FREE AFP Financial Management Questions and Answers

Question 1

Francis, age 65, and his wife Elena, age 55, are both retired and are looking to access the value of their 3-bedroom bungalow. The couple can access the unencumbered value of the property with a reverse mortgage. What of the following is true regarding a reverse mortgage?

1. 65% of home equity can be converted on a tax-free basis
2. Do not require monthly mortgage payments
3. Both partners need to be over 55 years of age to be eligible
4. Both partners need to be over 60 years of age to be eligible

Accepted Answer

Answer

1 and 3 only

Answer

2 and 4 only

Answer

1 and 4 only

Answer

2 and 3 only

Question 2

Andrew and Leah have two children under the age of 15. They have a low family net income of $28,000 and cash flow is an issue. Last year, their parents gave them $1,000 each that they contributed to an RESP for their children. Their other assets include compound interest GICs due in 3 years and Andrew’s membership in his employer’s Group RRSP.  If Leah is completing a cash flow summary to protect her family’s expenditures, which item(s) will impact their cash flow?

Accepted Answer

Receipt of the GST credit

Answer

Payment of the Group RRSP contributions

Answer

Receipt of the Canadian Education Savings Grant (CESG) payment

Answer

Payment of GIC interest

Question 3

Janice and Susie bought a commercial property 5 years ago as an investment. They recently purchased property insurance that included both a deductible and coinsurance provisions. The deductible was $10,000 and for the co-insurance, they would have to pay 5% of any claim. If they were to make a claim on their commercial property for $100,000 in damages, how much would they have to pay themselves to cover the claim?

Accepted Answer

$14,500

Answer

$10,000

Answer

$15,000

Answer

$0

Question 4

Yulia, an advisor, asks her client Sarah about upcoming major expenditures in the next 24 months.  Yulia would like to anticipate any planned expenditures for Sarah that will alter her current financial plans.  What planning consideration is Yulia proactively anticipating in this scenario?

Accepted Answer

Liquidity Needs

Answer

Time Horizon

Answer

Income vs. Growth

Answer

Long Term Goals

Question 5

Ronald has taken out a car loan of $280,000 to be repaid over 3 years. Interest rate is at 3.5% for the first year, 4.5% for the second year, and 5.5% for the third year. Calculate Ronald's monthly payment in the first, second, and third years respectively.

Accepted Answer

$8,205; $8,289; $8,334

Answer

$8,205; $7,924; $7,421

Answer

$8,205; $12,221; $24,034

Answer

$8,329; $8,329; $8,329

Question 6

Which of the following types of business ownership imply that the nature of the liability of the owners) with respect to the business is a personal one?

1. Limited liability company.
2. Partnership.
3. Sole proprietorship.

Accepted Answer

2 and 3 only

Answer

3 only

Answer

1 and 2 only

Answer

1, 2 and 3

Question 7

Ruby is 60 years old and expects to live until at least age 80. She is considering a proposal of an annuity from an insurance company. For a premium of $250,000, the annuity will pay her $2,500 per month for the rest of her life until she passes away. Assume Ruby invests her savings in US Treasury Bills (US T-Bills) earning a rate of return of 3% p.a. Which of the following statements about the proposed annuity and the US T-Bills are CORRECT?

1. The rate of return on the annuity is higher than the rate of return on US T-Bills.
2. The rate of return on the annuity is the same as the rate of return on US T-Bills.
3. The rate of return on the annuity is lower than the rate of return on US T-Bills.
4. The present value of benefit payments to be made from the annuity is worth more than its premium.
5. The present value of benefit payments to be made from the annuity is worth less than its premium.

Accepted Answer

1 and 4 only

Answer

2 and 4 only

Answer

2 and 5 only

Answer

3 and 5 only

Question 8

Jonathan is applying for a personal loan from a local bank. As part of its standard procedure for loan assessment, the bank has asked him to provide his financial information. Jonathan provides the requested information as follows:

What is Jonathan's net worth?

Accepted Answer

$2,240,000

Answer

$1,880,000

Answer

$2,115,000

Answer

$3,750,000

Question 9

Mr. and Mrs. Yung, both aged 48 and each with a life expectancy of 90 have a current annual household income of $600,000. They would like to retire in 12 years' time on 70% of their current income adjusted for inflation. They also wish to leave an estate of $3 million to their only daughter, Tina, upon their deaths. The inflation rate is expected to be 3% p.a. In order to achieve the Yungs' objectives, how much capital should they accumulate at age 60 if the expected rate of return is 8% p.a.?

Accepted Answer

$10.08 million

Answer

$7.04 million

Answer

$7.29 million

Answer

$9.36 million

Question 10

Mr. and Mrs. Chan are a young married couple. The following shows some of their financial figures:

Based on the figures provided, calculate the debt ratio of the Chan couple.

Accepted Answer

0.14

Answer

0.12

Answer

0.18

Answer

0.21