FiCEP Finance 2

Question 1

What is the time value of money and how does it affect counseling recommendations?

Accepted Answer

A dollar today is worth more than a dollar in the future because of its earning potential

Answer

The time value of money states that money available today is worth more because it can be invested to earn returns.

Question 2

What is the difference between gross income and net income for budgeting?

Accepted Answer

Gross is total earnings before deductions; net is take-home pay and is the correct basis for budgeting

Answer

Gross income is total earnings before taxes and deductions; net income is what remains. Budgets should use net income.

Question 3

What is liquidity in personal finance and why does it matter?

Accepted Answer

It measures how quickly an asset can be converted to cash without significant loss of value

Answer

Liquidity refers to how easily an asset can be converted to cash. Emergency funds should be highly liquid.

Question 4

What is the Rule of 72 and how can counselors use it?

Accepted Answer

A formula to estimate how many years for an investment to double: divide 72 by the annual rate

Answer

The Rule of 72: divide 72 by the annual rate to estimate doubling time.

Question 5

What are the three main personal financial statements a counselor might create with a client?

Accepted Answer

Balance sheet, income and expense statement, and spending plan

Answer

The three foundational statements are the balance sheet (net worth), income and expense statement (cash flow), and spending plan (budget).

FiCEP - Financial Counseling Certification Program Practice Test