FP 511 EXAM AND PRACTICE EXAM NEWEST ACTUAL

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FP 511 EXAM AND PRACTICE EXAM NEWEST ACTUAL

EXAM TEST BANK 500 QUESTIONS AND CORRECT

DETAILED ANSWERS (VERIFIED ANSWERS ) |ALREADY

GRADED A+

FP 511 EXAM

Which of the following activities would be appropriate if you were

None of these transactions will change Oscar and Kathryn's net worth.The checking and savings account transactions offset each other and, although the addition of the appliances will increase the clients' assets by $3,000, the use of credit will increase their liabilities by the same amount.

*** Which of the following financial statements provides a snapshot of the client's net worth at any given point in time, usually at the end of a calendar year?

• Personal tax return
• Cash flow statement
• Net worth statement
• Statement of financial position - ANSWER- 3-4

A statement of financial position, also known as a personal balance sheet or net worth statement, provides a snapshot of the client's net worth at any given point in time, most often at the end of a calendar year. 1 / 4

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Which of the following statements regarding a financial planner's analysis of a client's cash flow statement is CORRECT?

• The analysis of the client's cash flow statement can help the planner

determine whether the client is living within his financial means.

• The analysis of the client's cash flow statement helps determine the

client's net worth, or total cash surplus, by tracking cash inflows and outflows over a period of time.

• Typically, the financial planner will encourage the client to reduce the

variable expenses reported on the cash flow statement - ANSWER- 1, 3

The analysis of the client's cash flow statement helps determine the client's savings level, or total cash surplus, by tracking cash inflows and outflows over a period of time. Net worth is determined in a statement of financial position.

You have gathered the following information from Edgar's financial

statements:

Net income $75,000 Gross income $110,000 Total assets $190,000 Total debt $45,000 Consumer debt $20,000

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Based on this information, which of the following statements is

CORRECT?

• Edgar's total debt ratio exceeds the generally recommended maximum.
• Edgar's consumer debt ratio exceeds the generally recommended

maximum. - ANSWER- all

It is generally recommended that total debts do not exceed 36% of gross income. Edgar's total debt ratio is 40.9%, greater than the 36% maximum ($45,000 / $110,000 = 40.9%). The consumer debt ratio is the ratio of consumer debt payments to net income. Edgar's consumer debt ratio is 26.67%, which exceeds the generally recommended maximum of

20% ($20,000 / $75,000 = 26.67%)

Blake and Sarah have a monthly mortgage payments of $850 (principal, interest, taxes, and insurance [PITI]) on a mortgage balance of $95,000 on their home. They have an auto loan balance of $5,000, with monthly payments of $250. Additionally, they have a credit card balance of $2,000, on which they pay $225 each month. Blake and Sarah's net income for the past year was $35,000. Their gross income was $48,000.

Are Blake and Sarah using excessive amounts of debt? - ANSWER- No, because monthly house payments (PITI) are less than 28% of gross income and total monthly debt payments are only 33% of gross income.

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Blake and Sarah are not using excessive amounts of debt. Both ratios should be calculated using gross income.

Which of the following are considered fixed cash outflows?

• Clothing expenses
• Mortgage payments
• Insurance premiums
• Auto loan payments - ANSWER- 2,3,4

Clothing expenses are a variable outflow because they typically do not occur on a regular basis and the amount tends to vary. The other choices represent fixed outflows because they tend to occur regularly and the amount is more predictable.

*** Peter, age 35, has requested your expertise in developing a college funding plan for his five-year-old daughter, Brooke. He has presented you with the following information.

Current annual salary—$115,000 Monthly mortgage payment—$1,700 Credit card debt—$3,000 (16.5% fixed) Checking account balance—$1,345 Long-term group disability insurance—60% of salary to age 65, 60-day elimination period Life insurance—1x salary (group), $400,000 20-year term (individual)

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