FREE Certified Trust and Financial Advisor MCQ Questions and Answers

Question 1

An excess of spending over revenue that results in both insufficient finances and a decline in net worth is known as:

Accepted Answer

Cash deficit

Answer

The definition clearly describes a "cash deficit." This occurs when an entity's expenditures exceed its income or revenue over a specific period, leading to a shortage of available funds. This imbalance directly results in insufficient finances and a reduction in the entity's overall net worth.

Question 2

The ability to pay current debts is calculated by dividing total liquid assets by total current liabilities. It is:

Accepted Answer

Liquidity ratio

Answer

The definition provides both the purpose and the calculation for the "liquidity ratio." This financial metric assesses an individual's or company's ability to meet short-term obligations by comparing readily convertible assets (liquid assets) to current debts (current liabilities). A higher ratio indicates a stronger capacity to cover immediate financial commitments.

Question 3

Total net worth divided by total assets determines how vulnerable a company is to bankruptcy:

Accepted Answer

Solvency ratio

Answer

The definition describes the "solvency ratio," which measures a company's ability to meet its long-term financial obligations and indicates its overall financial health. By dividing total net worth by total assets, this ratio assesses the proportion of assets financed by equity rather than debt, thus reflecting the company's vulnerability to bankruptcy. A higher solvency ratio suggests greater financial stability.

Question 4

The relative amount of cash surplus achieved during a given period is shown by dividing cash surplus by net income (after taxes) as follows:

Accepted Answer

Savings ratio

Answer

The definition describes the "savings ratio," which quantifies the proportion of income that an individual or entity saves. By dividing the cash surplus (money left after expenses) by net income, this ratio indicates the relative amount of income being set aside for future use or investment. It's a key indicator of financial prudence and future financial security.

Question 5

The ability to pay off debts on time is indicated by the total monthly loan payments divided by the gross (before-tax) income for the previous month.

Accepted Answer

Debt service ratio

Answer

This definition precisely describes the "debt service ratio," a financial metric used to assess an individual's or entity's capacity to manage their debt obligations. By comparing total monthly loan payments to gross monthly income, it indicates the proportion of income dedicated to servicing debt, thereby reflecting the ability to pay off debts punctually.

CTFA - Certified Trust and Fiduciary Advisor Practice Test

CTFA - Certified Trust and Fiduciary Advisor Practice Test

FREE Certified Trust and Financial Advisor MCQ Questions and Answers