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# BUSI 352 quiz 4 Liberty University complete answers

BUSI 352 quiz 4 Liberty University complete answers

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Question 1 In five years, Joe wants to buy a boat that costs \$75,000 in today’s dollars. He can earn 8% return on his investments, and he expects the boat to increase in price by 3% each year. What will Joe’s serial payment at the end of the second year be, if he wants to buy the boat in 5 years?

Question 2 Claire just won the lottery and has been told that she can either accept annual payments at the beginning of each year of \$173,695 per year for the next 20 years or she can receive a lump­sum settlement. Claire figures she could invest the money at 6.34% (the same rate as the annuity). What would the amount of the lump­sum settlement be?

Question 3 CJ is 40 and wants to retire in 25 years. He expects to live until age 95. He currently has a salary of \$100,000 and expects that he will need about 75% of that if he were retired. He thinks he needs to accumulate \$1 million (future dollars), and he will be fine. He currently has \$150,000 saved for his retirement that is earning 9%. He is able to save \$20,000 towards his retirement. However, he is willing to use some or all of this to fund education for his grandchild, Bob, if and when his retirement objective appears to be set in terms of funding. Edward, Bob’s dad and CJ’s son, wants Bob to go to school for six years and expects that it will cost \$50,000 per year in today’s dollars. Inflation has been modest at 3%, while education has been increasing at 6% per year. Edward would like to know how much he should save every year to fund Bob’s college expenses assuming that he can max out his dad’s (CJ) contribution, which would begin in one year and stop when Bob goes to school. Edward would also begin contributing in one year and stop when Bob goes to school and wants to assume he can earn 9% per year. How much does Edward need to save each year? (round to nearest \$1,000)

Question 4 Cindy won the California lottery. She can take a single lump­sum payout of \$12.5 million dollars or receive \$825,000 per year for the next 25 years. What rate of return would Cindy need to break even if she took the lump­sum amount instead of the annuity?

Question 5 Steve and his wife, Christine, recently opened an investment account with the intention of saving enough to purchase a house. Their goal is to have \$45,000 for a down payment in 5 years. Their account will guarantee them a return of 8% compounded annually. How much do they need to put into the account right now to reach their goal?

Question 6 Tan and Chia are contemplating making a contribution to their grandchildren’s education fund. They are both retired, have a significant amount of discretionary income, and are concerned about estate transfer taxes. Which of the following education planning techniques would you recommend?

Question 7 Kim and Nick are planning to save for their daughter Chloe’s college education. Chloe was born today and will attend college for 4 years, starting at age 18. Tuition currently costs \$15,000 per year, and tuition inflation is expected to be 6%. They believe they can earn 9% on their investments. How much must Kim and Nick save at the end of each year if they want to make their last savings payment at the beginning of Chloe’s first year of college?

Question 8 Mitch and Jennifer have AGI of \$125,000 and have not planned for their children’s education. Their children are ages 17 and 18, and the parents anticipate paying \$20,000 per year, per child for education expenses. Which of the following is the most appropriate recommendation to pay for the children’s education?

Question 9 A couple has 4 children ages 1, 3, 5, and 7. The current cost of college is \$25,000. The children will begin college at age 18 and be in college for 4 years. Education inflation is expected to be 6%, and the parents’ portfolio rate of return is 8%. How much do the parents have to save annually at year end through the education of the youngest child to pay all college costs?

Question 10 Frank and Stephanie have an 18­year­old son who is going to college this year for four years. The tuition is \$15,000 per year and is expected to increase at 4% per year. They believe they can earn 6% per year on their investment; what lump­sum amount must they deposit today to pay for their son’s education?

Question 11 All of the following statements are true, except:

Question 12 Alberto saved enough tip money from working at the casino to place \$125,500 in an investment account generating 9.25% compounded monthly. He wants to collect a monthly income of \$1,350 at the beginning of each month for as long as the money lasts. Approximately how many months will Alberto have this income coming to him?

Question 13 David purchased stock 15 years ago for \$325.75. He sold the stock today for \$2,500. Given this information, what is the average annual compound rate of return that David realized on this stock?

Question 14 Bobby bought a house for \$275,000, by putting 15% down and borrowing the balance. His note is for 30 years at 7.5% interest. If his first payment is due August 1st of the current year, how much interest will he pay this year?

Question 15 George has been in academia his entire career and wholeheartedly believes that education is the key to success. He has two daughters, Cindy and Susie. Cindy is a model who also believes in education as well as fashion. Cindy has two children, Red and Mauve, who are ages 4 and 2 today. She is also headed to the hospital at this very moment to deliver her third child, who will be named Olive. Susie is an engineer who used to play rugby in college and also believes in education. Her children, Copper and Mercury, are ages 3 and 5 today, respectively. George believes that with \$100,000, a student should be able to obtain a great education, even if it is not the exact amount necessary to fund all of a student’s time in college. George would like to provide each of his grandchildren with the ability to have \$100,000 of purchasing power when they turn 18. Education costs are approximately \$30,000 per year at private schools and about \$15,000 at public schools. Education costs have been increasing at a consistent rate of 7% per year and are expected to continue, while inflation has been at a steady 3% per year. How much should he set aside today to fund his goal for his grandchildren if he can earn a rate of return of 9%?

Which schools of thought for counseling could an advisor combine?

Which of the following choices are false as to open or closed questions?

Which of the following are true about "why " questions?

1: tempting and may help understand the client's motives, the why question may be ill-advised because it could have limited benefit for the client
2: a why question could place the client in a position of having to justify what was done, and that could put the client in a defensive posture

Which of the following is the best choice for behavioral finance?

You have been working with Brenda for 3 months. You have developed a mission statement, goals and objective and now you're constructing a plan. Which approach to financial planning are you using?

During your work with your new client, you created picture representations of how he spends his money. Which approach are you using?

Rachel is 30 and single. She is healthy, has no children and works earning \$40k. All of the following are likely insurance coverage needs, except?

David, 33, and Kristine, 34 are married. Which of the following is a likely goal?

Paul & Lucy Martin (65)- which of the following is their most important need/goal?

Curtis is 60. Which phase of the life cycle is he in?

Your new client, Kari, age 35 came into today. What are you likely to say?

Darrin and Kathi are 44. What statement are you likely to make during your next meeting?

Which of the following is true?

Ronnie is 55, divorced with 2 kids. Which is true?

Natalie & Brian visited your office today. They are in their early 30's with 2 kids and one on the way. Which is true?

Utilizing investment assets to gross pay benchmarks, which of the following individuals is likely on target with their investment assets?

You currently manage Cody's investment portfolio. Which is correct?

Utilizing the three panel approach, which of the following would be evaluated in Panel 1- Risk management?

Robin met with you recently to make changes to her insurance needs. Which of these recommendations will have a positive cash flow impact from an insurance perspective?

CJ bought the following assets this year- which would be considered "bad debt"?

Adriana is an analyst at High Tech Hedge, where she earns \$150k with a bonus of \$50k. What is her savings rate this year?

Candice/Janice earns \$85k working as an admin assistant in NY. What is her savings rate?

Mark and Caren are 36 years old and plan on retiring at age 62. The currently earn \$250,000 a year and expect to need \$200,000 in retirement. What should they do?

Jack and Jill are 41 and plan on retiring at 65 and living until 95. What should they do?

Your client, Tom, asked you to prepare his financial statements. Him & his wife have a disagreement- which statement will help them resolve this?

Craig's financial planner is preparing his balance sheet. Which would not be considered "cash and cash equivalent"?

Craig's financial planner is preparing his balance sheet. Which would be considered an investment asset?

Which of the following statements concerning the valuation of assets on the balance sheet is correct?

Which of the following would not generally be considered a short-term liability?

Jay purchased a new home for \$100,000. He put \$20,000 down and financed \$80,000 balance. What is the impact on his net worth?

Nathan & Evan (brothers) are joint property owners. Nathan owns 60, Evan owns 40. How is this property owned?

Lanie is a single Mom who has 3 children. How much must she save?

George has been in academia his whole career. How much should he set aside today to fund his goal for his grandchildren if he can earn a rate of 9%?

CJ is 40 and wants to retire in 25 years. How much does Edward need to save each year?

Which of the following expenditures will most likely increase during retirement?

Margaret, a 35 year old client, who earns \$45,000 a year. Calculate wage-replacement ratio.

Danny would like to determine his financial needs during retirement. All of the following are expenditures he might eliminate except:

Which expenditure would you expect to decrease during Susie's retirement?

Tiffany, a self-employed dentist, currently earns \$100,000 each year. What do you expect her wage replacement ratio to be at retirement?

Which factors may affect an individual's retirement plan?

Contributing \$1,500 to his retirement fund at the end of each year beginning at age 18 through 50, how much does Juan have in his retirement account?

When Steve and Roslyn retire together, they wish to receive \$40,000 additional income at the beginning of each year. How much will they need to have in their fund at the time of retirement?

Tyrone, Age 25, expects to retire at age 60. He expects to live until 90. How much must he save to meet his goal?

Roy & Barbara are near retirement. They have a joint life expectancy of 25 years in retirement. Calculate the total amount that needs to be in place when the begin retirement.

Cathy and her twin sister Carley, both age 25, each believe they have the superior savings plan. Which is correct?

Shelley saves \$3,000 per year for 10 years. Kevin saves \$3,000 a year between ages 36-65. What is the value of their accounts at 65?

Kwame and Omarosa. What is the monthly benefit amount they will receive during retirement?

Charlie would like to retire in 11 years at age 66. If he currently earns \$150,000 how much does he need at retirement?

Bowie, age 52, has come to you for help in planning for retirement. How much will Bowie need to have accumulated to provide for retirement lifestyle?

Which of the following statements is false?

Which of the following property ownership regimes has right of survivorship feature?

Which of the following statements concerning income and expenses listed on the income statement is correct?

A financial planner is currently preparing a client's cash flow statements. Which of the following would be classified as a financing activity?

A client, Marie, age 35 came in today. When considering the targeted benchmarks, which of the following statements is the planner most likely to make?

Roget and Julie are married. Roger is a police officer and earns \$50k. What is their total savings rate?

While meeting with your new client about retirement needs, you have made several assumptions. You engage is the process of changing some to see the impact on the plan. What is this process called?

Steve and his wife Christine recently opened an investment account with the intention of saving enough to purchase a house. How much do they need to put in to reach their goal?

Jordan invested \$12,500 to help her friend Dylan start his own cooking school 5 years ago. What is the amount of the check Dylan has for Jordan today?

Colleen's grandfather set up a savings account for her with a \$25,000 gift when she was first bone. To date, how much has accumulated?

DRI Enterprises needs to have a lump-sum deposit of \$200,000 for the purchase of a surety bond in 6 months. How much will they need to deposit?

Claire just won the lottery and has been told that she can either accept annual payments at the beginning of each year for 20 years of a lump sum. What amount would the lump-sum be?

Mark and Sonya would like to have the opportunity to buy a home in the next five years. What amount can you tell them that they will have for a down payment when they are ready?

Alberto saved enough tip money from working at the casino to place \$125,500 in an investment account. How many months will Alberto have this income coming to him?

David purchased stock 15 years ago for \$325.75 and sold the stock today for \$2,500. What is the average annual compound rate of return that David realized on this stock?

Kelly has asked her accountant, Darla, to determine whether her company, Gaggin Industries, should purchase a new machine for \$155,000 that can be sold for \$125,000 in 5 years. What will Darla tell her?

Donna plans to save for a vacation to Costa Rica in 18 months. She will be putting money into a short-term investment account. How much will she have to put away each month?

Liam bought a piece of equipment for \$10,000. He paid \$3,000 for upgrades during year 1... what is his IRR?

With interest rates at 4.875% for a 30-year fixed mortgage, Dan, age 48, plans to buy a house for \$825,000. What will his monthly mortgage payment be for principal and interest?

Bobby bought a house for \$275,000 by putting 15% down and borrowing the balance. How much interest will he pay this year?

Bobby bought a house for \$275,000 by putting 15% down and borrowing the balance. How much principal did he pay in the current year?

Cindy won the california lottery. She can take single lump-sum payments or payments for 25 years. What rate of return would Cindy need to break even?

Danny buys a house for \$500,000 putting 20% down. His loan is for 30 months. How much is his normal payment?

Frank and Stephanie have an 18 year old son who is going to college this year. What lump-sum amount must they deposit today to pay for his education?

In 5 years, Joe wants to buy a boat that costs \$75,000 in today's dollars. What will his serial payment at the end of the second year be?

Which of the following statements concerning educational tax credits and savings opportunities is correct?

Mitch and Jennifer have AGI of \$125,000 and have not planned for children's education. Which is the most appropriate recommendation?

Tan & Chia are contemplating making a contribution to their grandchildren's education fund. They are both retired. Which technique would you recommend?

Al of the following statements are true, except?

Which of the following types of aid are not needs based?

The following type of financial aid is rewarded to students with a low EFC, and funds are guaranteed to be available if a student qualifies.

Roshan is a freshman at Florida State University where tuition is \$4,000. His sister is a graduate student at another university where tuition is \$25,000. What is the maximum tax credit his parents can take?

What is one of the primary differences between a Coverdell ESA and a 529 savings plan?

Reba has a son, Chad, a freshman at Tulane with tuition of \$30,000. Her AGI is \$45,000. Which of the following would you recommend?

Peter wants to save some money for his daughter Gwen's education. How much must he save at the end of each year?

Kim and Nick are planning to save for their daughter Chloe's college education. How much must they save at the end of each year, if they want to make their last savings payment at the beginning her her first year of college?

What is the PV of all college education for 5 children if the cost today is \$17,000 per year?

What is the PV of the cost of college education for 4 children if the current cost is \$25,000?

Using previous information, how much do the parents have to save annually at year-end through the education of the youngest child?

Donna plans to save for a vacation to Costa Rica in 18 months. She will be putting the money into a short-term investment account earning 4% annually. How much will Donna have to put away at the beginning of each month if the total package cost for the trip is \$3,500?

Liam bought a piece of equipment for \$10,000. He paid \$3,000 for upgrades during year 1 and the equipment generates \$2,000 in cash flow for year 1. In year 2 the equipment generated \$3,000 and in year 3 it generated \$4,000, but Liam sells it for \$6,000 and pays a \$500 commission. What is his IRR?

With interest rates at 4.875% for a 30-year fixed mortgage, Dan, age 48, plans to buy a house for \$825,000. He wants to put half of the purchase price down. What will his monthly mortgage payment be for principal and interest?

Bobby bought a house for \$275,000, by putting 15% down and borrowing the rest. His note is for 30 years at 7.5% interest. If his first payment is due August 1st of the current year, how much principal did he pay in the current year?

Danny buys a house for \$500,000 putting 20% down. His loan is for 30 years at 6% and he includes closing costs of 3% into his mortgage. How much is his monthly payment (rounded to whole dollars)?

Lisa Cooper recently came to your office for her second appointment after receiving her engagement letter. What is the next step?

Your client, Jed, engaged you to help him with his financial situation. You sold a life insurance policy- what part of planning are you in?

Which part of financial planning do you prepare financial statements?

Reverend Lola Pack, came in to your office. How do you greet her?

Steve Stein, a CFP... which of his actions are inappropriate?

Which of the following is least likely to be obtained from your client?

The most important quality a CPF brings to the relationship is:

Which credential is the oldest and best known?

Which of the following is considered to be a counseling paradigm or school of thought?

Which are consistent with the Humanistic paradigm?

Which of the following is NOT a premise in traditional finance?

Which of the following are important in nonverbal communication and behavior?

Which of the following is not true is communicating with a client?

Which of the following are components are passive listening?

Which of the following are NOT components of active listening?

Which of the following theories or equations are used in traditional finance?

Which of the following investors would apply in the realm of behavioral finance?

Which of the following is NOT a basic premise in behavioral finance?

Which of the following are NOT heuristics or cognitive biases discussed?

Which is true?

Jordan invested \$12,500 to help her friend Dylan start his own cooking school five years ago. The business proved to be successful far beyond Dylan’s expectations. Today he is returning a check to Jordan and has told her that as best as he could figure, she was receiving the equivalent of about 38% per year for her initial investment. What is the amount of the check Dylan has for Jordan today?

Colleen's grandfather set up a savings account for her with a \$25,000 gift when she was first bone. The account accumulated interest annually at a rate of 6% per year and no other deposits were made to the account. Colleen is 21 years old today. To date, how much has accumulated in Colleen’s account?

DRI Enterprises needs to have a lump-sum deposit of \$200,000 for the purchase of a surety bond in 6 months. They wish to immediately deposit a sum of cash into a short-term account paying 4% per year, compounded on a monthly basis. How much will they need to deposit into this account to have enough to purchase the bond?

Mark and Sonya would like to have the opportunity to buy a home in the next five years. They currently have \$15,000 saved toward this goal in an investment account paying 7% annual interest, compounded on a monthly basis. In addition to this, Mark and Sonya add an additional \$250 every month at the end of the month. Given this information, what amount can you tell them Sonya and Mark that they will have for a down payment when they are ready to purchase their home?

Alberto saved enough tip money from working at the casino to place \$125,500 in an investment account generating 9.25% compounded monthly. He wants to collect a monthly income of \$1,350, at the beginning of each month, for as long as the money lasts. Approximately, how many months will Alberto have this income coming to him?

David purchased stock 15 years ago for \$325.75. He sold the stock today for \$2,500. Given this information, what is the average annual compound rate of return that David realized on this stock?

Kelly has asked her accountant, Darla, to determine whether her company, Gaggin Industries, a leader in chain manufacturing, should purchase a new machine for \$155,000 that can be sold for at the end of 5 years for \$125,000 and during that time will generate cash flows: Year 1) + 4,000; Year 2) +7,000 and Year 3 – 5) + \$15,000. She told Darla to determine her NPV with her cost of capital at 11.5%. With her NPV calculated, what will Darla tell her?