PFQF Practice Exam 2 - Complete Solutions (Answered) Which one of the following statements concerning investing strategies is CORRECT? A) Strategic
... [Show More] asset allocation moves assets according to changing market conditions. B) Tactical asset allocation uses risk and return as the basis for asset allocation and rarely changes that allocation. C) A pure buy-and-hold strategy minimizes transaction costs and can help with tax efficiency. D) Dollar cost averaging causes more stock shares to be obtained when there is an increase in the price of the shares. Which step of the financial planning process comes after the step of developing the financial planning recommendations? A) Presenting the financial planning recommendations B) Implementing the financial planning recommendations C) Identifying and selecting goals D) Analyzing the client's current course of action and alternative course(s) of action Standard deviation can best be described as A) how volatile a certain investment is compared to another investment. B) what the expected return of an investment should be. C) the bumpiness of the ride of an investment. D) the time necessary to earn a certain return. Which one of the following items is found on the financial statement in which net worth is calculated? A) Cash and cash equivalents B) Purchase price of use assets C) Projected expenses D) Income from all sources Grant has the following personal financial information: Account ItemsBalance ValueAuto$35,000Auto loan balance$20,000Checking account$2,500Contributions to savings$5,500Credit card balance$3,000Dividend and interest income$500Fixed outflows (annual)$42,000Gross salary$65,000Growth fund balance$27,500IRA balance$32,000Money market account$7,500Mortgage note balance$209,000Personal property$43,500Primary residence (market value)$315,000Savings account$5,000Stock portfolio$61,500Variable outflows (annual)$18,000Vested portion of pension plan$13,000 What is the total value of Grant's assets? A) $542,500 Assets = $35,000 (auto) + $2,500 (checking) + $27,500 (growth fund) + $32,000 (IRA) +$7,500 (money market) + $43,500 (personal property) + $315,000 (primary residence) + $5,000 (savings) + $61,500 (stock portfolio) + $13,000 (vested pension) = $542,500. George has the following personal financial information: Account ItemsBalance ValueAuto$35,000Auto loan balance$20,000Checking account$2,500Contributions to savings$5,500Credit card balance$3,000Dividend and interest income$500Fixed outflows (annual)$42,000Gross salary$65,000Growth fund balance$27,500IRA balance$32,000Money market account$7,500Mortgage note balance$209,000Personal property $43,500Primary residence (market value)$315,000Savings account $5,000Stock portfolio$61,500Variable outflows (annual)$18,000Vested portion of pension plan$13,000 What is Grant's net worth? A) $608,000 B) $310,500 C) $774,500 D) $542,500 Liabilities = $20,000 (auto loan) + $3,000 (credit card balance) + $209,000 (mortgage note balance) = $232,000 in total liabilities. Assets = $35,000 (auto) + $2,500 (checking) + $27,500 (growth fund) + $32,000 (IRA) + $7,500 (money market) + $43,500 (personal property) + $315,000 (primary residence) + $5,000 (savings) + $61,500 (stock portfolio) + $13,000 (vested pension) = $542,500 in total assets. $542,500 in total assets - $232,000 in total liabilities = $310,500 net worth. Which of the following steps are included when creating a budget? I. Identify and list special purchase items. II. Identify and list all recurring (fixed and variable) expenditures. III. Identify and list all sources of income. IV. Set realistic financial goals (including short-, intermediate-, and long-term goals). A) III and IV B) I, II, and III C) I, II, III, and IV D) I and II After it is first created, how often is a budget commonly reviewed to determine whether actual expenses align with those budgeted? A) Monthly B) Annually C) Quarterly D) Semiannually When assuming a rate of return for a clients' goals, a planner should use A) an aggressive rate of return to achieve the goal more easily. B) current market rates. C) a conservative rate of return. D) whatever rate of return the client wants. Oliver wants to have $100,000 available for his son's college expenses 15 years from now. If Oliver can earn 7%, compounded annually on his investments, what lump sum must he invest today? A) $31,524.17 B) $41,726.51 C) $33,873.46 D) $36,244.60 Set calculator for 1 P/YR, end mode, C ALL, 100000 FV, 7 I/YR, 15 N, solve for PV = -$36,244.60. Mike is considering investing in a fixed annuity that will pay $200 at the end of each month for 20 years. Assuming this annuity earns 6%, compounded monthly, what is this annuity worth today? A) $27,916.15 B) $26,478.34 C) $29,179.48 D) $28,055.74 This is an ordinary annuity problem. Set calculator for 12 P/YR, end mode, C ALL. 200 PMT, 6 I/YR, 20, DOWNSHIFT N (240 compounding periods), solve for PV = -$27,916.15. Todd Watkins invested $25,000 in a certificate of deposit (CD). At the end of four years, the CD was worth $32,000. Assuming quarterly compounding, approximately what rate of return did Todd earn on this investment? A) 5.87% B) 6.22% C) 6.37% D) 5.43% Set calculator for 4 P/YR, end mode, C ALL. 25000 +/- PV, 32000 FV, 4 DOWNSHIFT N (16 compounding periods), solve for I/YR = 6.22%. Zuma owns DEF stock. Today, the overall stock market, along with DEF, was down. No specific news or changes were announced by DEF. DEF's stock dropped in value due to which of the following types of risk? A) Financial B) Systematic C) Unsystematic D) Business Ron is taking out a $100,000, 30-year, fixed-rate mortgage. If his interest rate is 6%, compounded monthly, and payments are due at the end of each month, what is the amount of his interest and principal payment? A) $605.41 B) $596.57 C) $588.44 D) $599.55 Set calculator for 12 P/YR, end mode, C ALL. 100000 PV, 30 DOWNSHIFT N (360 payments), 6 I/YR, solve for PMT = -$599.55. Which one of the following is a type of unsystematic risk? A) Reinvestment rate risk B) Market risk C) Business risk D) Interest rate risk Which risk is specifically associated with the ownership of foreign securities? [Show Less]