It Is Expected That the Financial Planning Process Gives a More

question 26

Multiple Choice

It is expected that the financial planning process gives a more accurate estimate of financial needs and results in somewhat lower values than the ones obtained by the present value of the lost income stream.This expectation is based on the assumption that:

• A)the financial planning process underestimates the needs by assuming that the dead person incurs some expenses for a particular period after death.
• B)the lost income approach overestimates the needs by assuming that the dead person stops consuming.
• C)the lost income approach overestimates the needs by assuming that the dead person incurs some expenses for a particular period after death.
• D)the lost income approach underestimates the needs by assuming that the dead person incurs some expenses for a particular period after death.
• E)the financial planning process overestimates the needs by assuming that the dead person stops consuming.

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Definitions:

Systematic Variance

The portion of a security's return variance that is attributable to macroeconomic factors and cannot be diversified away.

Total Variance

The sum of squared deviations from the mean, indicating the overall level of variability within a dataset.

Correlation Coefficient

A statistical measure that calculates the strength and direction of a linear relationship between two variables, ranging from -1 to 1.

Diversification

A strategy to reduce risk by allocating investments among various financial instruments, industries, and other categories.