Practice Exam Practice Questions and Answers Verified 2024

Practice Exam Practice Questions and Answers Verified 2024 Mary Goodwin's financial situation is as follows: Cash/cash equivalents $15,000 Short-term debts $8,000 Long-term debts $133,000 Tax expense $7,000 Auto note payments $4,000 Invested assets $60,000 Use assets $188,000 What is her net worth? A)$111,000 B)$137,000 C)$122,000 D)$263,000 At the end of last year, Bill Greer has the following financial information: Salaries$70,000Auto payments$5,000Insurance payments$3,800Food$8,000Credit card balance$10,000Dividends$1,100Utilities$3,500Mortgage payments$14,000Taxes$13,000Clothing$9,000Interest income$2,100Checking account$4,000Vacations$8,400Donations$5,800 What is the cash flow surplus or (deficit) for Bill? A) $2,700 B) $6,500 C) $10,700 D) ($500) Which of the following are correct statements about income replacement percentages? I.Income replacement percentages are typically much higher for those with higher preretirement incomes. II.Income replacement percentages vary between low-income and high-income retirees. III.Income replacement ratios should not be used as the only basis for planning. IV.Income replacement ratios are useful for younger clients as a guide to their long-range planning and investing. A) I and IV B) I and II C) II and III D) II, III, and IV If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by their retirement date in 25 years (rather than an amount that grows with inflation each year), what level annual end-of-year savings amount will they need to deposit each year, assuming their savings earn 7% annually? A) $55,692 B) $31,621 C) $29,552 D) $54,130 Bill and Lisa Hahn have determined that they will need a monthly income of $6,000 during retirement. They expect to receive Social Security retirement benefits amounting to $3,500 per month at the beginning of each month. Over the 12 remaining years of their preretirement period, they expect to generate an average annual after-tax investment return of 8%; during their 25-year retirement period, they want to assume a 6% annual after-tax investment return compounded monthly. They want to start their monthly retirement withdrawals on the first day they retire. What is the lump sum needed at the beginning of retirement to fund this income stream? A) $931,241 B) $388,017 C) $389,957 D) $598,504 Chris and Eve Bronson have analyzed their current living expenses and estimated their retirement income need, net of expected Social Security benefits, to be $90,000 in today's dollars. They are confident that they can earn a 7% after-tax return on their investments, and they expect inflation to average 4% over the long term. Determine the lump sum amount the Bronsons will need at the beginning of retirement to fund their retirement income needs, using the worksheet below. (1) Adjust income deficit for inflation over the preretirement period:$ 90,000present value of retirement income deficit25number of periods until retirement4%% inflation rateFuture value of income deficit in first retirement year$239,925(2) Determine retirement fund needed to meet income deficit:$239,925payment (future value of income deficit in first retirement year)30number of periods in retirement The lump sum needed at the beginning of the Bronsons' retirement period is A) $4,773,557 B) $4,843,715 C) $4,902,166 D) $4,911,256 Assume a client and investment professional have worked together for several years. Recently, the client's personal and financial circumstances have changed. According to the course materials, what is the next asset management step that the investment professional should take? A) make and implement recommendations B) gather data C) monitor performance D) analyze information Which one of the following is not a key attribute of an investment policy? A) clearly defined B) realistic C) fluid D) long-term perspective All of these are examples of asset allocation strategies except A) tactical. B) core/satellite. C) strategic. D) alpha. Assume the following asset classes have the correlations to long-term government bonds shown below: Treasury bills:.12Gold:-.25Large stocks:.22Small stocks:.17 Which one of the following best exemplifies the impact of diversification on long-term government bonds? A) Large stocks provide more diversification than small stocks. B) Small stocks provide more diversification than Treasury bills. C) Gold provides more diversification than large stocks. D) Treasury bills provide more diversification than gold. The two major risks associated with individual common stocks are A) interest rate risk and purchasing power risk. B) market risk and business risk. C) default risk and business risk. D) interest rate risk and exchange rate risk. What is the price of a bond with a 7% coupon, a $1,000 par value, and a maturity of 20 years if the market interest rate for similar bonds is 6%? A) $1,115.57 B) $1,000.00 C) $1,074.39 D) $893.23 This year, your 63-year-old client had $17,025 of earned income and $30,000 of investment income. He was also drawing Social Security benefits. Which one of the following correctly describes the impact on his Social Security benefits? A) He loses $1 of benefits for every $3 above the "allowable limit." B) He loses $1 of benefits for every $1 above the "allowable limit." C) There is no reduction to his benefits. D) He loses $1 of benefits for every $2 above the "allowable limit." Which one of the following is a correct statement about the amount of Social Security retirement benefits available when a fully insured worker's retirement benefit begins at full retirement age (FRA)? A) If the spouse is at or above his or her full retirement age when commencing Social Security benefits, the spouse will receive at least 50% of the worker's PIA. B) The worker will receive 80% of his or her primary insurance amount (PIA). C) A 63-year-old spouse of the retired worker will receive at least 50% of the worker's PIA. D) If the spouse of the worker has attained FRA and is entitled to benefits on their earning record, the benefit is the lesser of 100% of the spouse's own PIA or 50% of the worker's PIA. Which one of the following is correct regarding most types of tax exempt interest and the taxation of Social Security benefits? A) None of the tax-exempt interest is included in the computation of the taxation of Social Security benefits. B) All of the tax-exempt interest is included in the computation of the taxation of Social Security benefits. C) 50% of the tax-exempt interest is included in the computation of the taxation of Social Security benefits. D) 85% of the tax-exempt interest is included in the computation of the taxation of Social Security benefits. Susan has reached full retirement age (FRA). She is trying to decide between starting Social Security benefits of $1,000 per month now, or delaying receipt for three years and using her savings to provide current income. By delaying three years her benefit would increase to $1,240 per month. Ignoring the time value of money and cost-of-living adjustments, use the break-even calculation to determine how much longer Susan will need to live in order for delaying to "pay off." A) She should delay only if she expects to live beyond the next 15½ years or so. B) She should delay beyond FRA regardless of her life expectancy in order to maximize her lifetime benefit. C) She should begin at FRA if she expects to live beyond the next three years. D) She should begin her benefits at FRA regardless of her life expectancy in order to maximize her lifetime benefit. Sam, age 62, begins receiving his Social Security income. His PIA is $1,500 per month. Because he has filed at age 62, his payment will be reduced by 25% to $1,125. His wife Linda, age 67, would like to begin spousal benefits. Her monthly income would be A) $562.50. B) $1,500.00. C) $1,125.00. D) $750.00. Unsystematic risk A) can be effectively eliminated. B) increases during periods of volatile interest rates. C) is reduced when markets fluctuate less. D) is increased through diversification. Sources of risk include which of the following? I.fluctuating exchange rates II.a firm's financing decisions III.higher interest rates IV.a loss of purchasing power A) II and III B) II and IV C) I and II D) I, II, III, and IV Investors who want to bear the least amount of risk from equity investments should acquire stocks with beta coefficients A) greater than 1.5. B) less than 1.0. C) greater than 1.0. D) less than 0.5. If a security has an average return of 14.2% and a standard deviation of 8.4, what can be said about the security? A) The security's returns can be expected to never be negative. B) The security's returns can be expected to be between 8.4% and 14.2% approximately 95% of the time. C) The security's annual volatility can be expected to be within a range approximately 8.4% above and 8.4% below the current fair market value. D) The security's returns can be expected to be between 5.8% and 22.6% approximately 68% of the time. Which one of the following individuals would be best served by a $5,000 Roth conversion? A) Tom, a 51-year-old mid-level manager making $90,000 B) Rachel, a 63-year-old widowed grandmother whose income is $70,000 and has $55,000 in her IRA C) George, a 28-year-old father of two whose wife is completing school; their income is $24,000 D) Mandy, a 30-year-old highly paid executive Your client has established a balanced portfolio with various amounts allocated to different asset classes, and periodically she rebalances the portfolio to keep the same approximate percentages in the different asset classes. Her approach is A) core/satellite. B) dynamic. C) tactical. D) strategic. Harry, who is 34 years old, contributed $2,000 to a Roth IRA six years ago. By this year, the investments in his account had grown to $3,785. Finding himself in a financial bind, Harry is now compelled to withdraw $2,000 from this Roth IRA. What is the tax and penalty status of this withdrawal? A) Harry must pay tax and a $200 penalty. B) Harry does not have to pay any tax or penalty on the $2,000 distribution, even though he is only 34. C) Harry must pay the penalty but no tax. D) Harry must pay tax on the $2,000, but there is no penalty. Norman and Brenda Walker are married taxpayers filing jointly. They are both 44 years old. Norman earned $132 this year, and Brenda earned $100,000. Brenda is an active participant in the qualified plan offered by her employer, and she contributed $1,500 to her IRA for this tax year. How much can be contributed to a spousal IRA and deducted for Norman for 2022? A) $0 B) $4,500 C) $132 D) $6,000 James and Doris Stewart, both age 40, will contribute a total of $12,000 to their IRAs for 2022. They both work outside the home, and they file a joint tax return. James is a teacher at the local high school and contributes to a TSA. Doris's employer has no retirement plan. Their adjusted gross earnings for this year will be $117,000. What amount can they deduct for their IRA contributions? A) $6,000 B) $9,600 C) $8,800 D) $12,000 Charlie contributed $2,000 to Roth IRA 1 last year, when he was age 24, and $2,000 to Roth IRA 2 this year. Two years from now, Roth IRA 1 will have a balance of $2,650, and Roth IRA 2 will have a balance of $2,590, and Charlie will close Roth IRA 1, receiving the balance of $2,650. Which one of the following statements best describes his tax and penalty status for that year? A) He cannot make any withdrawals because the money has not been in the Roth IRA for five years or longer. B) He will not pay taxes or a penalty. C) He only pays ordinary taxes because Roth IRA distributions are not subject to a penalty. D) He must pay taxes and a penalty on the full distribution. The "required beginning date" (RBD) for IRA distributions is which one of the following? A) April 1 of the year following the year in which age 72 was attained B) April 15 of the year following the year in which age 72 was attained C) April 15 of the year in which age 72 was attained D) April 1 of the year in which age 72 was attained Over a period of 10 years, Mark contributed a total of $20,000 to a nondeductible IRA. The current value of Mark's IRA is $40,000, and Mark, who is now age 45, has decided to use all of his IRA assets for the down payment on a second home. Assuming Mark's marginal tax bracket is 35%, how much does he owe in taxes and penalties? A) $2,000 B) $9,000 C) $7,000 D) $14,000 Richard, age 45, and his wife Betty, age 44, plan to contribute a total of $12,000 to their IRAs for 2022. They both work outside the home, and they file a joint income tax return. Richard is a teacher at the local high school and participates in a 403(b) plan. Betty's employer does not provide a retirement plan. They expect that their adjusted gross income for the year will be $150,000. What amount, if any, can they deduct for their IRA contributions? A) $6,000 B) $12,000 C) $4,900 D) $5,900