Questions and Answers of Personal Financial Planning

Herbert Johnson, age 55, participates in Miller Hospital’s 403(b) plan. His compensation for 2016 is $60,000. What is his maximum salary deferral for 2016?A. He can defer $12,000.B. He can defer
Harmony Services, Inc. has 58 employees. The company would like to implement an employer-sponsored retirement plan with flexible contributions. The census indicates that integration with Social
Richard Thomas, the owner of Green Scapes Lawn Services, Inc., is age 57.He began the company 30 years ago, and at times it was a real struggle. Richard would like to retire at age 67. Because the
Angie Walters retired from Hanson, Hanson and Roberts, LLLP on her 70th birthday on June 10. If Angie accomplishes a direct rollover to an IRA, when must she take her first RMD?A. April 1 of the
Which of the following retirement plans is eligible for a QDRO?I. 403(b).II. 401(k).III. SEP.IV. SIMPLE IRA.A. I, II.B. II.C. I, III, IV.D. III, IV.
Jack works for Peterson Millworks, is married, and has two children. Peterson Millworks offers a PPO to its 50 employees. If Jack and his wife Alice were to divorce, which of the following is or are
Which fringe benefits are income taxable?A. Employee achievement awards.B. On-premise athletic facilities.C. Prepaid legal services.D. Occasional personal use of a company copying machine.
Who qualifies for a dependent care assistance plan?I. A dependent child who was under the age of 18 when the care was provided.II. A dependent who is mentally or physically challenged.III. A relative
Which pays a fixed amount and only provides benefits when the insured is hospitalized?A. Hospital indemnity.B. Managed care plan.C. Point of service.D. Surgical indemnity.
An employee may exclude from wages the value of certain planning services provided by an employer maintaining a qualified retirement plan.A. De minimis.B. Fringe benefit.C. Prepaid investment
Which is eligible to be considered an employee achievement award by an employer?A. Cash.B. Tangible personal property.C. Tickets to a sporting event.D. Vacation.
Which is required in order to participate in an HSA?A. Health maintenance organization.B. Point of service.C. Preferred provider organization.D. Qualified high-deductible plans.
Which is considered an indirect gift by an employee to a trust?A. Contributions to an adoption assistance program.B. Irrevocable assignment of group term life insurance.C. The revocation of a Crummey
Dr. Dante DeMarco, dermatologist, wants to provide fringe benefits to his staff. Which fringe benefits can be provided income-tax free to his employees?I. 50 percent off on microdermabrasion.II.
Benefits from which employer-provided plans will be received by the employee income-tax free?A. $7,000 in educational assistance.B. Group disability plan paid for by the employer.C. Prepaid legal
Under an endorsement form of split-dollar life insurance, the insured’s spouse is which of the following?A. The owner of the life insurance contract.B. The beneficiary of the life insurance
The___________ is an unfunded plan maintained primarily for the purpose of providing deferred compensation for a select group of management or highly compensated employees.A. Employment agreement.B.
Income is taxable to a cash basis taxpayer in the year in which it is paid, or made available to the taxpayer. This is the doctrine of_____________ .A. Constructive receipt.B. Economic benefit.C.
All of the following are required for a qualified employee stock purchase plan except:A. All eligible employees must be allowed to participate in the plan.B. An employee may not purchase more than
Which of the following is Section 1244 stock?A. Ledger stock.B. Qualified employee stock purchase plan.C. Restricted stock unit.D. Unrestricted stock unit.
The need for a rabbi trust would be indicated in which of the following situations?I. An acquisition.II. Bankruptcy.III. Hostile takeover.IV. Mergers.A. I, IV.B. I, II, III.C. II, III.D. I, III, IV.
With the opening of a local casino, the Bank of Red River is having record earnings. The bank’s increased profits and the new casino are the direct result of the bank’s president, Mortimer Rock.
Which of the following are correct about a nonqualified deferred compensation plan?I. A nonqualified deferred compensation plan is an unsecured promise of a future benefit.II. Nonqualified deferred
Which of the following trusts is a top-hat plan?A. ERISA trust.B. Grantor trust.C. Rabbi trust.D. Secular trust.
Restricted stock is taxable as____________ in the year_________ .A. Long term capital gains/it is granted.B. Long term capital gains/it is sold.C. Ordinary income/it is granted.D. Ordinary income/it
Which of the following are true about a pooled income fund?I. It is a fund that is established and maintained by a public charity.II. It is a trust that is established and maintained by a public
Jack and Alice McWilliams made a charitable cash contribution of $$50,000$ to a 50 percent organization and $$30,000$ charitable cash contribution to a 30 percent organization. The McWilliams’
The IRC allows individuals and businesses to make noncash contributions to qualifying charities and to claim deductions for these contributions on their income tax returns. The Internal Revenue
Gene MacArthur, a wealthy 55-year-old widower, wants to reduce his taxable estate, supplement his current income, provide an inheritance for his children, and benefit his alma mater. He doesn’t
What is the required minimum payout rate to a qualified charity from a CLT?A. 0 percent.B. 5 percent of the initial corpus.C. 5 percent of the corpus valued annually.D. 5 percent of the fair market
Dr. Dirk Mallard donated stock he purchased six months ago to his employer, State University. He purchased the stock for $$50,000.$ The current fair market value is $$60,000.$ Dr. Mallard’s
Which organization allows for a charitable deduction to a foreign organization?I. U.S. “Friends of” organizations.II. Donor-advised funds—foreign.III. Public foundations—foreign.IV.
In which does a donor transfer cash, marketable securities, or other assets to a qualified charitable organization in exchange for a commitment by the organization to pay the donor a specified amount
Which of the following is a 50 percent organization?A. Literary organizations.B. Nonprofit cemetery organizations.C. The Benevolent and Protective Order of Elks.D. Veterans organizations.
A pooled income fund is a_______ created by a________ .A. Charity/trust.B. Foundation/university.C. Nonprofit/donor.D. Trust/charity.
A condition that may increase either the severity or frequency of an economic loss is:A. Adverse selection.B. Hazard.C. Peril.D. Risk.
Which of the following are considered moral hazards?I. Driving while intoxicated.II. Failing to lock your front door, which results in the theft of a computer and other personal effects.III.
Which of the following risks are considered insurable risks?I. Investment risk.II. Peril risk.III. Pure risk.IV. Speculative risk.A. I, IV.B. II.C. II, IV.D. II, III.
Which of the following is an element of insurable risk?A. The loss must be unexpected or accidental.B. The loss must be catastrophic.C. The loss produced by the risk cannot be measurable.D. The loss
Wearing a seat belt when driving an automobile is which of the following responses to risk?A. Risk avoidance.B. Risk transfer.C. Risk retention.D. Risk reduction.
Which of the following is the most suitable response for risks that involve high loss severity and low loss frequency?A. Risk avoidance.B. Risk diversification.C. Risk reduction.D. Risk transfer.
Which of the following is an example of a hazard?A. Bringing a new product to market in Chicago.B. Building a residence on the Intracoastal Waterway in Miami.C. Making a bet while visiting Las
Which of the following is not an element of an insurable risk?A. A sufficiently large number of homogeneous exposure units.B. Catastrophic loss.C. A definite loss.D. A fortuitous loss.
With regards to self-insurance which of the following is/are true?I. A concentration of risk exposures is a fortuitous loss.II. The law of large numbers will not operate.III. The possibility of
There is a 5 percent probability of loss (theft) each month for hotel towels. How would this loss be described using the frequency-severity method, and what is the appropriate response?A. High
Which of the following statements regarding forms of health insurance is incorrect?A. In a PPO, plan participants may or may not use the PPO physician; the choice is up to the participant.B. In an
Which of the following statements regarding Medigap insurance is correct?A. It is an alternative to the traditional Medicare plans.B. It is also known as a Medicare Advantage Plan.C. It is provided
Which of the following is a benefit provided by Medicare Part B?A. Ambulance services.B. Long-term care (100 days or less).C. Non-durable medical equipment.D. Prescription drugs.
Which one of the following describes the convertibility provision in a life insurance contract?A. The insured is guaranteed the right to exchange a term insurance product for a permanent insurance
Which of the following are true about HSA distributions?I. HSA distributions can be used to pay the premiums for qualified long-term care insurance.II. HSA contributions must be made by either the
Tom Jones is of modest means and is about to be married. He wants a life insurance contract with the lowest initial premium, a level death benefit, and that would provide forhis new spouse in the
Barbara Wilson is 65 years old and newly widowed (two years ago). As a result of poor estate planning and her husband’s untimely death, her taxable estate has been left with substantial assets and
Alex Taylor just became a partner at a law practice. He is funding his retirement plan with the maximum contributions allowed, as well as saving 10 percent of his gross income in an after-tax
Regarding contributions to an HSA, which of the following statements is incorrect?A. Contributions can be made by the employer or the individual, or both.B. Contributions made by the employer are
Regarding contributions to an HSA, which of the following statements is incorrect?A. Contributions can be made by the employer or the individual, or both.B. Contributions made by the employer are tax
Mrs. Monroe, 67, is a widow. Her husband Paul passed away a few years ago. In order to make up for the reduction in Social Security benefits, she rents a furnished room in her home to a local
Which statements are correct?I. Form HO-3 is an open form policy.II. Form HO-4 is a broad form policy.III. Form HO-6 is a broad form policy.IV. Form HO-5 is a hybrid policy.A. II, IV.B. I, III.C. II,
Which are exclusions that apply to all of the homeowners insurance forms?I. Earth movement.II. Explosion.III. Intentional loss.IV. Neglect.A. I, II, III.B. I, III, IV.C. II, III, IV.D. Ill, IV.
Christopher Bentley purchased a 10-year-old Saab with 130,000 miles on its odometer for $2,000. His state mandates that he have automobile insurance for the vehicle. The cost of insurance may be more
Jerry and Paula Ranch are finally retired. All of their years of hard work have finally paid off. They purchased a second home on the beach decades ago. It was a “teardown,” and they have slowly
Which annuity payment option is most appropriate for a retired married couple with limited means and no other sources of income?A. Joint and survivor annuity.B. Single life annuity.C. Interest only
Which are disadvantages of a single life annuity?I. Annuitant has irrevocably given up the principal payment.II. Annuitant may die before the return of the principal payment.III. Annuitant receives
Which is true about long-term care expenses?A. At age 65 and older, premiums paid for qualified longterm care insurance are fully deductible.B. Unreimbursed medical expenses are subject to 7.5
Robert purchased a single life annuity for $$100,000.$ His lifetime monthly payment is $$1,000.$ According to actuarial tables, Robert’s life expectancy is 10 years. Which is correct?A. If
Which is correct regarding the HO-3 form?A. Named peril coverage for dwelling and named peril coverage for contents.B. Named peril coverage for dwelling and open peril coverage contents.C. Open peril
Investment portfolio rebalancing is part of which phase in the investment planning process?I. Planning.II. Implementation.III. Monitoring.IV. Updating.A. I.B. I, II.C. III.D. II, IV.
When there is a conflict between Statement on Standards in Personal Financial Planning Services No. 1 and laws or regulations, the laws or regulations will prevail unless they_____ the statement.A.
Which of the following is a security?I. Bond.II. LLC membership interest.III. Mortgage.IV. Stock.A. I, IV.B. I, III, IV.C. IV.D. I, II, III, IV.
A(n) is licensed to sell securities for a broker-dealer and receives a for the sale.A. Investment adviser representative, commission.B. Investment adviser representative, fee.C. Registered
In a PFP engagement, the planner should disclose in writing all compensation that the member, the member’s firm, or affiliates of the member will receive for services rendered (IAR) or products
Which of the following is not appropriate for a short-term investment horizon?A. Certificates of deposit with maturities of 60 months or less.B. Money market demand account.C. Money market mutual
Investment planning goals need to be specific, measurable, achievable, relevant, and_________ .A. Accountable.B. Conservative.C. Optimistic.D. Time-bound.
Which of the following is not a method of assessing a client’s risk tolerance?A. Conversation.B. Psychometric test.C. Risk tolerance questionnaire.D. Tabulated test.
Which of the following is not a human capital risk?A. Employment.B. Medical expenses.C. Morbidity.D. Pension entitlement.
SIPC protects each investor for up to______ for securities and cash (cash is limited to____________ ).A. $100,000, $100,000.B. $250,000, $250,000.C. $500,000, $250,000.D. $750,000, $250,000.I N T E R
Investors in real estate seek which objective?A. High correlation with common stock.B. Liquidity.C. Long-term growth.D. Low correlation with inflation.
A money market fund would most likely NOT contain A. Certificates of deposit.B. Commercial paper.C. Treasury bills.D. Treasury bond.
Which is correct about collectibles?A. “Collectible” describes a narrow category of asset.B. Uniqueness is not a consideration.C. Collectibles typically rise sharply in value during inflationary
Treasury bills are A. A long-term debt obligation.B. Backed by the full faith and credit of the U.S. government.C. A face-value security.D. Interest income subject to local and state income tax.
Investments in rare coins include which benefit?A. Appreciation potential.B. Liquidity.C. Increased investment portfolio risk.D. Deflation hedge
Rank the following from the lowest to the highest credit risk.I. Certificate of deposit with six-month maturity date.II. Money market fund.III. Tax-exempt money market fund.IV. Treasury bills.A. I,
Which are true about TIPS?I. The interest payment is constant, and the principal is adjusted for inflation or deflation.II. The interest payment is variable, and the principal is adjusted for
A client has had an unanticipated event which has depleted his emergency reserves. He needs an additional $10,000 and has to sell one of his municipal bonds. The following bonds have similar ratings
Which statement is correct regarding an REIT?I. Mortgage REITS can only invest in long-term mortgages.II. Both equity and mortgage REITS distribute at least 90 percent of their net investment
Which is a type of preferred stock?A. Dividend-preferred.B. Convertible-preferred.C. Profit-preferred.D. Nonparticipating.
Identify the following phases, in chronological order, as they occur in the PFP process:• Recommend actions• Update the plan• Monitor the plan• Implement the plan• Analyze and evaluate
The Investment Advisers Act of 1940 establishes the foundation and regulatory framework for personal financial planning. In light of “Regulatory Coverage Generally Exists for Financial Planners,
From the previous question, what was the IRR on their investment in the business?A. 11.37.B. 12.47.C. 15.27.D. 16.57.Previous questionPerry and Susan Williams just retired, moved to the lake and
During the initial consultation with a client, the personal financial planner and client need to mutually define the scope of the engagement before any PFP services are rendered. Which of the
In establishing and defining the PFP engagement between the personal financial planner and the client, which of the following is not among the planner’s obligations, unless defined in the
Which of the following is an example of quantitative data?A. The client would like to retire by age 60.B. The client would like to provide a fully paid education program for his/her child.C. The
Which of the following are heuristics?I. Rules of thumb.II. Common sense.III. Risk tolerance assessment.IV. Stereotyping.A. I, III.B. II, III, IV.C. I, II, IV.D. III, IV.
John Adams is meeting with a potential PFP client. Based on reasoned judgment, John feels that he is qualified to enter into a PFP engagement. As part of the engagement process, what are his
In the data gathering segment of the PFP process, there are two types of data that can be obtained. Which of the following is an example of qualitative data?A. Details on current investments.C.
Dr. Williams, age 64, wants to retire in three years. He has engaged you for an analysis of his retirement plan.Based on reasonable assumptions, his goals for retirement income cannot be met. In
Which of the following is not an example of qualitative data?A. Client’s priorities.B. Client’s personal and financial goals.C. Client’s desired retirement date.D. Fair market value (FMV) of
A familial data gathering form which includes, age, health status, and family tree of the client and the client’s family members allows the personal financial planner to determine which of the
Download the Statement on Standards in Personal Financial Planning Services (SSPFPS) No.1.Review the steps in the PFP
Download the GAO report “Regulatory Coverage Generally Exists for Financial Planners, but Consumer Protection Issues Remain.” Does the SSPFPS No. 1 address the issues presented by the GAO
Listen to George Kinder’s webcast, “The Life Planning Perspective: An interview with George

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