanding and improving people’s decision-making abilities so that they can more easily achieve the goals they set is the objective of: a. Personal financial planning. b. Behavioral finance. c. Behavioral financial planning. d. Finance. e. None of the above. Answer: c 4. Peer groups are: a. Households in a similar demographic category, against whom the advisor measures a household’s financial health. b. Analysts that review a household’s wealth from an objective and non-judgmental perspective. c. Analysts that review a household’s wealth from a subjective and behavioral perspective. d. Friends and associates with similar backgrounds, against whom we measure ourselves. e. None of the above Answer: d 5. Life cycle stages include: a. Young, middle aged, and senior. b. Child, adult, and elderly. c. Student, employed, unemployed, retired. d. Infant, child, adolescent, young adult, adult, elderly. e. None of the above. Answer: a 6. Which of the following is typically not a characteristic of young clients? a. They place great emphasis on their current standard of living. b. Savings are given lower priority. c. Low risk tolerance. d. All of the above are typically characteristics of young clients. e. None of the above is typically a characteristic of young clients. Answer: c 7. Which of the following is typically not a characteristic of middle aged clients? a. Debt as a percentage of assets declines. b. Consistent cost of living. c. Increased sums saved for retirement. d. All of the above are typically characteristics of middle aged clients. e. None of the above is typically a characteristic of middle aged clients. Answer: d 8. Which of the following is typically not a characteristic of senior clients? a. Focused on the accumulation of wealth. b. High risk tolerance. c. Increased cost of living regardless of medical and eldercare costs. d. All of the above are typically characteristics of senior clients. e. None of the above is typically a characteristic of senior clients. Answer: e 9. Personality is relevant to personal financial planning. This is primarily because: a. Personality affects our tolerance for risk which influences our planning actions. b. The client’s salary and career success is typically determined by the client’s personality. c. Understanding the client’s personality allows the advisor to monitor the client for emotional outbursts. d. Investment decisions are based on behavioral factors. e. None of the above. Answer: a 10. Which of the following characterizes communication? a. It is the ability to transmit a message successfully to another person. b. It is required to demonstrate to others that we possess desirable traits. c. It is necessary even if you are honest, knowledgeable, and concerned. d. All of the above. e. None of the above. Answer: d 11. Transmitting our thoughts and emotions through the spoken word is: a. Verbal communication. b. A verbal message. c. The only way to transmit a message. d. Communicated through the tone of voice and intensity. e. All of the above. Answer: a 12. Which of the following is not a reason to communicate? a. To express your opinion or feelings about a matter. b. To convey specific facts. c. To develop a relationship with another person. d. To persuade someone to follow your advice. e. All of the above are reasons to communicate. Answer: e 13. Which of the following is not a rule that can help you become a more effective listener? a. Do more listening than talking. b. Avoid trying to get into the other person’s way of thinking. c. Keep your responses to the topic being discussed. d. Focus your full attention. e. All of the above are rules that can help you become a more effective listener. Answer: b 14. What is empathy? a. Speaking positively about another person’s strongly held beliefs. b. Believing that you can rely on another person to perform as expected. c. Trying to place oneself in another person’s position. d. Trying not to be judgmental about another person’s position. e. None of the above. Answer: c 15. The purpose of the initial client interview is: a. To establish goals. b. To gather data. c. To establish whether the client and advisor wish to work together. d. All of the above. e. Only b and c above. Answer: d 16. Which of the following is not part of preplanning the interview process/? a. Ensure that the interview room is neat and free from distraction. b. Review background about the client. c. Select topics to be discussed in advance. d. Prepare an analysis of the client’s goals. e. Prepare an outline of questions to be asked. Answer: d 17. The substance of the client interview typically begins with: a. Small talk. b. A simple question. c. Probing questions. d. Paraphrasing the client’s questions. e. None of the above. Answer: b 18. The conclusion of the client interview typically includes: a. The advisor indicating that the time is drawing to a close. b. The advisor summing the points covered during the meeting. c. The advisor establishing a date or other plan for action. d. All of the above. e. None of the above. Answer: d 19. Financial counseling is best defined as: a. Assisting clients in making their financial decisions. b. Making financial decisions for clients. c. The provision of legal advice related to financial matters. d. The analysis of the client’s portfolio of investments. e. None of the above. Answer: a 20. Which of the following best describes the relation, in practice, between financial counseling and financial advising? a. Professionals choose to provide either financial counseling or financial advising, and rarely combine the two. b. Financial counseling and financial advising are often combined with little distinction made between the two. c. Professionals typically focus on financial counseling exclusively. d. Professionals typically focus on financial advising exclusively. e. None of the above. Answer: b 21. Which of the following statements is applicable to financial planners? a. They may view themselves as assisting people in making their decisions. b. They may be extremely sensitive to people’s needs with financial rules taking a backseat. c. They may view themselves as experts whose advice is correct and should be followed in all instances. d. All of the above statements may be applicable to financial planners, with the degree of applicability depending on personality. e. None of the above statements are applicable to financial planners. Answer: d 22. If clients show resistance to the financial planner’s advice, the financial planner may: a. Try to persuade the clients that their ways of viewing the matter aren’t accurate. b. Change the advice. c. Try to persuade the clients that their ways of viewing the matter aren’t in their interest. d. All of the above. e. None of the above. Answer: d 23. Financial advisors should set aside judgments for the balance of the consultation when: a. The client expresses dismay over the advisor’s fee. b. The advice extends beyond hard financial practices and the client’s wishes to the advisor’s own preferences. c. The advice does not maximize the advisor’s own interests. d. All of the above. e. None of the above. Answer: b 24. Which discipline proposes that our goals are influenced by the way we were raised by our families and other groups of people in our environment? a. Biology. b. Sociology. c. Psychology. d. None of the above. e. Both sociology and psychology, exclusively. Answer: b 25. Biologists argue that: a. We are programmed through our genetic makeup to strive for certain objectives. b. Our goals are influenced by the way we were raised by our families and other groups of people in our environment. c. The underlying goal of most human behavior is to have as many pleasurable experiences as possible. d. Goal oriented behavior is genetically limited to the pursuit of pleasure. e. None of the above. Answer: a 26. Economists quantify goals in: a. Financial terms. b. Utility terms. c. Leisure terms. d. Behavioral terms. e. None of the above. Answer: b 27. The disciplines of economics and finance translate human motivations into common dollar terms as: a. Stripping emotion from decisions maximizes objectivity. b. The disciplines of economics and finance are exclusively focused on rational decision making. c. Dollar terms permit scientific measurement. d. Most students of economics and finance are primarily interested in money. e. None of the above. Answer: c 28. In strict finance parlance, we obtain the highest possible standard of living through: a. Striving for an attractive balance of life’s factors. b. Extending our objectives beyond just acquiring material items. c. Striving to make the most money possible. d. All of the above. e. None of the above. Answer: c 29. Which of the following needs did the psychologist Abraham Maslow believe that people first try to satisfy? a. Self-esteem needs. b. Basic or physiological needs. c. The need for safety. d. The need for belonging. e. None of the above. Answer: b 30. Long-term goals are those you expect to accomplish in: a. Five years or more. b. Ten years or more. c. Twelve years or more. d. Fifteen years or more. e. Upon retirement. Answer: a 31. The life value of being seen as successful and receiving acknowledgement for achievement is: a. Pleasure. b. Autonomy. c. Recognition. d. Friendship. e. None of the above. Answer: c 32. For which type of planning do we require current projected income and expenses? a. Income tax planning. b. Cash flow planning. c. Estate planning. d. Specialized planning. e. None of the above. Answer: b Essay questions: 33. Please list and define fifteen different life values. Answer: Fifteen different life values and their definitions are as follows: 1. Achievement: to accomplish something important in life. 2. Aesthetics: to be able to appreciate and enjoy beauty’s for its own sake. 3. Authority: to be a key decision maker directing priorities. 4. Adventure: to experience variety and excitement. 5. Autonomy: to be independent, have freedom. 6. Health: to be physically, mentally, and emotionally well. 7. Integrity: to be honest and straightforward, just and fair. 8. Friendship: to have close personal relationships, share with family and friends. 9. Pleasure: to experience enjoyment and satisfaction from activities in which I participate. 10. Recognition: to be seen as successful, receive acknowledgement for achievement. 11. Security: to feel stable and comfortable with few changes or anxieties in my life. 12. Service: to contribute to the quality of life for other people. 13. Spiritual Growth: to have harmony with the infinite source of life. 14. Wealth: to acquire an abundance of money/possessions; to be financially independent. 15. Wisdom: to have insight, to be able to pursue new knowledge. 34. For each of the following categories of information required for a comprehensive financial plan, please detail the information that must be gathered: a. Retirement Planning b. Estate Planning c. Risk Management d. Employee Benefits e. Family Planning f. Educational Planning Answer: The information that must be gathered for each category is as follows: a. Retirement Planning: Retirement accounts and retirement savings. Rates, retirement goals, government benefits. b. Estate Planning: Copies of wills and trusts. Establishment of titling of assets. Intended gifting policies and those for estate distribution at death. c. Risk Management: Copies of all insurance policies. Intended insurance coverage. Other risk management procedures. Determination of overall household risk tolerance. d. Employee Benefits: Copies of description of all company benefits. Amounts and investment alternatives for pension plans. e. Family Planning: Current number of household members. Marital and children planning vs. household members today. f. Educational Planning: Types of plans and amount of assets in place. Prospective costs for college and, in the case of children, the amount or percentage to be funded by the parent. personal finance - test bank, personal finance test bank, , personal finance banking test quizlet, personal finance planning test bank, is personal finance easy, what are the components of personal finance,