Question 1 which of the following parties has a legal

Question

Question 1: Which of the following parties has a legal contract?

• George, who offered to prepare an estate plan for an elderly friend for $1. His elderly friend acknowledged acceptance by signing the letter of engagement.
• Rachel, who offered to prepare a retirement plan for a client for $250. Her secretary typed the fee as $2.50 on the letter of engagement. The client acknowledged acceptance by signing the letter of engagement.
• Samantha, who offered to prepare a wealth accumulation plan for a friend at no charge. Her friend acknowledged acceptance by signing the letter of engagement.
• Marsha, who told her client she is a Certified Financial Planner and would prepare a comprehensive financial plan for her for a fee of $1,500. Her client acknowledged acceptance by signing the letter of engagement. The client later discovered that Marsha only held a certificate in Personal Financial Planning.

Question 2:  Peter offered to prepare a wealth accumulation plan for Mrs. Vecchio for $2,000. She agreed and signed the letter of engagement. While analyzing Mrs. Vecchio's financial data, Peter realized that she had made a great deal of money on a little-known investment. Without discussing the matter with Mrs. Vecchio, Peter invested his own funds in the investment too. During the monitoring stage of Mrs. Vecchio's plan, Peter discovered some facts that indicated it was now prudent to sell the investment. He sold both his and Mrs. Vecchio's holdings. Both of them made a large profit. All of the following statements are true, EXCEPT:

• Peter has a duty of care towards Mrs. Vecchio.
• Peter could argue that his investment activities did not violate his fiduciary duties towards Mrs. Vecchio.
• Peter is guilty of negligent misrepresentation.
• Mrs. Vecchio, or the courts, could argue that Peter violated his fiduciary duties towards her.

Question 3: Kiesha is a commission-based certified financial planner. She also has her mutual fund license. Last year, she purchased $32,000 in the Albatross Growth Fund for Clive upon his request. On another occasion, she prepared an insurance needs analysis for Chrissy who subsequently implemented the recommendations. As a result of these actions, Kiesha has established a fiduciary relationship with:

• Neither client.
• Clive.
• Chrissy.
• Chrissy and Clive.

Question 4: Jeremy recently received his CFP license and is in the process of opening his own planning practice. His promotional brochure falsely states that he specializes in real estate deals that have earned clients, on average, returns of 40% in the past. Which specific principle of conduct has Jeremy violated?

• Integrity.
• Diligence.
• Confidentiality.
• Rationality

Question 5: Mr. Steinburg is approaching retirement age. He has one child, who is an adult and lives in Australia. He asks his financial planner, Robyn, to help him sell his business. Robyn assesses the value of the business. She brings one offer to Mr. Steinburg which is slightly below the assessed fair market value. Mr. Steinburg accepts the offer and the business is sold. He discovers later that the offer and purchase were made by Robyn's cousin and that the sale of the business was not widely advertised. Which of the following statements is TRUE?

• Robyn has violated the Principle of Integrity.
• Robyn has violated the Principle of Diligence.
• Robyn has violated the Principle of Fairness.
• Robyn has violated the Principle of Confidentiality.

Question 6: Which of the following statements regarding the principle of integrity in the Financial Planners Council's Code of Ethics is false? A CFO designee shall:

• act with the care required of a fiduciary
• keep complete records of all client property in the CFP designee's custody
• never commingle clients'funds
• deliver to the client any funds or property at the client's request

Question 7: Jethro opened a financial planning practice last year. He recently implemented a promotion and advertising campaign that led to several new clients for the practice. The Principle of Integrity addresses all of the following situations, EXCEPT:

• Jethro must refrain from disclosing any client information.
• Jethro cannot mislead the public regarding his areas of competence
• Jethro cannot combine his personal funds with a client's funds for investment purposes.
• Jethro can use client funds only for the reasons outlined in the letter of engagement.

Question 8: Melanie recently severed ties with her financial planner, Jerry. He had a tendency to raise unreasonable expectations regarding mutual fund performance. elanie would end up placing most of her money in these funds only to see their returns either drop significantly or perform poorly. Which principle of conduct has Jerry violated?

• Objectivity.
• Confidentiality.
• Impartiality.
• Integrity.

Question 9: One of the Rules of the Code of Ethics states that "In the course of professional activities, a CFP licensee shall not engage in or associate with conduct involving dishonesty, fraud, deceit or misrepresentation, or knowingly make a false or misleading statement." To which of the Principles of the Code of Ethics does this Rule belong?

• The Principle of Objectivity
• The Principle of Integrity.
• The Principle of Professionalism.
• The Principle of Diligence

Question 10: Stella works as a commission-based financial planner. She provides each client with a list of the mutual fund companies that she represents plus the commission rates that she receives from each fund. She makes every effort to ensure that the funds recommended are based on the client's individual financial needs and not on the amount of compensation she receives from a particular fund. Stella is acting in accordance with the Principle of:

• Competence.
• Objectivity.
• Diligence.
• Confidentiality.

Question 11: Theo works for a large financial planning company. He has aspirations of moving up to senior planner and eventually managing partner. To attract wealthy and high powered clients, Theo often overstates his qualifications and abilities in putting together intricate tax-shelters for clients. Which of the following principles of conduct has Theo violated?

• Diligence and Fairness.
• Integrity and Confidentiality.
• Integrity and Competence.
• Confidentiality and Professionalism.

Question 12: Mr. Silwowitz went to the firm of Welsh and Associates to get his estate plan prepared. The sign on the door said "R. Welsh, CFP". The financial planner whom he saw was named Rosalie Welsh and he assumed she was a Certified Financial Planner. He was not pleased with the final estate plan as it was presented to him. Some of the calculations contained errors and the assumptions were not realistic. He later learned that her father, Ronald Welsh was the CFP licensee, and that Rosalie only held a certificate in Financial Planning and had only six months of practical experience. Which of the following Principles of the Code of Ethics has Rosalie violated?

1. The Principle of Competence.

2. The Principle of Diligence.

3. The Principle of Fairness.

4. The Principle of Objectivity.

• 1 and 2.
• 3 and 4.
• 1 only.
• 2 and 3.

Question 13: Francine is in her early sixties, earns about $35,000 annually and plans to retire in three years relying primarily on government pensions. During the month of February, her financial planner made repeated attempts for Francine to invest in a film production deal. Francine did not think the investment was appropriate due to her modest income and the substantial amount of her retirement savings needed for the investment. However, the planner kept up the pressure informing Francine about the potential returns. In placing pressure on Francine, which specific principle of conduct has Francine's financial planner violated?

• Fairness.
• Confidentiality.
• Integrity.
• Diligence

Question 14: Bernard makes a written disclosure to his client indicating that he works on a commission-only basis. Bernard also states how financial companies compensate him for using their financial products. Bernard is adhering to:

• the Principle of Integrity.
• the Principle of Fairness.
• the Principle of Professionalism.
• the Principle of Competence.

Question 15: Teresa works as a junior financial planner with Ponzi Financial. Last month, she found out that the company uses misleading advertising regarding the returns on certain real estate investment products. Ponzi uses this advertising to promote and recommend the products to clients. According to the Principle of Professionalism, what course of action should Teresa take?

• Report the activity to the FPSC.
• Personally contact and inform all of the company's clients
• Quit her job and find a more ethical company to work for.
• Wait until the end of year to see if the problem is corrected.

Question 16: Roland is a personal financial planner. He is caught stealing a candy bar from the local convenience store. His case makes the headlines of the local newspapers when it is discovered that he has huge debts in spite of his earning in excess of $80,000 per year. Which of the following principles did Roland violate?

• The Principle of Professionalism.
• The Principle of Competence.
• The Principle of Diligence
• The Principle of Integrity.

Question 17: Marcel works as a financial planner. Most of his duties involve helping clients manage their RRSPs. When advising clients, he rarely prepares an asset allocation strategy or takes the time to prepare retirement savings plans. He simply recommends only those mutual funds that posted high returns in the previous year. If Marcel acted in accordance with the Principle of Diligence, he would:

• avoid methods of advertising that lower the standard of the profession.
• not disclose any client information to the other staff
• provide a statement regarding his compensation arrangements
• make a thorough investigation of the financial products recommended.

Question 18: Leading Indicators are:

• economic indicators considered to be better than others
• used by investors to calculate their investment returns
• rarely used by anyone interested in successful investing.
• used by analysts to forecast a change in the economy

Question 19: Which of the following types of financial statements provides information which is often described as a "snap shot of a company's financial situation?"

• Income statement
• None of the above
• Balance Sheet
• Statement of change in financial position

Question 20: Market equalibrium means that:

• all possible buyers and suppliers of a product are satisfied
• all buyers paid the lowest price they would for the product sold
• all suppliers have received the minimum price they wanted for their product
• all those who wanted to buy at the market price and all those who wanted to sell at the market price were satisfied

Question 21: Sophia is an impulsive buyer who rarely evaluates investment alternatives. She currently does not have a financial plan. A friend gave her a hot tip about a gold stock that is expected to rise significantly. Instead of contributing to her RRSP, she used $20,000 of her savings to invest in the gold stock, which subsequently plummeted in value. If Sophia had a financial plan in place, she could have avoided:

• the inefficient use of her financial resources.
• the higher-than-necessary taxation of her income by not contributing to an RRSP.
• the failure to meet her financial objectives.
• all of the above.

Question 22: All of the following statements describe some of the important aspects of personal financial planning, EXCEPT:

• most people can use the services of a personal financial planner because they are not equipped with the time and knowledge to undertake proper planning of their finances.
• the personal financial planning process is designed specifically to calm the fears that individuals may have regarding their finances.
• personal financial planning provides an objective-oriented approach that is tailored to meet the specific personal financial needs of individuals.
• financial planning is designed primarily for affluent individuals because they have funds to invest and complicated portfolios.

Question 23: You are at Step 2 in preparing a personal financial plan for a family. Which of the following processes are often used by financial planners at this stage?

• Reviewing insurance policies.
• Determining the client's investment risk tolerance.
• Reviewing past income tax returns.
• All of the above

Question 24: The Butler family has prepared a summary of their financial transactions over the past year:

House insurance 350.00
Utilities 1,200.00
Food 5,800.00
Telephone 400.00
Clothing 1,500.00
Cleaning and personal care products 1,000.00
Car payments, interest 800.00
Car payments, principal 4,400.00
Car insurance 900.00
Repairs 500.00
Entertainment, gifts and holidays 2,600.00
Medical expenses 500.00
Self employment income 63,000.00
RRSP purchase 1,800.00
Oil paintings (paid cash) 3,200.00
Income tax 16,200.00
Mortgage, principal 4,000.00
Mortgage, interest 1,200.00
Total 109,350.00

By how much have the Butler family reduced their liabilities?

• $16,200.
• $  4,800.
• $  8,400.
• $ 63,000.

Question 25: The Butler family has prepared a summary of their financial transactions over the past year:

House insurance 350.00
Utilities 1,200.00
Food 5,800.00
Telephone 400.00
Clothing 1,500.00
Cleaning and personal care products 1,000.00
Car payments, interest 800.00
Car payments, principal 4,400.00
Car insurance 900.00
Repairs 500.00
Entertainment, gifts and holidays 2,600.00
Medical expenses 500.00
Self employment income 63,000.00
RRSP purchase 1,800.00
Oil paintings (paid cash) 3,200.00
Income tax 16,200.00
Mortgage, principal 4,000.00
Mortgage, interest 1,200.00
Total 109,350.00

By how much have the Butler family increased their personal and investment assets?

• $3,600.
• $9,400.
• $5,000.
• $3,200.

Question 26: The Butler family has prepared a summary of their financial transactions over the past year:

House insurance 350.00
Utilities 1,200.00
Food 5,800.00
Telephone 400.00
Clothing 1,500.00
Cleaning and personal care products 1,000.00
Car payments, interest 800.00
Car payments, principal 4,400.00
Car insurance 900.00
Repairs 500.00
Entertainment, gifts and holidays 2,600.00
Medical expenses 500.00
Self employment income 63,000.00
RRSP purchase 1,800.00
Oil paintings (paid cash) 3,200.00
Income tax 16,200.00
Mortgage, principal 4,000.00
Mortgage, interest 1,200.00
Total 109,350.00

What is the amount of the Butler's total lifestyle expenditures?

• $26,250.
• $16,750.
• $29,450.
• $30,650

Question 27: Lynn has a meeting with her financial planner tomorrow. The planner would like to complete a detailed financial questionnaire and asked Lynn to bring along some information related to her financial position. Quantitative information includes all of the following, EXCEPT:

• Lynn's level of tolerance to investment risk.
• Lynn's employment and investment income.
• the amount of Lynn's lifestyle expenditures.
• Lynn's holdings of real estate and other personal property

Question 28: Which of the following statements BEST describes what is included in your cash flow statement?

• Capital purchases and investment income.
• The total flow of cash from all sources of income and expenses.
• The cost of maintaining your lifestyle.
• Interest and principal repayments.

Question 29: Your statement of lifestyle expenditures would include all of the following, EXCEPT:

• the money you spend on holidays and gifts.
• your medical expenses.
• your total mortgage payments.
• your insurance costs.

Question 30: All of the following statements about your balance sheet are true, EXCEPT:

• it is an excellent financial planning tool for showing how various strategies could be implemented.
• it shows your assets, liabilities and net worth at a single point in time
• it can be used to compare overall changes in your financial position from year to year.
• it is one of the more common financial statements used in financial planning.

Question 31: Horst and Helga are in their early fifties and have one child. Their daughter started working full-time last year after finishing university. Both Horst and Helga would like to pay off their mortgage within three years and begin to travel more often. Horst earns a good salary as a senior economist and Helga works as a communications consultant. They both would like to begin maximizing contributions to their retirement savings plan. In which stage of the life cycle are Horst and Helga?

• Mid-career.
• Pre-retirement.
• Early career
• Peak accumulation.

Question 32: Lila would like to have a financial plan prepared. After reviewing some of her personal and financial information, Clive, her financial planner, gains a better idea of her current situation. Before preparing the plan, he decides to review a recent report on the state of the economy. Which of the following represents an external force that Clive will consider when preparing Lila's financial plan?

• The effects of inflation on Lila's long-term purchasing power.
• Lila's preference for managing her investments herself.
• Lila's inability to prioritize her financial objectives
• The importance of establishing realistic financial objectives.

Question 33: The Carsons would like to accumulate sufficient funds in a portfolio of stocks and bonds to help them provide for their children's education. They consulted with an investment planner to assist them in implementing this plan. What type of financial plan have the Carsons developed?

• A segmented financial plan, because the investment planner will need to assess the Carsons'total personal and financial situation.
• A segmented financial plan, because the plan will produce a specific education savings strategy for the Carsons.
• A comprehensive financial plan.
• A comprehensive plan specifically targeted towards education planning

Question 34: Marie needs advice as to which mutual fund to purchase for her RRSP. In the past, she relied on her pension administrator and various newspaper top ten lists to help with the decision. She only has limited resources to invest, and is not interested in preparing a detailed financial plan at the moment. Which of the following financial services professionals should Marie select to assist her?

• A financial generalist.
• A financial counsellor.
• A comprehensive financial planner.
• A financial specialist in mutual funds.

Question 35: When helping you set your financial objectives, your financial planner should do all of the following, EXCEPT:

• remind you that your objectives will change as you move through your life cycle.
• help you explore your own perceptions.
• provide you with advice on what is realistic based on facts and figures.
• make suggestions about what he would do if he was in your position

Question 36: Martha and Jerome Lemieux want to develop a money management plan and a comprehensive financial plan. Which of the following objectives is a money management objective?

• Develop an investment portfolio.
• Limit their monthly credit card balance.
• Assess the tax implications of a second property.
• Plan their estate.

Question 37: Which of the following financial statements are commonly used in the money management process?

• Statement of net worth.
• Statement of lifestyle expenditures.
• Balance sheet.
• All of the above

Question 38: Jeremy would like a statement of net worth prepared. He owns a $200,000 home with $75,000 worth of furnishings, and one car valued at $35,000. He has $8,000 in liquid assets and $30,000 saved in an RRSP. Jeremy also carries a $100,000 mortgage, a $4,000 car loan and has $2,000 outstanding on his credit cards. What is Jeremy's overall equity ratio?

• 70%
• 48%
• 61%
• 66%

Question 39: Elaine works as a dental hygienist. Her paycheque is deposited directly to her bank account each week and she uses preauthorized cheques to transfer money to her RRSP each month. She tore up her credit cards last year. Unfortunately, she has a tendency to buy magazines, takeout lunch and other small items on a daily basis with her bank debit card. As a result, by the end of the month, she often spends more than she would like. Which of the following money management strategies should Elaine consider?

• Pay off debts quickly.
• Pay herself first.
• Use credit wisely.
• Account for her expenditures.

Question 40: Joan has a marginal tax rate of 40%. She has an outstanding balance of $2,000 on a credit card, which charges interest at a rate of 20% annually. She also has about 8 months to go on a car loan that has monthly payments of $250. She plans to sell her car for $5,000 when the loan is paid. The interest rate on the car loan is 10%. Canada Savings Bonds currently offer a rate of 4%. She won $2,000 in a lottery and is trying to decide what to do with it.

If Joan uses the $2,000 to purchase Canada Savings Bonds, what will be the effective after-tax return on her investment after one year (to the nearest dollar)

• $80.
• $920.
• $800.
• $48.

Question 41: Joan has a marginal tax rate of 40%. She has an outstanding balance of $2,000 on a credit card, which charges interest at a rate of 20% annually. She also has about 8 months to go on a car loan that has monthly payments of $250. She plans to sell her car for $5,000 when the loan is paid. The interest rate on the car loan is 10%. Canada Savings Bonds currently offer a rate of 4%. She won $2,000 in a lottery and is trying to decide what to do with it.

What should Joan do with her $2,000?

• Pay off her car loan.
• Pay off her credit card.
• Buy herself some new lawn furniture
• Buy a Canada savings bond.

Question 42:  Joan has a marginal tax rate of 40%. She has an outstanding balance of $2,000 on a credit card, which charges interest at a rate of 20% annually. She also has about 8 months to go on a car loan that has monthly payments of $250. She plans to sell her car for $5,000 when the loan is paid. The interest rate on the car loan is 10%. Canada Savings Bonds currently offer a rate of 4%. She won $2,000 in a lottery and is trying to decide what to do with it.

Unless she redirects the funds previously allocated to the car loan to other debt reduction or investment, Joan would not see a very significant financial return if she paid off her car loan because:

• she is nearing the end of her loan term.
• she intends to sell the car for more than $2,000.
• the interest rate is low.
• the monthly payments are not that large anyway.

Question 43:  Joan has a marginal tax rate of 40%. She has an outstanding balance of $2,000 on a credit card, which charges interest at a rate of 20% annually. She also has about 8 months to go on a car loan that has monthly payments of $250. She plans to sell her car for $5,000 when the loan is paid. The interest rate on the car loan is 10%. Canada Savings Bonds currently offer a rate of 4%. She won $2,000 in a lottery and is trying to decide what to do with it.

If Joan applies the $2,000 against her outstanding credit card balance, what would be her equivalent effective after-tax return on her investment after one year?

• $1,000.
• $667.
• $800.
• $400.

Question 44: Sheila is looking to start an emergency fund. To do so, she should consider all of the following, EXCEPT:

• the accessibility of her investments.
• her job security.
• anticipated major changes in her income and expenses.
• the remaining limit on her overdraft protection.

Question 45: Ruth and Bill have decided to direct all of their income into a money market mutual fund. On a monthly basis, they transfer money from that account into a chequing account to pay bills and into an investment account to save some money. This is an example of:

• A comprehensive cash management plan.
• A budget.
• A simplified cash flow plan.
• An income tax strategy

Question 46: The BEST way to monitor your comprehensive money management plan is to:

• observe the outstanding balance on your credit cards
• observe the balance in your investment account.
• observe the balance in your chequing account.
• compare your actual expenditures in each category to the budgeted amount on a regular basis.

Question 47: All of the following types of credit are usually unsecured, EXCEPT:

• promissory notes.
• credit card cash advances.
• store charge accounts
• installment loans.

Question 48: If you do not pay your credit card balance in full, a bank credit card will typically charge you interest on:

• the balance remaining after payment, from the date of posting onwards.
• the full amount of the purchase, from the date of posting onwards.
• the balance remaining after payment, from the end of the grace period onwards.
• the full amount of the purchase, from the end of the grace period onwards.

Question 49: Dave and Jennifer have two outstanding consumer loans. Both loans were originally negotiated for $10,000 at 10% over five years, and each loan requires payments of approximately $213 each month. Loan A has 6 payments remaining, while Loan B has 48 payments remaining. After reviewing their financial situation, Dave and Jennifer found that they had a surplus $1,300 in their chequing account. They do not expect to have a similar windfall in the near future, and once they pay off Loan A, they plan to use the extra cash to increase their lifestyle expenditures by enrolling in a health club. They should:

• take a holiday.
• apply the money towards Loan B.
• purchase a Canada Savings Bond.
• pay off Loan A completely.

Question 50: Wanda earns income on an erratic basis, often going a couple of months without a pay cheque. However, she has monthly mortgage payments, a car and student loan, and monthly contributions to a RRSP. All of the following factors signal a credit problem for Wanda, EXCEPT:

• she has no money in reserve to meet emergencies.
• she often loses track of how much money she owes.
• she has begun to borrow from friends to cover current expenses.
• she is spending 10% of her take-home pay to pay off debts.