ratios in evaluating financial solvency

Which of the following statements is/are true concerning use of ratios in evaluating financial solvency?

. . . (1) The savings ratio is useful in the evaluation of the balance sheet.

. . . (2) A cash surplus would typically produce a positive savings ratio.

. . . (3) A family could have a positive savings ratio at the same time its debt service ratio is also increasing

. . . (4) The liquidity ratio is an indicator of a family’s ability to pay current debts if there is an interruption in income.

. . . (5) One would be improving his financial situation when both savings and debt service ratios are increasing.

Select one:

a. (1), (2) and (5)

b. (1), (2) and (3)

c. (2), (4) and (5)

d. (2), (3) and (4)

e. (2) only

Question 2

The following are true statements concerning the process of financial planning for the CFP® practitioner:

. . . (1) The Certified Financial Planning Practitioner has social, legal and ethical responsibilities to his/her planning clients.

. . . (2) The Certified Financial Planning Practitioner is considered to have a fiduciary relationship with his/her clients.

. . . (3) Only planners practicing the comprehensive view of planning meet the definition of “financial planner”.

. . . (4) The planning process is finite, therefore a specific beginning point (the engagement) and an end (the delivery of the plan document) must be established in every planning relationship.

. . . (5) The planner, in some cases, may be able to save the client money by performing comprehensive tasks that had previously been assigned to other professionals, such as the client’s banker, accountant and attorney.

Select one:

a. All of the above

b. (1) and (3) only

c. (1) and (2) only

d. (1), (3) and (5)

e. (1), (2) and (4)

Question 3

Question text

The following would generally be required to “register” as investment advisor(s), based on the Investment Advisors Act of 1940:

. . . (1) An insurance agent who performs limited planning activities in conjunction with the sale of life insurance and who is compensated by commission on products sold from these planning activities.

. . . (2) A “Private Advisor” who maintains an office, and manages money on a fee-basis for only 25 clients; accepting new clients only if an existing client terminates the relationship, thereby creating a “vacancy”.

. . . (3) An accounting firm that establishes a separate division to provide financial planning services to their clients and who charges separately for these planning services.

. . . (4) A member of the clergy who provides financial planning and investment seminars for his parishioners free of charge.

. . . (5) A retired stock broker who sells private non-registered church bonds to residents of his state, and who is compensated by a fee, equal to a percentage of the bonds sold.

Select one:

a. None of the above

b. (1), (2) and (5)

c. (1), (3) and (5)

d. All of the above

e. (2) and (3) only

Question 4

Which of the following is NOT one of the seven principles of the CFP® Code of Ethics and Professional Responsibility?

Select one:

a. Fairness

b. Confidentiality

c. Integrity

d. Education

e. Objectivity

Question 5

The term most closely associated with quality of life is:

Select one:

a. Consumption

b. Money

c. Wealth

d. Standard of Living

e. Education

Question 6

The Rule of 78 is

Select one:

a. A method of calculating pay-off balance on some consumer loans which penalizes the borrower for early pre-payment

b. A precise method of calculating how long it takes an investment to double

c. A method of calculating compounded interest on installment loans

d. A banking ratio used to qualify mortgage loan applicants

Question 7

Which of the following are true statements, based upon your readings regarding the CFP® Code of Ethics and Rules of Conduct?

Select one:

a. The terminology <i> ‘fee only’ </i>may only be used by practitioners who charge an hourly fee for their services.

b. Prior suspension of a professional license for any reason will render a candidate unacceptable as a CFP® certificant.

c. The terminologies <i> ‘registrant’ </i>and <i> ‘certificant’ </i>are synonymous and may be used interchangeably when referring to an individual who has met all criteria for utilizing the CFP® credentials.

d. One of the grounds for disciplinary action is an act or omission that violates criminal laws, once the registrant has been convicted of said crime.

e. The majority of disciplinary actions addressed by the CFP® Board are the result of consumer-reported complaints.

f. None of the above

Question 8

The ratio that is calculated by dividing your total monthly loan payments by your monthly gross income is called the:

Select one:

a. Debt Service Ratio

b. Liquidity Ratio

c. Solvency Ratio

d. Income Ratio

Question 9

Which of the following are examples of open credit accounts?

. . . (1) Bank credit cards

. . . (2) Bank debit cards

. . . (3) Retail store credit cards

. . . (4) Secured credit cards

. . . (5) Rebate credit cards

Select one:

a. (1), (2) and (3)

b. (1) and (3) only

c. (1), (3), (4) and (5)

d. All of the above

e. (2), (4) and (5)

Question 10

The following would represent qualitative data obtained by a planner during a data-gathering session:

. . . (1) The primary and contingent beneficiaries of the client’s life insurance policies

. . . (2) The amount and type of life insurance included in the client’s employee benefits package

. . . (3) The age at which the client hopes to retire

. . . (4) The client’s established gifting strategy to his grandchildren’s college fund over the next 10 years

. . . (5) The fact that the client’s wife is expecting a significant inheritance within 10 years, which they feel will decrease their need to contribute currently to a retirement plan

Select one:

a. (3), (4) and (5)

b. (1), (3) and (5)

c. (3) and (5)

d. (1), (2) and (4)

e. (2), (3) and (4)

Question 11

The following is/are true statement(s) based on the CFP® Code of Ethics and Professional Responsibility and its Standards of Conduct:

. . . (1) The planner’s responsibility for “diligence” refers to his/her responsibility to perform an extensive analysis of any investment option recommended for the client.

. . . (2) The Principle of “professionalism” would dictate loyalty between planners and their peers, to include a planner’s discretionary silence if he/she is aware of a breech of ethics or securities laws by a fellow CFP® practitioner.

. . . (3) The CFP® certifcant’s responsibilities apply only to him/herself, since his/her staff members are held to a different (and lesser) standard of conduct due to the fact they are not considered “fiduciaries”.

. . . (4) Co-mingling of client funds with those of the practitioner is only permitted when full and complete disclosure has been provided both to the client and to the CFP® Board.

Select one:

a. (1) and (2) only

b. (1) and (4) only

c. None of the above

d. (3) only

e. (2), (3) and (4)

Question 12

For federal income tax purposes, “average tax rate” is computed as follows:

Select one:

a. Adjusted gross income divided by tax liability

b. Taxable income divided by tax withheld

c. Net tax liability divided by taxable income

d. Gross income divided by net tax liability

Question 13

Question text

Janet is a new client. She is considering buying a house and provided the following information during your data gathering process:

. . . Annual gross income: $100,000

. . . Annual Principal and Interest Payments on the anticipated mortgage: $14,000

. . . Annual anticipated Premiums for Homeowners and Flood Insurance: $1,000

. . . Annual Property taxes: $5,000

. . . Annual Living Expenses: $40,000

. . . Annual Credit Card Payments on existing debt: $12,000

. . . Annual Contribution to Retirement Account: $5,000

. . . Annual Student Loan Payments for next 10 years: $5,000

. . . Annual Car Payments for next 2 years: $6,000

Using the standard housing qualification ratios which we have discussed, which of the following comments would you say are true regarding Janet’s ability to qualify financially for this purchase?

Select one:

a. The second ratio is within normal/acceptable range, but the first ratio is not.

b. The first ratio is within normal/acceptable range, but the second ratio is not.

c. Both the first and second ratios are outside the normal/acceptable range.

d. Both the first and second ratios are within the normal/acceptable range.

Question 14

The promised rate of interest paid on a savings account or charged on a loan is the:

Select one:

a. Direct interest

b. Effective interest

c. Nominal interest

d. Discounted interest

Question 15

The following is/are true statement(s) regarding the interaction of factors in the economy:

. . . (1) Short-term rates are more noticeably impacted by changes in the fed funds rate than are long-term debt instruments, such as mortgage rates.

. . . (2) The discount rate is the lending rate between member Federal Reserve banks (primarily for overnight transactions).

. . . (3) Open Market Operations is the most important and most frequently used tool of the Fed because it can be quickly and easily initiated.

. . . (4) Disinflation occurs when the overall level of prices continues to rise, but the economy’s growth rate is slowing.

. . . (5) The Consumer Price Index reflects changes in wages, as well as certain goods and services such as food, energy, and housing.

Select one:

a. (1), (4) and (5)

b. (1), (3) and (4)

c. (2), (3) and (4)

d. All of the above

e. (2), (3) and (5)

Question 16

Of the following, which would be common and permissible methods for a client, who wants to invest most of his net worth of $100,000, to compensate a financial adviser for his/her advice concerning the purchase of mutual funds:

. . . (1) Hourly fee basis

. . . (2) A percentage of the assets to be managed

. . . (3) A percentage of the growth of assets over a period of time

. . . (4) Commission

Select one:

a. (1) and (4)

b. (1), (2) and (4)

c. (2) and (4)

d. (1), (2), (3) and (4)

Question 17

Which of the following statements is TRUE regarding the relationship axis between Present Value and Future Value?

Select one:

a. The greater the interest rate, the steeper the slope of the curve.

b. All other things being equal, the greater the number of periods, the lesser the length of the curve.

c. As interest rates are increased, the difference between the present value and the future value decreases proportionately.

d. The two major factors affecting the shape of the curve are the number of periods over which the compounding or discounting occurs and the amount of money to be invested.

e. In compounding, FV moves in the opposite direction from ‘n’ and ‘i’.

Question 18

The following statement(s) is/are true regarding the regulation of the securities and investment advisory business:

. . . (1) The Investment Advisors Act of 1940 represents the primary federal regulation applicable to the financial planning industry.

. . . (2) The Investment Advisors Supervision Co-Ordination Act established the Securities and Exchange Commission as the agency that would administer and enforce federal securities laws.

. . . (3) The financial monitoring provisions of the US Patriot Act only apply to planners employed by financial institutions such as banks and credit unions.

. . . (4) Under the Gramm-Leach-Bliley Act, planners who collect non-public information about clients must provide an annual privacy notice to each existing customer.

. . . (5) The Consumer Credit Protection Act prohibits lenders from discriminating on the basis of race, color, religion, age, sex, or marital status.

Select one:

a. (2) and (5) only

b. (1) and (4) only

c. (1), (3), (4) and (5)

d. (3), (4) and (5)

e. All of the above

Question 19

Which of the following is/are NOT true statement(s)?

. . . (1) The investment period (time) is more impactful than the rate of interest you can earn on your investments.

. . . (2) The government impacts consumers and businesses by regulation and taxation.

. . . (3) GDP refers to the total earnings of American workers during a year.

. . . (4) The CPI is the amount of goods and services each dollar buys at a given point in time.

. . . (5) Consumer choices ultimately determine the kinds of goods and services businesses will provide.

Select one:

a. 1 and 3

b. 1, 4 and 5

c. 4 only

d. 3 and 4

e. 2, 3 and 4

Question 20

Penalties for CFP® practitioners violating the CFP® Code of Ethics include:

. . . (1) Letter of admonition published and available to general public

. . . (2) Temporary suspensions lasting up to ten years

. . . (3) Permanent revocation of right to use CFP® marks

. . . (4) Fines of up to $10,000

. . . (5) Referral of violator to proper authorities for possible criminal charges

Select one:

a. All of the above

b. (1), (2) and (4)

c. (2), (3) and (4)

d. (1) and (3) only

e. (2) and (3) only

Question 21

Sally and Rob have been in their current home for about 5 years.  The value of their home is $175,000 and their current mortgage balance is $134,463.  They have seen homes in their area appreciate in value by approximately 5% per year, and they like their neighborhood and plan to stay in their home for at least another 10 years.  However, their current interest rate is 9%, so they have been shopping for a new mortgage to refinance their home while rates are low.  The best rate they have been quoted for a new loan is 6% for a 20 year loan with approximately $3700 in closing costs.  They want to finance these closing costs in their new mortgage.   What would Sally and Rob’s new monthly mortgage payment (principal and interest) be?

Select one:

a. $1,060

b. $990

c. $879

d. $1,029

Question 22

Which of the following is NOT a true statement concerning Time Value of Money Concepts?

Select one:

a. In compound interest, it is the amount of growth that accelerates, rather than the rate of growth.

b. If a deposit is made at the end of a compounding period, the account balance will be greater than if the deposit were made at the beginning of the compounding period.

c. The greater the frequency with which compounding or discounting occurs, the greater is the effect on the growth of a future value or the decline of a present value.

d. Future value increases as the interest rate or number of periods increases and falls if either of them is reduced.

Question 23

Which of the following would result in a decrease in current Net Worth on a client’s Balance Sheet? (You may disregard any potential future impact of depreciation/appreciation.)

. . . (1) Client paid for family vacation with funds from Money Market account

. . . (2) Client purchases new kitchen appliances with a credit card

. . . (3) Client owns shares in an indexed mutual fund, and the index declines

. . . (4) Client purchases new auto by paying 50% down from savings account and financing the remaining 50% on home equity line

. . . (5) Client sells shares of stock to pay off credit card balance

Select one:

a. (1), (3) and (4)

b. (1) and (3)

c. (2) and (3)

d. (1), (2) and (3)

e. (4) and (5)

Question 24

Which of the following statements concerning the anti-fraud provisions of the Investment Advisors Act of 1940 is correct?

Select one:

a. They do not characterize the investment adviser as a fiduciary.

b. They only apply in situations in which a security transaction has taken place.

c. They apply to all investment advisers even though an adviser may qualify under one of the exemption provisions.

d. They only apply if the investment adviser is a CFP.

Question 25

Which of the following is/are correct regarding the process of establishing the planner-client relationship?

. . . (1) The planner should not discuss compensation until the scope of the engagement is finalized.

. . . (2) It is not necessary to establish the scope of the engagement prior to data gathering, since some additional planning goals may be revealed in this process.

. . . (3) The process of defining the engagement is limited to the planner’s responsibilities.

. . . (4) Goals are better left to be identified once the scope of the engagement is finalized.

. . . (5) Establishing the duration of services to be provided is an integral part of the engagement process.

Select one:

a. (1), (2) and (3)

b. All of the above

c. (1), (3) and (4)

d. (5) only

e. (2) and (4)

Question 26

The following are methods by which the Fed interacts with our economy:

. . . (1) Purchases and sales of US Government securities

. . . (2) Influencing the rate of interest charged to consumers

. . . (3) Lowering or raising of discount rate charged to member banks

. . . (4) Periodically making adjustments to the CPI

. . . (5) Establishing the exchange rate of the US dollar, relative to specific foreign currencies

Select one:

a. (1), (4) and (5)

b. (1), (3) and (4)

c. All of the above

d. (2) and (3)

e. (1), (2) and (3)

Question 27

Which of the following accurately represent applicable general concepts impacting our economic planning environment?

. . . (1) GDP refers to the total earnings of American workers during a given year.

. . . (2) How long you invest is not nearly as important as the rate of interest earned on investments.

. . . (3) Cities with higher costs of living also experience higher rates of inflation.

. . . (4) Producer Price Index is the most commonly used indicator of inflation in the economy.

. . . (5) Fiscal policy controls the amount of money in circulation and is used to stimulate or contract economic growth.

Select one:

a. (2), (4) and (5)

b. (1) only

c. (1), (2) and (4)

d. None of the above

e. (3), (4) and (5)

Question 28

Malcolm buys a valuable painting for $20,000. He purchases it using $15,000 from his savings account and a $5,000 loan. How does the transaction affect Malcolm’s current financial statement? (You may disregard any potential future impact of depreciation/appreciation.)

. . . (1) His assets decrease, and his liabilities increase

. . . (2) Both his assets and liabilities increase

. . . (3) His net worth increases.

. . . (4) His net worth decreases

. . . (5) His net worth stays the same.

Select one:

a. (1) and (3)

b. (2) and (4)

c. (1) and (5)

d. (1) and (4)

e. (2) and (5)

Question 29

Kathy’s gross annual income is $58,900 and her monthly recurring debts are $325.  She can put a down payment of no more than $35,000, but does not want to pay PMI.  Based on the standard home affordability ratios, approximately what is the maximum price home that Kathy should be looking at?   (Assume that the taxes and insurance will be $1800 annually and that she will be able to obtain a 30 year loan with a 10% interest rate)

Select one:

a. $174,000

b. $225,000

c. $156,000

d. $139,500

Question 30

Which of the following statements is/are true regarding the preparation of a balance sheet?

. . . (1) Furniture purchased on credit should be included on the asset side of the balance sheet.

. . . (2) A monthly auto loan payment would be listed as a liability on the balance sheet.

. . . (3) All assets should be reflected on the balance sheet at their original cost.

. . . (4) Money loaned to a relative is a liability on the balance sheet.

. . . (5) Only the current month’s payment on a mortgage loan would be listed on the balance sheet as a liability.

Select one:

a. (1) only

b. (2) and (3)

c. (4) and (5)

d. None of the above

e. (1), (3) and (5)

Question 31

Which of the following statements regarding financial statements are correct?

. . . (1) A balance sheet shows your financial condition as of a specific selected date.

. . . (2) The income and expense statement provides a measure of financial performance over a period of time.

. . . (3) A budget is a detailed statement of what income and expenses occurred over a particular past period.

. . . (4) The net worth statement is most similar to the balance sheet.

. . . (5) A net cash flow deficit on the budget statement impacts the balance sheet.

Select one:

a. (2), (3) and (5)

b. (1), (2) and (3)

c. (2) and (4)

d. (1), (2) and (4)

e. All of the above

Question 32

Which of the following are TRUE statements regarding the financial planning process?

. . . (1) Current consumption is inversely related to saving for future consumption.

. . . (2) A good financial plan completed when one is in his/her 30’s will typically last a life time.

. . . (3) Two persons with equal average propensities to consume will have the same standard of living.

. . . (4) There is an emotional factor attached to money that can impact the planning process.

. . . (5) Defining goals is the final step in the personal financial planning process.

Select one:

a. 3 and 5

b. 1, 3 and 4

c. 1 and 4

d. 1, 2, and 3

e. 1 and 2

Question 33

Which of the following is NOT a true statement regarding the financial planning process?

Select one:

a. The planner’s responsibility includes motivating the client to take action on identified goals and priorities.

b. The planner should not challenge priorities established by the client.

c. External factors such as economic conditions that may impact the client’s goals and objectives must also be addressed in the planning process.

d. Specific assumptions regarding inflation and rate of return must be discussed and agreed upon by the planner and the client.

e. Products and services appropriate for implementation may be identified by the planner in his/her analysis.

Question 34

Which of the following statements is/are true regarding the economic concept of consumption?

. . . (1) Current consumption is inversely related to saving.

. . . (2) Two persons with equal average propensity to consume will not necessarily have equal standards of living because of differences in income.

. . . (3) Utility refers to the amount of satisfaction a person gets from buying a certain item, and is generally more important than actual cost of a consumed item.

. . . (4) From a financial planning perspective, the main determinant of quality of life is believed to be standard of living, in which wealth plays an important part.

. . . (5) Future consumption is deferred current consumption.

Select one:

a. (3) only

b. All of the above

c. (1) and (4)

d. (1), (2) and (5)

e. (3) and (4)

Question 35

Martha’s net worth is currently $200,000.  Last year her net worth was $175,000.  During the year she had net cash outflows of $42,000, which included her mortgage expenses.  Her total cash inflows were $45,000.  Her investments grew in value by $15,000 during the year.  The value of all other assets remained the same.  What amount of debt principal did she pay off during the year?

Select one:

a. None

b. $7,000

c. $10,000

d. $3,000

Question 36

Which of the following statements concerning compounding or discounting is/are correct:

. . . (1) Compounding is a process by which a present value grows to a larger future value.

. . . (2) As “N” or “I” in a time-value-of-money problem is increased, the discounted or present value of a future sum is reduced.

. . . (3) The term “discounting” is essentially a synonym for the term “compounding”.

. . . (4) In the compounding process, the future value grows by an increasing amount each period.

. . . (5) If compounding occurs semiannually, the future value of a sum of money will be lower than if compounding occurs annually.

Select one:

a. (3) and (5)

b. (2), (4) and (5)

c. (1), (2) and (4)

d. (1), (3), and (5)

e. (1) and (4)

Question 37

The following activities in the economy could be evidenced during the “Recovery Phase” of an economic cycle:

. . . (1) Lower production costs due in part to falling unit labor costs

. . . (2) Improvement in consumer sentiment

. . . (3) Temporary shortages of goods due to strong demand

. . . (4) Inventory liquidation to meet high demand

. . . (5) Business expenditures on inventory and capital increase

Select one:

a. (1), (3) and (4)

b. (4) and (5)

c. None of the above

d. (2) and (3)

e. (2) and (5)

Question 38

Bruce Morton’s firm, Morton Asset Management,  is registered with the SEC as an investment adviser. His associate, Bill Collins, sells only life insurance.  Which of the following is permissible usage?

Select one:

a. Bruce Morton, Registered Investment Adviser

b. None of the above

c. Both B and C

d. Bruce Morton, RIA

e. Bill Collins, Investment Counselor

Question 39

If Marilyn saves $2,000 at the beginning of each year for her grandson’s college fund, and it earns an annual average return of 10%, approximately how much money will she have at the end of the 10th year?

Select one:

a. $23,000

b. $31,600

c. $42,500

d. $35,000

Question 40

Which of the following would not be an appropriate entry in the “Assets” Section of your financial statement?

Select one:

a. A duplex located in another state from which you derive rental income

b. 50 shares of stock of a local business which is not traded on any of the national exchanges.

c. Your leased Toyota Four-Runner

d. Your 5 year old bass boat which was a gift from your father-in-law

e. Your primary residence which has $48,000 mortgage against it

Question 41

Larry Nelson has sold life insurance to many clients over the past eight years, receiving commissions on the sales.  He has decided to broaden the scope of his practice to include investment and tax planning advice, but will limit the investment products he sells to fixed and variable annuities and variable life insurance.  He plans to include the phrase “Tax and Investment Planning” on his business cards and anticipates charging a separate fee for his financial advice. Larry is registered with the SEC as an investment adviser.  Does he have to also register with the FINRA?

Select one:

a. Yes, because he plans to charge fees for advice

b. No, because he sells only insurance products

c. Yes, because he holds himself out to the public as a financial adviser

d. Yes, because he plans to sell variable annuities and variable life insurance

e. No, because he is already registered with the SEC which supervises FINRA

Question 42

Your clients, Mr. and Mrs. Walsh, have furnished the following information for 2010:

Salaries: $75,000

Interest Income from CDs: $4,000

Mutual fund dividends (all re-invested): $2,000

Rental Income: $3,800

Savings and Investment Contributions: $4,200

Non-Discretionary Expenditures: $28,900

Discretionary Expenditures: $24,100

Based on this information, calculate the total inflow/outflow for the year for Mr. and Mrs. Walsh that would be reflected on their Cash Flow Statement.

Select one:

a. $82,800 / $59.200

b. $82,800 /  $57,200

c. $84,400 / $57,200

d. $84,800 / $59,200

Question 43

Your client, Marlon, is currently earning a salary of $20,000.  He has asked you how much he will need to be earning in 10 years to keep up with inflation, assuming an average annual inflation rate of 5%

Select one:

a. $31,604

b. $30,196

c. $32,577

d. $27,512

Question 44

How much would Luke have to save at the beginning of each month to have a million dollars by the time he retires in 20 years if his money can earn an average annual return of 9%?  (You may assume that he is starting from scratch.)

Select one:

a. $1,486

b. $1,087

c. $2,014

d. $3,652

Question 45

According to the CFP® Code of Ethics, everything must be disclosed in writing except:

Select one:

a. Date and duration of plan

b. Names of each party involved

c. Full responsibilities and obligations of each party

d. Terms of terminating the agreement

Question 46

If a client uses his CD to pay off the outstanding balance on his credit card, what is the immediate impact to his current net worth?

Select one:

a. It will decrease

b. It will increase

c. It will stay the same

Question 47

How will the preceding transaction (in question #19) affect the client’s current debt service ratio?

Select one:

a. It will decrease

b. It will stay the same

c. It will increase

Question 48

The Clark family disclosed the following information on their data gathering form:

(You may assume that there are no other assets or liabilities to be considered.)

Income

Gross Monthly Income

$ 4,000

Monthly Take Home Pay

$ 3,000

Assets

Checking Account $ 1,000

Passbook Savings $ 500

Money Market $ 1,000

Retirement Account

(Vested Balance)

$ 20,000

(Market Value)

$ 30,000

Residence

(Market Value)

$100,000

(Basis)

$ 80,000

Personal Property

.

$ 10,000

Boat

.

$ 10,000

Liabilities

Current Liabilities:

. . . . Private School Tuition Balance

$ 150

. . . . Homeowner’s Insurance Premium

.

$ 314

. . . . Major Credit Card

@ $50/month

$ 400

. . . . Auto Repair Bill

.

$ 150

. . . . Boat Loan

@ $110/month

$ 1,000

Long Term Liabilities:

.

.

. . . . Primary Residence Mortgage

@ $432/month

$ 75,000

What is the amount of the Clark’s net worth?

Select one:

a. $65,486

b. $75,486

c. $175,486

d. $63,986

Question 49

Using the information from the Clark’s data gathering form in question #33, the Clark’s liquidity ratio shows that they could maintain their current debt structure in the event of an emergency for about _____ months.

Select one:

a. 8

b. 23

c. 18

d. less than 5

Question 50

Question text

(Continuing to use the information from the Clark’s data gathering form in question #33…) The Clarks want to purchase an auto. They are considering refinancing their home. They plan to borrow $90,000, with which they will liquidate all existing liabilities reflected in the case study (both current and long term); and they will purchase an $11,000 auto. They have negotiated a 7% loan for 30 years with $1,986 in closing costs. Which of the following statement are true regarding the results of the financial repositioning for the Clarks?

. . . (1) Based on the standard debt-service ratio qualification standards, the Clark’s income would qualify them for this loan.

. . . (2) The anticipated loan to value ratio would require the payment of private mortgage insurance.

. . . (3) Following the completion of these transactions, the Clark’s net worth would decrease (not considering depreciation).

. . . (4) Following these transactions, the Clark’s solvency ratio would be improved.

Select one:

a. (2), (3) and (4)

b. (1) and (2)

c. (1), (2) and (4)

d. All of the above

e. (1), (2) and (3)