AFP

AFP practice questions, page 3 of 4, with answer review and explanations.

Question 11

Alexander and Irena, age 30 and 32 respectively, are married and have been working full-time for one year. They have a daughter, age 3, and are expecting their second child. They recently bought a home with a mortgage balance of $390,000 at 4% amortized over 25 years. Their financial planner is trying to determine their tolerance for risk. After completing the life-cycle analysis, how can their financial planner explain the stage in which the couple finds themselves and the risk tolerance associated with it?

  1. They are at the consolidation stage where they can tolerate moderate to high level of risk.
  2. They are at the accumulation stage where they can tolerate a high level of risk.
  3. They are at the financial independence stage where their tolerance of risk is low.
  4. They are at the gifting stage where their tolerance of risk is low.

Question 12

Ten years ago, Mavis had set up a will, naming his sister Maryam as the beneficiary of his estate. Mavis is now married to Sarah and has a son, Tim, age 3. Mavis has a mutual fund RRSP valued at $300,000 and an RRSP savings account worth $10,000 in the event of his death, Mavis would like to minimize taxes and transfer his mutual fund RRSP to Sarah and the other RRSP to Tim. What updates should his financial planner advise Mavis to make in order to achieve these goals?

  1. Transfer the mutual fund RRSP to spousal RRSP and name Tim as beneficiary for his RRSP savings account
  2. Name Sarah as beneficiary for the mutual fund RRSP and name Tim as beneficiary for his RRSP savings account
  3. Name Sarah as beneficiary for both the mutual fund RRSP and RRSP savings account
  4. Transfer the mutual fund RRSP to a testamentary trust with Sarah and Tim as beneficiaries

Question 13

Bianca purchased a permanent participating whole life insurance policy. In the same year, the insurer earned sufficient surplus to pay a dividend. How should Bianca utilize her dividends?

  1. Purchase a second insurance policy.
  2. Purchase paid-up additions.
  3. Withdraw the dividends as cash.
  4. Leave on deposit to accumulate, with no interest.

Question 14

When collecting expenditure data for a client, which item should a financial planner include as debt reduction on the cash flow statement?

  1. Credit card payments.
  2. Leased vehicle payments.
  3. Rent tor an apartment.
  4. Payments for life insurance premiums.

Question 15

If, during her retirement, Suzanne anticipates requiring $125,000 per year in today’s dollars over a period of 30 years, and anticipates a real return of 4%, what is the amount she will need to have saved by the time she retires?

  1. $3.61 million.
  2. $7.00 million.
  3. $2.16 million.
  4. $3.75 million.