Lesson 3 Flashcards
End of Chapter Questions
Kiara is 30 years old and single. She is healthy, has no children or pets. Kiara works as a human resources coordinator and earns approximately $40,000 per year. Due to her outstanding student loans, she has a fairly low net worth. She rents an apartment but does own her car outright. All of the following are likely insurance coverage needs, except?
A. Life Insurance.
B. Health Insurance.
C. Disability Insurance.
D. Liability Insurance
A. Life Insurance.
Because Kiara is single with no dependents she is not likely to need life insurance. However, health, disability, and liability insurances are definitely needed. The health insurance is needed to cover current health risks. The disability insurance is needed to cover any loss of income from disability. She also needs liability insurance to protect future income from any liability claims.
End of Chapter Questions
Your new client, Payton, age 35, came into your office today. She provided you with the following information for the year: • Income - $100,000 • Taxes - $18,000 • Rent - $14,000 • Living Expenses - $40,000 • Credit Card Debt - $12,000 • Savings - $5,000 • Student Loan Payments - $5,000 • Car Payment - $6,000
After receiving this information you created a pie chart to visually depict where her income was spent. Utilizing targeted benchmarks which of the following statements are you most likely to make during you next meeting?
A. “You are spending too much on housing.”
B. “Your current living expenses are within the normal range.”
C. “Your mortgage and debt payments are within the normal range.”
D. “Your savings is low but still appropriate for your age.”
B. “Your current living expenses are within the normal range.”
The current living expenses are at 40% which is within the normal range of 40% -60%. The rent is at 14% which is within the normal range of 0 – 28%. The housing and debt percentage is 37% (rent of $14,000 + Credit Card Debt of $12,000 + Student Loan Payments of $5,000 and Car payment of $6,000) which is above the normal range of 0 – 36%. The savings of 5% is too low for her age group. She should be within the 10% –
End of Chapter Questions
Which of the following is true?
A. Debt ratios measure the ability to meet short-term obligations.
B. Liquidity ratios indicate how well a client manages debt.
C. Ratios for financial security determine the progress that the client is making toward achieving
short-term financial security goals.
D. Performance ratios determine the adequacy of returns on investments
D. Performance ratios determine the adequacy of returns on investments
Liquidity ratios measure the ability to meet short term obligations.
Debt ratios indicate how well a client manages debt.
Ratios for financial security determine the progress that the client is making toward achieving long term financial security goals.
Performance ratios determine the adequacy of returns on invest
End of Chapter Questions
Utilizing investment assets to gross pay benchmarks, which of the following individuals is likely on target with their investment assets?
A. Ross, age 55, earns $150,000 a year and has invested assets of $900,000.
B. Rachel, age 35, earns $30,000 a year and has invested assets of $15,000.
C. Monica, age 45, earns $60,000 a year and has invested assets of $150,000.
D. Joey, age 25, earns $40,000 a year and has invested assets of $9,000.
D. Joey, age 25, earns $40,000 a year and has invested assets of $9,000.
Ross needs invested assets of 8 - 10 times his salary.
At a minimum he needs $1,200,000 ($150,000 x 8).
Rachel needs invested assets of 1.6 - 1.8 times her salary.
At a minimum she needs $48,000 ($30,000 x 1.6).
Monica needs invested assets of 3 - 4 times her salary.
At a minimum she needs $180,000 ($60,000 x 3).
Joey needs invested assets of 0.20 times his salary.
At a minimum he needs $8,000 ($40,000 x 0.20).
End of Chapter Questions
Utilizing the three panel approach, which of the following would be evaluated in Panel 1 - Risk Management?
A. Emergency Fund.
B. Education Fund.
C. Retirement Fund.
D. Life Insurance.
D. Life Insurance.
Life insurance would be evaluated as part of Panel 1 – Risk Management. The emergency fund would be evaluated as part of Panel 2 - Short-Term Savings and Investment. The education and retirement funds would be evaluated as part of the Panel 3 - Long-Term Savings.
Which of the following best describes the financial approach that uses quantitative benchmarks that provide guidelines of where a client financial profile should be
A. The metrics approach
B. The strategic
C. The cash flow approach
D. The present value of goals approach
Evaluating your clients emergency fine with fall into which of the following panels of the three panel approach?
A. This would fall into panel one
B. This would fall into panel to
C. This would fall into panel three
D. The emergency phone is not addressed in the three panel
Which of the following approaches involves the clients covering the risk and saving and investing in order to reach goals
A. The pie chart
B. Ratio analysis
C. The three panel approach
D. The strategic approach
According to three panel approach all of the following would be considered potentially catastrophic risks except
A. A parent of a young child who died prematurely
A client who has insufficient emergency fund
A business owner has insufficient liability insurance
D. Hey household sole breadwinner becomes totally and permanently disabled
