Lesson 3 Quiz Questions

Question 1

3 Phases of Client Life Cycle

Answer 1

1. Asset Accumulation Phase
2. Conservation/Risk Management Phase
3. Distribution/Gifting Phase

Question 2

Life-Cycle Goals

Answer 2

1. Lump-Sum Purchases
2. Starting a Family
3. Education Funding
4. Retirement Planning
5. Charitable Planning
6. Legacy Planning

Question 3

Life-Cycle Risks

Answer 3

1. Untimely Death
2. Disability
3. Health
4. Long-term Care
5. Property
6. Liability

Question 4

Two Step Approach

Answer 4

1. Cover the Risks

2. Save & Invest

Question 5

Three-Panel Approach

Answer 5

1. Risk Management of Personal, Property, & Liability Risks
2. Short-term Savings & Investments and Debt Management
3. Long-term Savings & Investments

Question 6

Strategic Approach

Answer 6

Codifies client goals and objectives into a mission statement

Question 7

Cash Flow Approach

Answer 7

Uses the statement of income and expenses to make recommendations

Question 8

Pie Chart Approach

Answer 8

Provides visual display of balance sheet and cash flow statement once internal data collected and financial statements prepared.

Question 9

Present Value of All Goals Approach

Answer 9

Multi-step process that gives clients a single dollar value to meet all their lifetime goals.

Question 10

PVOAG Approach Steps

Answer 10

1. Determine individual present values of each short, intermediate, and long-term goal
2. Sum these present values together
3. Reduce them by current resources (investments assets and cash/equivalents)
4. The net PV is considered a “debt” obligation to be retired over the remaining work life expectancy.

Question 11

Financial Statement and Ratio Analysis Approach

Answer 11

Uses data within financial statements to compute a variety of ratios which are then used to gauge a client’s financial health.

Question 12

Liquidity Ratios

Answer 12

The ability to meet short-term obligations

Question 13

Debt Ratios

Answer 13

How well debt is managed

Question 14

Financial Security Ratios

Answer 14

Determines client’s progress toward long-term goals

Question 15

Performance Ratios

Answer 15

Adequacy of investment returns relative to risk level

Question 16

Emergency Fund Ratio

Answer 16

Cash & Cash Equivalents / Non-Discretionary Expenses

Question 17

Current Ratio

Answer 17

Current Assets / Current Liabilities

Question 18

Front-End Ratio

Answer 18

Housing Costs / Gross Income

Question 19

Back-End Ratio

Answer 19

(Housing Costs + Other Debt Payments) / Gross Income

Question 20

Debt to Asset Ratio

Answer 20

Total Liabilities / Total Assets

Question 21

Savings Rate

Answer 21

(Savings + Employer Contributions) / Gross Income

Question 22

Metrics Approach

Answer 22

Provides quantitative benchmarks for client to use as guidance for achieving comprehensive financial goals and objectives.

Question 23

Three Important Tips for Budgeting

Answer 23

1. Be realistic with spending behavior
2. Budget a line item expense for miscellaneous expenses and unforeseen expenses
3. Being successful with a budget takes practice

Question 24

Budgeting Process Steps

Answer 24

1. Determine Client’s Income
2. Fixed and Variable Expenses
3. Present Expenses
4. Net Discretionary Cash Flow
5. Rectify