Planning Fundamentals

Question 1

Consumer Debt Ratio

Answer 1

Non-housing monthly debt payments / Monthly net income Ratio should not exceed 20%

Question 2

Current Ratio

Answer 2

Current Assets / Current Liabilities Appropriate target is 1.0 to 2.0

Question 3

Housing Cost Ratio

Answer 3

All monthly discretionary housing costs / monthly gross income Should be less than or equal to 28 percent

Question 4

Debt-to-income ratio

Answer 4

All monthly debt payments and housing costs / gross monthly income Amount should be less than or equal to 36 percent

Question 5

Savings Ratio

Answer 5

Savings per year / gross income The appropriate ratio will depend on the client’s age and financial goals.

Question 6

What are the methods the Fed uses to control the money supply?

Answer 6

1. Reserve requirement 2. Federal reserve discount rate 3. Open market operations (Buy-Easy-Sell-Tight)

Question 7

What type of economic indicators are bond yields, housing starts, investor sentiment, and durable goods orders?

Answer 7

Leading Indicators

Question 8

What type of economic indicators are unemployment, consumer income, industrial production, and profits?

Answer 8

Coincident indicators

Question 8

What type of economic indicators are average duration of unemployment and the prime interest rate?

Answer 8

Lagging indicators

Question 9

What are the life cycle phases?

Answer 9

1. Asset Accumulation 2. Conservation/protection 3. Distribution/gifting