AFC Developing Financial Plans 4

Question 1

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?

Accepted Answer

Use a future value of annuity formula

Answer

The future value of an annuity formula accounts for compounding returns over time to determine required periodic contributions.

Question 2

When prioritizing debt repayment in a financial plan, the avalanche method recommends paying off debts in which order?

Accepted Answer

Highest interest rate first

Answer

The avalanche method targets highest-interest debt first to minimize total interest paid over time.

Question 3

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?

Accepted Answer

$25,200

Answer

A 6-month emergency fund based on $4,200/month in essential expenses equals $4,200 × 6 = $25,200.

Question 4

Which type of financial goal is BEST described as 'saving $500 per month for the next 3 years for a home down payment'?

Accepted Answer

Intermediate-term goal

Answer

Intermediate-term goals typically have a 1–5 year time horizon, making a 3-year savings goal an intermediate-term objective.

Question 5

In a comprehensive financial plan, which section addresses the client's protection against catastrophic loss?

Accepted Answer

Risk management and insurance planning

Answer

Risk management and insurance planning specifically addresses protecting clients from large, potentially devastating financial losses.

AFC - Accredited Financial Counselor Practice Test

AFC - Accredited Financial Counselor Practice Test

AFC Developing Financial Plans 4