Developing Financial Plans Flashcards
7 cards from real AFC practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Developing Financial Plans flashcards as text
A client wants to retire in 20 years with $1.5 million. Assuming a 7% annual return, which approach best estimates the required monthly savings?
Answer: Use a future value of annuity formula
The future value of an annuity formula accounts for compounding returns over time to determine required periodic contributions.
When prioritizing debt repayment in a financial plan, the avalanche method recommends paying off debts in which order?
Answer: Highest interest rate first
The avalanche method targets highest-interest debt first to minimize total interest paid over time.
A couple earning $120,000 annually wants to build a 6-month emergency fund. What is the recommended target amount if their essential monthly expenses are $4,200?
Answer: $25,200
A 6-month emergency fund based on $4,200/month in essential expenses equals $4,200 × 6 = $25,200.
Which type of financial goal is BEST described as 'saving $500 per month for the next 3 years for a home down payment'?
Answer: Intermediate-term goal
Intermediate-term goals typically have a 1–5 year time horizon, making a 3-year savings goal an intermediate-term objective.
In a comprehensive financial plan, which section addresses the client's protection against catastrophic loss?
Answer: Risk management and insurance planning
Risk management and insurance planning specifically addresses protecting clients from large, potentially devastating financial losses.
A financial counselor is helping a client who has identified five financial goals but has limited resources. What is the most important step before creating the plan?
Answer: Help the client prioritize goals by urgency and importance
When resources are limited, prioritizing goals by urgency and importance ensures the plan addresses the most critical needs first.
Which document is MOST essential for a counselor to review when assessing a client's current financial position?
Answer: Net worth statement
A net worth statement summarizes total assets minus total liabilities, providing the clearest snapshot of a client's current financial position.