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

Explanation:
Option 2 is correct. Reverse mortgages do not require monthly mortgage payments. Option 3 is correct. Both partners need to be over 55 years of age to be eligible is correct.

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

Explanation:
As a family with low income, they qualify to receive the quarterly GST payment.

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

Explanation:
They would owe $10,000 (the amount of the deductible) plus $4,500 ($90,000 balance x 5% co-insurance) equals $14,500. The deductible is always first when making the calculation.

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

Explanation:
Yulia is proactively trying to determine the amount of funds Sarah will need to have available from her investments in the near term. This would be a key determinant of the client's liquidity needs.

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

Explanation:
N=36, 1=3.5%/12=0.291667%, FV=0, PV=280,000
1st year PMT=-8,205
Balance of the loan = -8,205*PVIFA(I=3.5%/12,N=24)=189,909

N=24, I=4.5%/12=0.375%, FV=0, PV=189,909
2nd vear PMT=-8,289
Balance of the loan = -8,289*PVIFA(I=4.5%/12,N=12)=97,087

N=12, =5.5%/12=0.458333%, FV=0, PV=97,087 3rd year PMT=-8,334

AFP - Association for Financial Professionals Practice Test

AFP - Association for Financial Professionals Practice Test

FREE AFP Financial Management Questions and Answers