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1: How often should net worth be calculated?

A. Monthly
B. Quarterly
C. Semi-annually
D. Annually

Rationale :
Net worth should be calculated annually in order to see whether savings, credit, investment,
and other related programs are meeting the client’s financial objectives.

2: What is an objective of net worth planning?

A. Setting short term goals

B. Summarizing assets for a will
C. Strategic planning
D. Calculating net worth

3: Which method below is not an effective savings strategy?

A. Set optimistic savings goals.

B. "Pay yourself first."
C. Spend excess savings.
D. Treat savings as a fixed expense.

4: Select the statement that relates to the savings planning process.

A. Its purpose is to maximize short-term financial gain.

B. Treating savings as a discretionary expense is a general savings strategy.
C. Borrowing money is an effective long-term savings strategy.
D. It starts with setting the general savings objective.

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5: Saving for specific objectives such as education and retirement is known as

______________ planning.

A. Systematic savings
B. Net worth
C. Cash management
D. Cash flow

6: Savings planning starts with __________.

A. Budget planning
B. Net worth planning
C. Cash management planning
D. Credit and debt planning

7: Which of the following is an effective emergency fund savings strategy?

A. Cashing out GICs

B. Withdrawing funds from an RRSP account
C. Borrowing money from a family member
D. Selling assets for cash

8: You and your client agree that increasing their net worth each year is a primary goal. What
is the best way to do this?

A. Take on more investment risk.

B. Set an annual growth-rate target.
C. Reduce fixed expenses.
D. Review financial goals.

9: Which of the following would be the best choice for a source of emergency funds?

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A. RRSP holdings
B. An equity mutual fund
C. Cash value of a life insurance policy
D. A personal line of credit

Rationale :
A line of credit can also satisfy the need for liquid funds. It should be established early in the
financial planning implementation stage, so funds will be available if needed.

The institution holding the RRSP plan must withhold, for tax purposes, 10% to 30% of the
amount withdrawn. This amount will be reconciled on the tax return for the year.

10: Lawrence has arrived in Canada from England. He is working for an English-based
company. He wants to have ready access to cash but does not want to have to sign
documents any time he wants cash, or have to repay any loans he has taken according to
any particular schedule. What type of credit should Lawrence arrange?

A. A personal line of credit

B. A family credit card
C. A personal loan
D. A margin account at a brokerage firm

11: Diane and Doug have the following cash flow statement:
Annual family income $90,000
Expenses:
Monthly taxes 2,500
Family needs (monthly) 1,500
Housing costs (annual) 21,600
Auto insurance (annual) 1,920
Other debts (monthly) 900
Flexible family expenses (annual) 7,200
Savings, RRSPs, etc. (monthly) 550

Select the statement that is true regarding their budget.

A. They have a monthly shortfall of $490.

B. They have an annual shortfall of $6,120.
C. They have a monthly shortfall of $400.
D. They have an annual shortfall of $7,120.

Rationale :
Rationale:
Annual Monthly

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Income 90,000 7,500

Expenses:
Taxes 30,000 2,500
Family needs 18,000 1,500
Housing costs 21,600 1,800
Auto insurance 1,920 160
Other debts 10,800 900
Flex. Family Exp. 7,200 600
Savings 6,600 550
Total Expenses 96,120 8,010
Cash Flow (6,120) (510)

12: As a financial planner, you help Diane and Doug complete a goal-setting worksheet. Their
first goal is a built-in dishwasher at an estimated cost of $1,000, to be purchased in one
year's time. Their second goal is retirement planning; they would like to save $250,000 over
30 years. For the dishwasher, the assumed monthly savings rate is 3% net of inflation and
taxes, and for retirement, the rate is 5% annually.

Goal Required Amount Savings Period Expected After-Tax Return

Dishwasher $1,000 12 Months 3% comp. monthly
Retirement $250,000 30 years 5% comp. annually

What is the monthly amount Diane and Doug must save to pay for their dishwasher?

A. $80.00
B. $82.19
C. $83.24
D. $84.33

Rationale :
Key Touch Display
1,000 FV 1,000
12 N 12 (12 periods)
0.25 I/YR 0.25 (3%/12)
0 PV 0
PMT –82.19

13: As a financial planner, you help Diane and Doug complete a goal-setting worksheet. Their
first goal is a built-in dishwasher at an estimated cost of $1,000, to be purchased in one
year's time. Their second goal is retirement planning; they would like to save $250,000 over
30 years. For the dishwasher, the assumed monthly savings rate is 3% net of inflation and
taxes, and for retirement, the rate is 5% annually.

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Goal Required Amount Savings Period Expected After-Tax Return

Dishwasher $1,000 12 Months 3% comp. monthly
Retirement $250,000 30 years 5% comp. annually

What is the annual amount Diane and Doug must save to achieve their retirement goal?

A. $3,025
B. $3,221
C. $3,763
D. $5,797

Rationale :
Key Touch Display
250,000 FV 250,000
30 N 30
5 I/YR 5
0 PV 0
PMT –3,762.86

14: A married couple has given you the following information:

Annual combined income $84,000 Income tax $42,000
Bank account balance 4,500
Value of home 225,000
Mortgage on home 110,000 Monthly payments (principal & 425
interest)
Value of two family cars 32,000
Car loans outstanding 7,000 Monthly car loan 250
Annual contribution to RRSPs 18,000
RRSP balances (combined) 60,000
Credit card balances 5,500 Monthly credit card payments 275
Canada Savings Bonds (CSBs) 4,000 Monthly insurance premiums 200
Daughter's annual university 6,000
tuition
Monthly household expenses 800

What is the couple's net worth?

A. $199,000
B. $203,000
C. $245,000
D. $285,000

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Rationale :
Net Worth
Assets
Liquid
Bank Account $ 4,500 1.38%
CSBs 4,000 1.23%
Investment
RRSPs 60,000 18.43%
Personal
House 225,000 69.12%
Cars 32,000 9.83%
Total Assets $325,500 100%
Liabilities
Short Term
Credit Cards $ 5,500 1.69%
Long Term
Car Loans 7,000 2.15%
Mortgage 110,000 33.79
Total Liabilities 122,500 37.63%
Net Worth $203,000 62.37%
Total Liabilities and net worth $325,500 100%

15: A married couple has given you the following information:

Annual combined income $84,000 Income tax $42,000
Bank account balance 4,500
Value of home 225,000
Mortgage on home 110,000 Monthly payments (principal & 425
interest)
Value of two family cars 32,000
Car loans outstanding 7,000 Monthly car loan 250
Annual contribution to RRSPs 18,000
RRSP balances (combined) 60,000
Credit card balances 5,500 Monthly credit card payments 275
Canada Savings Bonds (CSBs) 4,000 Monthly insurance premiums 200
Daughter's annual university 6,000
tuition
Monthly household expenses 800

What percentage of the couple's total assets is the value of their home?

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A. 35.33%
B. 46.78%
C. 69.12%
D. 84.75%

Rationale :
(House $225,000 ÷ Total Assets $325,500) × 100 = 69.12%

16: A married couple has given you the following information:

Annual combined income $84,000 Income tax $42,000
Bank account balance 4,500
Value of home 225,000
Mortgage on home 110,000 Monthly payments (principal & 425
interest)
Value of two family cars 32,000
Car loans outstanding 7,000 Monthly car loan 250
Annual contribution to RRSPs 18,000
RRSP balances (combined) 60,000
Credit card balances 5,500 Monthly credit card payments 275
Canada Savings Bonds (CSBs) 4,000 Monthly insurance premiums 200
Daughter's annual university 6,000
tuition
Monthly household expenses 800

What is the couple's total monthly cash flow?

A. $450
B. $0
C. $50
D. $250

Rationale :
Total income-Total expenses=Total cash flow
Monthly Cash Flow
Income $7,000 100%
Expenses
Income Tax $3,500
Credit Cards 275
Mortgage 425
RRSP Contributions 1,500
Car Loan 250
Insurance 200
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Tuition 500
Household expenses 800
Total expense 7,450 106.43%
Total Cash Flow ($450) (6.43%)

17: A married couple has given you the following information:

Annual combined income $84,000 Income tax $42,000
Bank account balance 4,500
Value of home 225,000
Mortgage on home 110,000 Monthly payments (principal & 425
interest)
Value of two family cars 32,000
Car loans outstanding 7,000 Monthly car loan 250
Annual contribution to RRSPs 18,000
RRSP balances (combined) 60,000
Credit card balances 5,500 Monthly credit card payments 275
Canada Savings Bonds (CSBs) 4,000 Monthly insurance premiums 200
Daughter's annual university 6,000
tuition
Monthly household expenses 800

Which statement is true regarding the couple's liquid assets?

A. They have a liquid assets-to-total assets ratio of less than 1%.

B. They have a liquid assets-to-total assets ratio of 2.61%, and if the amount is too
much, it means their financial resources are managed efficiently.
C. They have a liquid assets-to-total assets ratio of 1.38%, and if their cash flow is erratic,
they should ensure that it is consistently higher.
D. They have a liquid assets-to-total assets ratio of 2.61%, and they should ensure
they have an emergency fund of three to six months' worth of living expenses.

Rationale :
Liquid assets–to–total assets ratio=liquid assets÷total assets
Their liquid assets consist of a bank account balance of $4,500 and CSBs of $4,000 =
$8,500. Total assets are $325,500. Therefore, their liquidity ratio is ($8,500 ÷ $325,500) x 100
= 2.61%.

18: A married couple has given you the following information:

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Annual combined income $84,000 Income tax $42,000

Bank account balance 4,500
Value of home 225,000
Mortgage on home 110,000 Monthly payments (principal & 425
interest)
Value of two family cars 32,000
Car loans outstanding 7,000 Monthly car loan 250
Annual contribution to RRSPs 18,000
RRSP balances (combined) 60,000
Credit card balances 5,500 Monthly credit card payments 275
Canada Savings Bonds (CSBs) 4,000 Monthly insurance premiums 200
Daughter's annual university 6,000
tuition
Monthly household expenses 800

Which statement is true regarding investment assets?

A. Older clients usually have a high investment-assets-to-net-worth ratio, because a

large amount of investment assets is needed to provide retirement income.
B. Middle-aged clients typically have no investment assets.
C. Older clients should have all investments in their RRSPs.
D. Younger clients should hold mostly fixed income.

19: When is it beneficial to purchase non-registered securities is an investment strategy, that

is only beneficial if:

A. The after-tax cost of the investment loan is greater than the after-tax return on the
investment.
B. There is always a high return on the investments.
C. The after-tax return on the investment is greater than the after-tax cost of the
investment loan.
D. The investor is a high-net-worth individual.

20: Identifying ways to control discretionary spending belongs in which draft of a prepared
cash flow statement?

A. First draft
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B. Planning draft
C. Revised draft
D. Final draft

21: What is the best method for clients to gain control of their spending?

A. Cut some fixed expenses and compare spending to a current net worth statement. Cut
all fixed expenses.
B. Compare spending to a retroactive net worth statement.
C. Keep careful track of their expenses and compare spending to a projected cash
flow statement.
D. Avoid using any credit for discretionary expenses.

22: What is the first step in the prioritization-of-savings principle?

A. Set up a personal line of credit.

B. Pay yourself first.
C. Allocate cash reserves for periodic payments.
D. Pay off most costly debt first.

23: In order to measure progress towards future financial goals, a financial planner would
look at a client's:

A. Cash flow statement

B. Goal-setting worksheet
C. Income tax return
D. Net worth statement

24: What is not a reason to have a savings strategy?

A. To accumulate funds for emergencies

B. To reduce taxes
C. To have funds to purchase goods or services

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D. To increase net worth

25: A family has an annual net income of $72,000. They have set a goal of having an
emergency fund of four months net income. How much must they set aside each month for
three years if they can earn 3% annually in an investment that pays interest annually
(rounded to the nearest dollar)?

A. $602
B. $624
C. $638
D. $658

Rationale :
4 months net income is ($72,000 ÷ 12 = $6,000) × 4 = $24,000
Key Touch Display
24,000 FV 24,000
36 N 36 (12 × 3 years)
0.25 I/YR 0.25 (3% ÷ 12)
PMT –637.95

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