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personal financial planning
Fundamentals Of Financial Planning 3rd Edition Michael A Dalton, Joseph Gillice - Solutions
Recognize the purpose of a cash flow statement.
Determine what forecasted financial statements should reflect.
Identify the importance of budgeting and the steps to the budgeting process.
The statement of net worth explains changes to net worth such as employer contributions to retirement savings accounts.a. Trueb. False
The cash flow statement captures recur- ring income and expenses for the period being reported.a. Trueb. False
Forecasted financial statements should reflect recommendations and inflation adjusted income and expenses.a. Trueb. False
Identify the purpose of financial state- ment analysis and the tools used in the comparative financial statement analy- sis.
Identify the purpose of ratio analysis.
Vertical analysis is a tool for financial statement analysis using a common size comparison of a statement's line items.a. Trueb. False
Ratio analysis is the process of calculat- ing financial ratios that are compared to example benchmarks for meaningful interpretation of the client's actual financial status.a. Trueb. False
The emergency fund ratio measure how many times the client can satisfy their short-term liabilities.a. Trueb. False
Identify the key liquidity ratios used in financial planning ratio analysis.
Identify the key debt ratios used in financial planning ratio analysis.
Identify the key ratios for financial secu- rity goals used in financial planning ratio analysis.
Identify the key performance ratios used in financial planning ratio analysis.
Determine the various limitations on financial statement analysis.
The housing ratio 1 industry bench- mark is less than or equal to 28 percent.a. Trueb. False
The savings rate calculation includes reinvestments and the employer match.a. Trueb. False
The quality of debt assessment is based on the comparison of the term of the debt on an asset and the useful life of the asset.a. Trueb. False
Describe the personal risk management process.
List four responses to managing risk.
Define a peril.
Define the three main types of hazard.
List some of the unique characteristics of an insurance contract.
What are three methods used to determine the amount of life insurance needed?
Discuss the characteristics of term life insurance.
Define the difference between own occupation and any occupation disability definitions and the associated coverage.
Discuss the coverage available under a homeowners insurance policy.
Define a personal automobile policy (PAP).
Discuss why there is a need for personal liability insurance.
Differentiate between noncancellable and guaranteed renewable.
Identify the six steps to the personal risk management process.
Identify the difference between personal risks, property risks, and liability risks.
Distinguish between loss frequency and loss severity.
Identify the four responses to managing risk.
Identify the risk management decisions associated with particular risk expo- sures.
Personal risk management is a system- atic process for identifying, evaluating, and managing pure risk exposures.a. Trueb. False
Perils are the proximate or actual cause of a loss that upon occurrence can lead to a severe financial hardship.a. Trueb. False
Risk avoidance is the implementation of activities that will result in the reduction of the frequency and/or severity of losses.a. Trueb. False
Risk transfer is the shifting of the risk of loss through means such as insurance or a warranty.a. Trueb. False
Distinguish between an open-perils pol- icy and a named-perils policy.
Identify the three main types of hazards.
Identify the four conditions necessary for a risk to be insurable.
Identify the elements of a valid contract.
Identify some of the unique characteris- tics of an insurance contract.
Determine the purpose of life insurance.
Identify the methods of determining the amount of life insurance needed.
Distinguish the difference between term life insurance and permanent life insur- ance.
A hazard is a condition that creates or increases the likelihood of a loss occur- ring.a. Trueb. False
Moral hazard is the indifference to losses based on the existence of insurance.a. Trueb. False
The elements of a valid contract include offer and acceptance, legal competency of the parties, legal consideration, and lawful purpose.a. Trueb. False
The human life value method of mea- suring life insurance needs evaluates the income replacement and lump-sum needs of survivors in the event of the insured's death.a. Trueb. False
The capitalization of earnings method uses the client's gross income divided by the riskless rate of return to arrive at the initial amount of life insurance need.a. Trueb. False
Term life insurance has both a savings and an investment component.a. Trueb. False
Determine the purpose of disability insurance.
Identify the various definitions of dis- ability and the associated insurance cov- erage.
Critical provisions related to disability insurance include the definition of dis- ability, coverage for both sickness and accidents, and whether the policy is noncancelable or guaranteed renewable.a. Trueb. False
The noncancelable provision of a dis- ability policy ensures that the insurance will not be cancelled and that the pre- miums will remain fixed for the term of the policy.a. Trueb. False
The guaranteed renewable feature of a disability insurance policy obligates the insurer to continue coverage as long as appropriate premiums are paid on the policy.a. Trueb. False
Identify the insurance coverages in a package homeowners insurance policy.
Identify the six parts of a personal auto- mobile policy (PAP).
Determine the purpose of a personal lia- bility umbrella policy.
The personal automobile policy (PAP) is a package policy that protects against loss for liability, comprehensive, and collision risks.a. Trueb. False
The PAP includes coverage for use with permission, business use, and uninten- tional acts.a. Trueb. False
The lack of catastrophic liability cover- age in homeowners and auto insurance creates the need for an excess liability policy (PLUP).a. Trueb. False
During your recent meeting with Ron, a new client, you discussed the concept of risk.You defined several terms for Ron. Which of the following terms is defined as: the possibility of loss, but no possibility of gain?a. Pure Risk.b. Perils.c. Risk Transfer.d. Open-perils.
Which of the following would not be considered a personal risk?a. Becoming disabled due to a car accident.b. Injuring a passenger in your vehicle during an auto accident that was your fault.c. Dying at age 42 given a normal life expectancy of age 80.d. Being diagnosed with a curable form of cancer.
Nathan, age 35, came into your office today. He has been ac lient of yours for a long time. He has neglected his insurance portfolio up until this point and wants to complete the personal risk management process. Together you determine that his insurance objective is to “insure, in the most
You recently met with your client, Don, age 40.Don is widowed and has one dependent child. During your meeting with him you discussed the concept of risk management. Which of the following statements regarding the ways to manage risk is incorrect?a. The selling of Don's Jet Ski is an example of
If a risk has a high frequency of occurrence and a high severity, you should:a. ‘Transfer the risk.b. Retain the risk.c. Reduce the risk.d. Avoid the risk.
Ginny and Max own a rental home on the Gulf Coast. They insured their property with their local insurance company. The policy provides protection against losses caused by perils that are specifically listed as covered in the policy. What type of policy do they have?a. All-risk policy.b. Open-perils
Jennifer had a very bad year. She wrecked her car in January when she ran a red light(because she could not see properly having left her contacts at home) and crashed into another car completely destroying both cars. The insurance company was very nice to her and she purchased a new car with the
Which of the following is most likely to be an insurable risk?a. Intentionally burning down your house.b. War.c. Gambling losses.d. An automobile accident due to negligence.
You recently met with your client, Tripp, to discuss his insurance policies. ‘Iripp was reading a book on contracts and wanted to know how his insurance contract related to the material he was reading and to his circumstances. During your conversation, Tripp made several statements to clarify
Erin purchased a life insurance policy on her own life. Her husband Mike is the beneficiary of the policy. Which of the following is not a necessary legal element of the contract?a. Offer and acceptance.b. Legal competency of all parties.c. Consideration.d. Listed beneficiary.
Joe wants to purchase a life insurance policy on his own life. He is interested in learning about the various approaches to determine the amount needed. Which of the following is not true regarding the three most common approaches?a. The human life value method estimates the present value of income
Which of the following is true regarding the financial needs method used to determine life insurance needs?a. Most clients are fine with their dependents suffering a decrease in their standard of living.b. The readjustment period typically lasts for one to two years following the death of the
Josh, age 30, is a single father of one daughter, Nicole, age 11.Josh works for an advertising agency with an annual income of $40,000. Due to his messy divorce and several student loans that drain his financial resources, Josh lives paycheck to paycheck.His doctor recently discovered that he has
Julie is a doctor that specializes in performing heart surgery on babies. She has a longterm disability policy that covers her in the event that she can no longer perform this type of surgery due to disability. What type of long-term disability insurance policy does she have?a. Hybrid occupation.b.
Zach and Laura recently purchased a new home. They came to your office to ask several questions about their homeowner's policy. Which of the following is true regarding homeowners insurance?a. Most policies cover all possible losses.b. Most policies cover all possessions within the home.c. Zach and
Jim’s car was totaled in a wreck. He failed to yield to oncoming traffic and Jim was found to be at fault. The driver of the car he hit did not have insurance. Jim’s own car insurance policy reimbursed him for the property damage to his own vehicle. What type of coverage would pay for this?a.
Tom is interested in purchasing a personal liability umbrella policy (PLUP). He has asked you to educate him on this type of policy. Which of the following is true?a. PLUPs are very expensive.b. Most people do not need a PLUP.c. PLUPs are usually sold in million dollars of coverage.d. Since Tom
Describe an initial meeting and summarize data and draw conclusions for the life cycle approach.
Prepare a comprehensive engagement letter.
Gather internal and external data and prepare financial statements.
Create the pie chart approach.
Prepare financial statement analysis using a ratio analysis approach.
Prepare each of the ratios and compare them to the benchmark.
Prepare the two-step, three panel, metrics approach with schedules.
Prepare the cash flow approach.
Prepare the tax analysis approach.
Prepare the strategic approach.
Prepare the present value of all goals approach.
Make a presentation to the client using current and projected financial statements and ratios.
Prepare a closing engagement letter that includes the responsibility for implementation and monitoring.
Describe and prepare a timeline of the cash flows associated with time value money.
List the time value of money variables.
Calculate the present value of the dollar type problem.
Understand what an annuity is and the difference between an ordinary annuity and an annuity due.
Calculate the present by you of an ordinary annuity.
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