CFP Practice Questions - Fundamentals As a rule of thumb, it is best if consumer debt does not exceed: A. 20% of net income. B. 20% of gross income. C. 3 to 6 months of expenses. D. 36% of gross monthly income. - ✔✔A. 20% of net income This is a rule of thumb, along with the others that recommend housing debt be limited to 28% of gross income, and total debt not to exceed 36% of gross income. David has won the Illinois state lottery. He must decide whether to receive annual payments of $250,000 at the beginning of each year for the next 20 years, or a lump sum payout. What lump sum amount does David need to receive to equal the $250,000 payments for the next 20 years, if he can earn an 8% return on his investments, assuming inflation is 3%? $2,454,537 $2,650,900 $2,875,900 $3,307,511 - ✔✔$2,650,900 This is a present value of an annuity due problem. So, N = 20, I = 8, PV = ?, PMT = 250,000, FV = 0. Put your calculator in BEGIN mode and solve for PV. Inflation is not necessary in this calculation, lotto winnings income streams will not increase for inflation, they are the equivalent to a fixed annuity. Cathy and John Gonnerman would like to retire in twelve years. At that time, they would like to have accumulated $350,000 in today's dollars. To achieve this goal, they plan to invest a sum at the end of each year that will remain constant in purchasing power. They anticipate average inflation at 6% and have an after tax investment earning capacity of 9%. What payment is required at the end of the first year for them to reach their goal? $34,806.25 $26,394.63 $27,978.31 $50,104.88 $45,563.97 - ✔✔$26,394.63 The correct answer is B. The payments increasing each year will keep pace with inflation at the end of 12 years. N=12 i=[(1.09/1.06)-1] × 100=2.83 PMT=24,900 × 1.06=26,394 FV=350,000 Which of the following is/are true regarding registering as an investment adviser? I. Exceptions are not governed by the Investment Advisers Act of 1940 at all. II. Exemptions are governed by Section 206 of the Investment Advisers Act of 1940. III. Exceptions include advisers whose only clients are insurance companies. IV. Exemptions include banks and bank holding companies. I only. I and II only. II and III only.
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