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Part 1-Mutilpe Choices Questions1.Which of the following may indicate potential debt problems?A)paying only the minimum balance each monthB)always borrowing to make it to next paydayC)your wages have been garnished to pay for debtD)your utility company cuts off service because your bills are unpaidE)All of the above are the danger signals2.In a bankruptcy, a trusteeA)is required to draw up a petition listing all of your assets and liabilitiesB)will have to pay a filing feeC)is called a 'helpee'D)seeks absolution from alimony and child support paymentsE)repays educational loans first3.Consumer credit counseling services are basically concerned withA)lending the money to destitute peopleB)giving debtors food and shelterC)helping destitute debtors to relocate in less expensive areasD)preventing and solving the problems related to credit overextensionE)getting you more credit4.Debt-to-equity ratio isA)calculated by dividing total liabilities by net worthB)calculated by dividing monthly debt payments by net monthly incomeC)determined by dividing your assets by liabilitiesD)a useless ratio for determining your credit capacityE)rarely used by creditors in determining credit worthiness5.If there is incorrect information in your credit file,A)you should sue the credit bureauB)you must sue the merchant who denied the creditC)the credit bureau must reinvestigate and modify or remove inaccurate dataD)pray that the credit bureau goes bankruptE)you cannot dispute the derogatory information6.Which type of insurance is sometimes called temporary insurance?A)whole life insuranceB)term insuranceC)straight lifeD)ordinary lifeE)modified life7.Which type of insurance is probably the most neglected form of available insurance protection?A)lifeB)liabilityC)DisabilityD)CarE)home and property8.A budget deficit would result when a person's or family'sA)actual expenses are less than planned expensesB)actual expenses are greater than planned expensesC)actual expenses equal planned expensesD)assets exceed liabilitiesE)net worth decreases 9. One of the key differences between filling a consumer proposal and filling an assignment in bankruptcy is: If you are a professional, the law does not allow you to file bankruptcyA bankruptcy allows you to eliminate debts such as student loans while a consumer proposal does notFilling bankruptcy generally costs more than filling a consumer proposalA trustee is required to file bankruptcy but a Chartered Accountant or lawyer can be used to file a consumer proposalCreditors can choose to refuse a consumer proposal but cannot refuse a bankruptcy10.Which of the following presents a summary of income and outflows for a period of time?A)A balance sheetB)A bank statementC)An investment summaryD)A cash flow statementE)An asset report11.Which of the following would increase the amount that a person could afford to spend on a home?A)increased family incomeB)increased interest ratesC)decreased down paymentD)many other financial obligationsE)high monthly living expenses 12. Which of the following statement is false?Investors purchase mutual funds for diversificationInvestors purchase mutual funds because of professional managementInvestor who purchase mutual funds are guaranteed a higher rate of return than a comparable investment in stocks and bondsProfessional mutual funds manager work for an investment companyEven the best portfolio manager sometimes make mistakes13.A common opportunity cost associated with renting isA)interest lost on the down paymentB)interest lost on closing costsC)property taxesD)maintenance costsE)interest lost on the security deposit14.Home insurance costs are affected most directly byA)the profits of the insurance companyB)insurance agents' commissionC)government regulations that set premiumsD)processing costs of claimsE)the number of claims in an area15.Starting a small business that may or may not succeed is an example of ___________ risk.A)speculativeB)pureC)commercialD)personalE)liability16.A type of bond that is unsecured and gives bondholders a claim secondary to that of other designated bondholders with respect to both income and assets is called a(n)A)debenture bondB)mortgage bondC)subordinated debentureD)preemptive bondE)treasury bond17.Which of the following statements is false?A)The federal government sells bonds and securities to finance both the national debt and the government's ongoing activitiesB)Federal government securities carry a reduced risk of default when compared to corporate securitiesC)Federal government treasury securities offer lower interest rates than corporate bondsD)Most individual investors that purchase treasury bills, notes, and bonds bid competitivelyE)Treasury securities may be purchased through banks or brokers 18. Which is not true about a personal cash flow statement?A budget is really a projected cash flow statementA cash flow statement can never be used to measure past performancesA cash flow statement includes all inflows and outflows of cash except for mortgage payments since these are fixed paymentsA cash flow statement is often the most revealing financial toolA cash flow statement requires analyzing bank statements19.Which of the following factors would not affect the relationship between an individual's investment goals and the goals of a mutual fund?A)the investor's ageB)the investor's family situationC)the investor's incomeD)the investor's future earning powerE)All of the above factors would affect the relationship between an investor's investment goals and the goals of a mutual fund 20. After age 71, an individual can move their RRSP into several instruments, including which of the following:A life annuity or a RPPA RRIF or an RPPA life annuity or a RRIFA RRIF or a segregated CBSA fixed post RRSP fund or a RRIF21.Which of the following refers to a category based on age, sex, marital status, and driving habits that is used to set automobile insurance premiums?A)rating territoryB)assigned risk poolC)no-fault systemD)driver classificationE)use of the vehicle 22.A call featureA)allows bondholders to convert their bond to a specified number of shares of common stock.B)is not available on corporate bonds.C)allows the corporation to buy outstanding bonds from current bondholders before the maturity date.D)is only available with government securities.E)is guaranteed by the corporation.23.You can determine your net worth byA)subtracting your assets from your liabilitiesB)subtracting the value of your home from the mortgage balanceC)adding your liabilities and assetsD)subtracting your liabilities from your assetsE)subtracting your expenses from your income 24. In preparing a detailed financial plan, which of the following economic factors should an individual be least concerned about?Changes in the money supplyChanges in the interest ratesChanges in the unemployment rateChanges in the inflation rateAll of these are important economic factors to be concerned about25.When a lender uses your house as collateral to buy an annuity for you from a life insurance company, it is calledA)an obverse annuity mortgageB)a reverse mortgage annuityC)mortgage life insuranceD)a fixed annuity with level premiumE)whole life insurance26.A bond that is backed only by the reputation of the issuing corporation is called a(n) ____________ bond.A)debentureB)mortgageC)indentureD)preemptiveE)treasuryPart 2-Short Answer QuestionsList and explain 3 strategies that an individual can use to improve his or her credit score. List 1 thing a strong credit score will enable you to obtain.Strategies:Pay your debt in time. Pay minimum requirement by the required day to avoid being charged for overdue and decreasing credit score.Limit the number of credit cards using. Establish a credit history.Maintain a low ratio of money borrowed to the allowing limit.Strong credit score will enable you to: Easier approvalObtain credit fasterLower interest rate List and briefly explain 2 commonalities and 2 differences between a consumer proposal and an assignment in bankruptcy. CommonalitiesA portion of debt is being paidPoor credit rating remaining for several yearsFilling with a trustee is requiredDifferences Consumer proposal could allow the creditors to vote on acceptance, bankruptcy is enforcedConsumer proposal results in more debt money to be paid to creditorsOnly consumer proposal is allowed by members of professional associationsList and fully explain 3 quantitative tools that a financial planner will use throughout the financial worth statement: shows your assets (what you own), liabilities (what you owe), and net worth in a period of time.Cash flow statement: shows the actual cash inflows and outflows. The difference between these cash flows is cash surplus (positive) or deficit (negative). Budget: future cash inflows and outflows. To compare between the actual amount spend and budgeted amount. In preparing financial budget, describe 2 characteristics that are essential to good budgeting.Conservatism: underestimate revenues and overestimate expenses are better. However, the budget should be reasonable and flexible. Realistic: budget should be support with past data or reasonable, not made up estimation. List 4 specific risks that an individual may face and explain how to reduce these risks. Risk of death: to reduce this risk, he/she could buy life insuranceRisk of illness/disability: buy health/critical illness insuranceRisk of property loss: personal (fire/flood/theft….) insuranceRisk of being sued: liability insuranceIdentify 1 short and 1 long-term financial goals for people in:Single parent with a child aged 8Ex: Short-term: Increase income….Long-term: Child education plan….Young single person with no dependentsEx:Short-term: Saving for short vacation….Long-term: Retirement Plan….Explain the difference between a front-end load and a back-end load mutual fund and how each type can affect the value of your investment over time.Front-end: Finite sizeShares are issued by an investment company only when the fund is originally set upAfter all original shares are sold you can only purchase shares from another investorBack-end:Shares are issued and redeemed by the investment company. Request by investorsInvestors can buy and sell shares at the net asset valuePart 3-Cases Answers QuestionsCase 1John, 42, and Sally Dumont,44 , have four children, one is completing her 3rd year of University, one is in grade 10, and two aged 7 and 10 respectively. They expect them to attend post-secondary. John’s father is terminally ill and up until a few months ago, live with the Dumonts. He has since been transferred to a personal care facility which costs $2,000 per month. He received $1,000 of this amount through CPP and OAS. The Dumonts have saved $10,000 in a money market account, $225,000 in their RRSP’s and RRP’s, have $12,000 in a family RESP, own 3 cars valued at $45,000 total, have a house valued at $300,000,, have mortgage of $225,000, and loans and credit cards totaling of $62,000. The Dumonts have full home, auto, and liability insurance, but do not have personal life insurance since they have been covered through work for the last few years. What financial choices could be considered? What actions for these choices? What areas of concern do they face?The Dumonts would like to retire when John is 65. Assume they continue contribute $600/month into their retirement plans with average return of 7% per year, and they want to pull $110,000 (before tax) from their investment fund per year starting at age 65 and continuing for at least 15 years.Do you feel that their investment strategy will be effective?Explain the difficulties faced by the Dumonts with respect to their children’s education.How they can improve the situation?Discuss whether life insurance at work is “enough insurance”. Why and why not an individual may wish to have another insurance plan. Calculate the Dumont’s net worth.Perform a current ratio analysis. Case 2Ron Jacobs graduated from law school almost 4 years ago. He now makes $80,000 per year, with annual increase of approximately 5% per year.Mr. Jacobs has serious unsecured debts, including:Student loans$75,000Credit cards$50,000Lines of credit$20,000His minimum payments on these debts are almost $4,000 per month which has become impossible to make because his after-tax salary is almost that much. Mr. Jacobs also have some secured debts, including:Mortgage$250,000 (his house is currently worth $275,000)Car$13,000 (his car is currently worth $9,000)List and explain briefly 3 options that are available to an individual facing a debt problem.Which of the options discussed in question 1 would not be advisable for Mr. Jacobs to pursue. Explain.If Mr. Jacobs decided to pursue a consolidation loan, using 15 years term with interest rate at 15%. What would be his minimum payment per month?What impact do the debt problem resolutions have on an individual’s credit record? Refer your answers from question 1 above and describe the credit record impact of each possible solution. What debt obligations is an individual still responsible for after being discharged from bankruptcy? Explain how Mr. Jacons could have been in a better situation if proper financial planning had been carried out prior to his debt problems. ................
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