Liberty University BUSI352 Quiz 4 Complete Solutions Correct Answers Key

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Liberty UniversityBUSI352quiz4Complete Solutions Correct Answers KeyQuestion 1 In five years, Joe wants to buy a boat that costs $75,000 in today’s dollars. He canearn 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 5years?Question 2 Claire just won the lottery and has been told that she can either accept annualpayments at the beginning of each year of $173,695 per year for the next 20 years or she canreceive a lumpsum settlement. Claire figures she could invest the money at 6.34% (the same rateas 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 currentlyhas a salary of $100,000 and expects that he will need about 75% of that if he were retired. Hethinks 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 hisretirement. 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’sdad and CJ’s son, wants Bob to go to school for six years and expects that it will cost $50,000 peryear 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 collegeexpenses assuming that he can max out his dad’s (CJ) contribution, which would begin in oneyear and stop when Bob goes to school. Edward would also begin contributing in one year andstop when Bob goes to school and wants to assume he can earn 9% per year. How much doesEdward 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 $12.5million dollars or receive $825,000 per year for the next 25 years. What rate of return would Cindyneed to break even if she took the lumpsum amount instead of the annuity?Question5Steveandhiswife,Christine,recentlyopenedaninvestmentaccountwiththeintention of savingenoughto purchaseahouse.Theirgoal isto have$45,000for adownpayment in 5 years. Their account will guarantee them a return of 8% compounded annually. Howmuch do they need to put into the account right now to reach their goal?Question6TanandChiaarecontemplatingmakingacontributiontotheirgrandchildren’s

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education fund. They are both retired, have a significant amount of discretionary income, and areconcerned about estate transfer taxes. Which of the following education planning techniqueswould you recommend?Question 7 Kim and Nick are planning to save for their daughter Chloe’s college education. Chloewas 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% ontheir investments. How much must Kim and Nick save at the end of each year if they want tomake 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’seducation. 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 recommendationto 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. Thechildren will begin college at age 18 and be in college for 4 years. Education inflation is expectedto be 6%, and the parents’ portfolio rate of return is 8%. How much do the parents have to saveannually 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 fouryears. The tuition is $15,000 per year and is expected to increase at 4% per year. They believethey can earn 6% per year on their investment;what lumpsum amount must they deposit todayto 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 aninvestmentaccountgenerating9.25%compoundedmonthly.Hewantstocollectamonthlyincome of $1,350 at the beginning of each month for as long as the money lasts. Approximatelyhow 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 onthis stock?Question 14Bobby boughta housefor $275,000,by putting 15% downand borrowing thebalance. His note is for 30 years at 7.5% interest. If his first payment is due August 1st of the

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current year, how much interest will he pay this year?Question 15 George has been in academia his entire career and wholeheartedly believes thateducation is the key to success. He has two daughters, Cindy and Susie. Cindy is a model whoalso believes in education as well as fashion. Cindy has two children, Red and Mauve, who areages 4 and 2 today. She is also headed to the hospital at this very moment to deliver her thirdchild, who will be named Olive. Susie is an engineer who used to play rugby in college and alsobelieves 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 ifit is not the exact amount necessary to fund all of a student’s time in college. George would liketo provide each of his grandchildren with the ability to have $100,000 of purchasing power whenthey 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% peryear and are expected to continue, while inflation has been at a steady 3% per year. How muchshould he set aside today to fund his goal for his grandchildren if he can earn a rate of return of9%?LisaCooperrecentlycametoyourofficeforhersecondappointmentafterreceivingherengagement letter. What is the next step?Your client, Jed, engaged you to help him with his financial situation. You sold a life insurancepolicy-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?

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Which of thefollowing 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?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-advisedbecause it could have limited benefit for the client2: a why question could place the client in a position of having to justify what was done, and thatcould put the client in a defensive postureWhich 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, goalsand objective and now you're constructing a plan. Which approach to financial planning are youusing?During your work with your new client, you created picture representations of how he spends hismoney. Which approach are you using?Rachelis 30and single.She is healthy, hasnochildren andworksearning $40k. All of thefollowing are likely insurance coverage needs, except?

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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 theway. Which is true?Utilizing investment assets to gross pay benchmarks, which of the following individuals is likely ontarget 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-Riskmanagement?Robinmetwithyourecentlytomakechangestoherinsuranceneeds.Whichoftheserecommendations 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 isher 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 ayear 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?Yourclient,Tom,askedyoutopreparehisfinancialstatements.Him&hiswifehaveadisagreement-which statement will help them resolve this?

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Your client, Meg, asked you several questions about her balance sheet. Which is true?Craig's financial planner is preparing his balance sheet. Which would not be considered "cash andcash equivalent"?Craig's financial planner is preparing his balance sheet. Which would be considered an investmentasset?Which of the following statements concerning the valuation of assets on the balance sheet iscorrect?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 thisproperty owned?Which of the following property ownership regimes has right of survivorship feature?Whichofthefollowingstatementsconcerningincomeandexpenseslistedontheincomestatement is correct?A financial planner is currently preparing a client's cash flow statements. Which of the followingwould be classified as a financing activity?A client, Marie, age 35 came in today. When considering the targeted benchmarks, which of thefollowing 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 savingsrate?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 processcalled?Steve and his wife Christine recently opened an investment account with the intention of savingenough 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

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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 bondin 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 thebeginning 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. Whatamount 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 investmentaccount. 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 theaverage 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 besold for $125,000 in 5 years. What willDarla tell her?Donna plans to save for a vacation to Costa Rica in 18 months. She will be putting money into ashort-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... whatis 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 muchinterest will he pay this year?Bobby bought a house for $275,000 by putting 15% down and borrowing the balance. How muchprincipal did he pay in the current year?Cindy won the california lottery. She can take single lump-sum payments or payments for 25years. What rate of return would Cindy need to break even?

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Danny buys a house for $500,000 putting 20% down. His loan is for 30 months. How much is hisnormal payment?Frank and Stephanie have an 18 year old son who is going to college this year. What lump-sumamount 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 serialpayment at the end of the second year be?Which of the following statements concerning educational tax credits and savings opportunities iscorrect?Mitch and Jennifer have AGI of $125,000 and have not planned for children's education. Which isthe most appropriate recommendation?Tan & Chia are contemplating making a contribution to their grandchildren's education fund. Theyare 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?ThefollowingtypeoffinancialaidisrewardedtostudentswithalowEFC,andfundsareguaranteed to be available if a student qualifies.Roshan is a freshman at Florida State University where tuition is $4,000. His sister is a graduatestudent at another university where tuition is $25,000. What is the maximum tax credit his parentscan 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 ofthe following would you recommend?Peter wants to save some money for his daughter Gwen's education. How much must he save atthe end of each year?Kim and Nick are planning to save for their daughter Chloe's college education. How much musttheysaveattheendofeachyear,iftheywantto make theirlastsavingspaymentatthebeginning her her first year of college?

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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 throughthe education of the youngest child?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 hisgoal 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 duringretirement. All of the following areexpenditures 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 wagereplacement 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 through50, how much does Juan have in his retirement account?When Steve and Roslyn retire together, they wish to receive $40,000 additional income at thebeginning 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 tomeet 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?

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