CFP Section Fundamentals
Joe, a CERTIFIED FINANCIAL PLANNERTM professional, has prepared financial statements and conducted ratio analysis. Which step in the financial planning process is he in? A: Develop the Financial Planning Recommendations. B: Analyzing the Client's Current Course of Action and Potential Alternative Courses of Action C: Understanding the Client's Personal and Financial Circumstances. D: Implement Financial Plan Recommendations.
B
The balance sheet equation is: A: Total Assets / Total Liabilities = Net Worth. B: Total Assets × Total Liabilities = Net Worth. C: Total Assets - Total Liabilities = Net Worth. D: Total Assets + Total Liabilities = Net Worth.
C
Which of the following approaches provides the planner and client with a methodology in order to reach goals by covering risks, short term and long term savings and investments: A: Pie chart. B: Ratio analysis. C: Three panel approach. D: The strategic approach.
C
Which of the following is/are a Duty Owed to Clients as part of the CFP Board Standards of Conduct? 1. Independence 2. Professionalism 3.Competence 4. Fairness A: I only B: II only C: II and III D: I, II, III, and IV
C
A CFP® professional agrees to be bound by Continuing Education (CE) Requirements established by Certified Financial Planner Board of Standards. The CE Requirements for a regular continuing professional (not a new certificant or a certificant who has been inactive) are as follows: A- 40 hours of CE every year. B- The number of CE hours required by other designations the certificant may hold. C- 30 hours of CE every year. D- 30 hours of CE every two years.
D
A client in the asset accumulation phase is characterized by: A: Discretionary cash flow for investing is low and debt to net worth is low. B: Discretionary cash flow for investing is high and debt to net worth is high. C: Discretionary cash flow for investing is high and debt to net worth is low. D: Discretionary cash flow for investing is low and debt to net worth is high.
D
Which of the following terms for defining a CFP® professional's method of compensation are not allowable according to the CFP Board? A- Fee contingent B- Fee only C- Fee based D- Sales related compensation
Solution: The correct answer A. Fee-Only, Fee-Based and Sales Related Compensation are defined (Duties owed to clients 12 a 1.2 and b).
Sue is a CFP® professional with her own financial planning practice. Bob was referred to Sue, as Bob was looking to purchase a disability insurance policy. Sue gathers data from Bob to complete an application to submit to the insurance underwriter. Sue also explains, in detail, the tax implications of purchasing a private disability insurance policy. What duty of care does Sue owe Bob, according to the CFP Board of Standard's Code of Ethics? A- Sue is required to provide product recommendations that are suitable for Bob. B- Sue owes Bob the duty of a fiduciary. C- Sue must place Bob's interest ahead of her own but does not owe Bob a fiduciary duty of care. D- Sue is not engaged in the material elements of financial planning and does not owe Bob any duty of care.
Solution: The correct answer B. Sue owes Bob a fiduciary duty when recommending financial assets or engaging in financial planning. Her fiduciary duty requires adhering to a standard of care, loyalty and following client instructions ((Duties owed to clients 1.a, 1.b and 1.c) A is incorrect. While a suitability standard is required from an insurance regulation standpoint a CFP® professional owns a fiduciary duty of care to clients. C is incorrect. Sue owes a fiduciary duty of care. D is incorrect. A fiduciary duty is owed when a CFP® professional engages a client to sell financial assets or perform financial planning.
When does a material conflict of interest exist for CFP® professionals? A- When it could cause harm or impact potential advice B- When it causes a material change in the scope of a client relationship C- When it requires that the services of another professional be included in a client engagement D- When it causes a material disagreement between the CFP® professional and the client
Solution: The correct answer is A. Duties owed to clients (5 a) defines material conflicts as ones that could impact advice or cause harm.
When should you provide your client with Form ADV? A- After entering into an agreement to provide financial planning. B- As part of the financial planning engagement disclosures. C- Prior to purchasing any securities as part of the plan implementation. D- As part of the data gathering process.
Solution: The correct answer is B. Form ADV is appropriate to be part of multiple written documents governing the financial planning services that will be provided, as part of the engagement letter. A is incorrect because a CFP® professional is required to make certain disclosures prior to entering into a financial planning agreement. All required disclosures are not satisfied by providing Form ADV. C is incorrect because Form ADV should be provided well before the implementation phase. D is incorrect because Form ADV is not appropriate during the data gathering phase. Form ADV is appropriate when providing information to a client is part A of the Standards.
Which of the following would most likely require a CFP® professional to follow practice standards for the financial planning process with their clients? A- Activity related solely to the sale of a specific category of products B- Investment advisory services as defined by applicable state or federal regulations C- Completing an application and opening a brokerage account D- Acting as an instructor in a financial planning continuing education class
Solution: The correct answer is B. Investment advisory services are procedural and require a discussion of goals, risk and optimization. Option A - It does not rise to financial planning based on the relevant elements and integration factors. Option C - It does not rise to financial planning. Don't confuse with "Know Your Customer" rules. Option D - Education does not need to follow the FP process as there are no relevant elements or integration of client information.
A small business owner wants to create a business succession plan, but the CFP® professional does not have any experience with succession planning for small businesses. However, his colleague has extensive experience. What should the CFP® professional do? A- Turn down the engagement B- Disclose to the Client the use of a third party and prepare the plan, with the help of his colleague as a resource C- Explain to the business owner that it's outside the scope of his expertise D- Do the necessary research and figure out how to prepare a succession plan
Solution: The correct answer is B. The duty of competence requires the planner to either refer the client to an expert or bring an expert into the engagement. Preparing the plan with the help of an expert is acceptable under the Code and Standards. A is incorrect because the Code of Ethics and Standards of Conduct simply require the planner to either refer the client to an expert or bring an expert into the engagement. C is incorrect because the planner can still accept the engagement, but must bring an expert into the engagement. D is incorrect because the principle of competence requires the planner to refer the client to an expert or bring an expert into the engagement.
A CFP® professional is a Registered Investment Advisor, managing $120,000,000 in assets. One of the CFP® professional's clients sends a complaint letter to the CFP® professional, complaining that certain trades were not properly executed. During the investigation, it is discovered that the client never received the firm's Form ADV. Which governing body has ultimate authority over lack of regulatory disclosure for this matter (CFP® Certification Examination, released 8/2012)? A- FINRA B- CFP Board C- The firms' compliance department D- SEC
Solution: The correct answer is D. The SEC regulates form ADV. A is incorrect because FINRA does not regulate form ADV, the SEC does. B is incorrect because the CFP Board does not regulate form ADV, the SEC does. C is incorrect because the firm's compliance department does not regulate form ADV, the SEC does.
Salina, a CFP® professional, agreed to prepare a financial plan for Rodriquez, who was 85 years old at the time. Salina did not prepare the financial plan. Salina requested and received from Rodriquez a $1,000 loan. Salina recommended that Rodriquez invest $75,000 in a viatical settlement agreement investment. The amount comprised approximately two-thirds of Rodriquez's life savings and was estimated to lead to a profit in five years. Rodriquez filed a grievance with the CFP Board. According to the securities regulator in the state where Salina provided services ("State"), only a licensed broker-dealer is authorized to sell viaticals in the State. Salina was not licensed as a broker or dealer in the State. Salina did not respond in a timely manner to the following communications by CFP Board: 1) a Notice of Investigation; 2) a Second Request Letter; 3) a telephone call; 4) an Order to Show Cause; and 5) CFP Board's Complaint. In a telephone conversation with CFP Board, Rodriquez informed CFP Board that Salina was aware of CFP Board's investigation and had asked him to withdraw his grievance. According to the CFP Board's disciplinary procedures, which of the following is the most lik
Solution: The correct answer is D. The following answers are taken from pre-June 2020 rule changes but reflect the outcome of an actual disciplinary case. The Commission deemed that the above facts and violations be admitted because Respondent did not file an Answer to the Complaint. The Commission issued an Order of Revocation pursuant to Article 7.4 of the Disciplinary Rules, revoking Respondent's right to use the CFP® marks, CERTIFIED FINANCIAL PLANNER™ and certification marks. A is false since the Board may act upon violations of the Code of Ethics whether or not a legal conviction has occurred. B is false because failure to respond to the Board's inquiries regarding serious violations of the Code results in revocation. C might have been a valid answer had Salina responded to the Board's inquiries. After June 2020 rule changes, the outcome of the case would likely have been similar for the CFP® professional. Salina did not act as a fiduciary, required when selling a financial asset. Salina did not act with integrity, competence, manage conflicts of interest or comply with the law.
Calculate the IRR of a machine that is purchased for $5,000, sold at the end of year 4 for $2,500, and produces the following cash flows: Year 1) $700 Year 2) $800 Year 3) $900 Year 4) $1,000 A: 5.3% B: 6.0% C: 6.5% D: 7.3%
The correct answer is A. HP 10BII or HP 10BII+ 5000 +/- CFj 700 CFj 800 CFj 900 CFj 1,000 + 2,500 CFj Orange shift key IRR/YR Answer: 5.3258 HP 12c 5000 CHS g CF0 700 g CFj 800 g CFj 900 g CFj 1,000 + 2,500 g CFj f IRR
Trusts can be very beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a special needs person. Which of the following types of trusts would generally be used to protect an award from winning a lawsuit or an inheritance on behalf of a special needs child? A: Family trust or third party trust B: A trust under 42 U.S.C. Sec 1396p(d)(4)(A) C: A pooled trust D: A qualified trust
The correct answer is B. A trust under 42 U.S.C. Sec. 1396p(d)(4)(A) can be used to hold assets that are owned by the beneficiary, such as from a lawsuit or an inheritance.
Which of the following debts are discharged in bankruptcy? A: Student loans. B: Child support. C: Alimony. D: Consumer debt.
The correct answer is D. Consumer debt is discharged during bankruptcy. All the other choices are not discharged.
Which of the following is/are true regarding revocation? 1. Revocation is permanent unless due to a felony conviction that is subsequently overturned. 2. A CFP® certificant may petition CFP Board for reinstatement after revocation if the certificant proves that he or she has been rehabilitated by clear and convincing evidence. 3. Suspension is not always permanent. A: I and II B: III only C: II and III D: I only
The correct answer is D. May petition the Board if the marks are suspended for more than one year. If a felony conviction is overturned, the certificant may petition for reinstatement, but it is not guaranteed. Suspension is never permanent, it either ends in revocation or re-instatement of CFP® Mark use.
Anthony has been investing $1,000 at the end of each year for the past 20 years. How much has accumulated assuming he has earned 10.5% compounded annually on his investment? A:$20,303.72. B:$23,349.28. C:$33,060.04. D:$60,630.81.
The correct answer is D. N = 20 I = 10.5 PV = 0 PMT = 1,000 FV = ? 60,630.8080
Kasey wants to give her daughter $25,000 in 8 years to start her own business. How much should she invest today at an annual interest rate of 7.5% compounded annually to have $25,000 in 8 years? A: $12,802.95. B: $13,506.72. C: $13,347.70. D: $14,017.56.
The correct answer is D. N = 8 I = 7.5 PV = ? PMT = 0 FV = 25,000 14,017.5558
Balance sheet liabilities should be recorded at their: A: Current outstanding balance. B: Fair market value. C: Depreciated value. D: Appraised value.
A
If your financial planning client talks about situations, expresses emotions verbally, enjoys listening (but cannot wait to talk), and tends to move lips or sub-vocalize when reading, then, their learning style is most likely A: Auditory. B: Visual. C: Both auditory and visual. D: None of the choices.
A
Which of the following approaches provides the planner and client a visual representation of their balance sheet and budget: A: Pie chart. B: Ratio analysis. C: Three panel approach. D: The strategic approach.
A
Which of the following statements concerning investment strategies to accomplish education-funding goals is (are) correct? 1.The time horizon is probably the most important factor (besides risk tolerance) to consider in deciding what securities to invest in, how much to invest, and when to invest. 2. QSTPs generally increase the risk level of investment the closer a child gets to college. A: I only B: II only C: Both I and II D: Neither I nor II
A
Which of the following is/are not a principle of the Board of Standards Code of Ethics and Professional Responsibility? 1. Integrity 2. Fairness 3. Diligence 4. Continuing Education A: I only B: II only C: II and IV D: I, II and III
C
Which of the following statements concerning a CFP® professional's disclosure of confidential client data is generally correct? 1. Disclosure may be made to any state agency with subpoena. 2. Disclosure may be made to any party on consent of the client. 3. Disclosure may be made to comply with an IRS audit request. A: I only B: II only C: I and II D: I, II, and III
C
Ralph, a CFP® professional and independent registered investment adviser, has been working with his new client Jack over the last few months. He has completed all required disclosures and provided all information required for a financial planning engagement. Jack is 32, married, and has 3 children. Ralph discussed Jack's insurance coverage following a thorough review of Jack's policies and recommended Jack purchase a disability policy, additional term life insurance through his employer and a personal liability umbrella policy. Ralph also performed a retirement needs analysis and developed an investment plan he believes will help Jack achieve his goals. While presenting the retirement and investment plan, Jack mentioned that he was rejected for the life insurance for medical reasons that he does not wish to discuss with Ralph. To comply with the Practice Standards of the Code of Ethics and Professional Conduct Ralph must: A- Gather appropriate information from Jack's spouse to determine if Jack's condition may affect the retirement and investment plan. B- Inform Jack that without more information on his medical condition Ralph will not be able to properly address his situation and he wo
Solution: The correct answer B. B is the best answer. Ralph should encourage the client to share the cause of the rejection as a terminal issue would drastically change planning. Health and longevity are factors in retirement planning. It would also need to be taken into account in investment selection. Time horizons factor into asset selection. The planner would need to understand the health issue to appropriately allocate cash and investments with appropriate timelines. The planner cannot use the retirement or investment analysis created prior to knowing about the client's health issue since the underlying assumptions may have changed. Ralph should start the retirement and investment analyses over using new assumptions or re-define the engagement. Ralph is then required (Under element six of Financial Planning and the Application of Practice Standards for The Financial Planning Process) to not enter into an engagement, terminate the engagement, limit the scope of engagement or limit services provided to the client.
Sally, a CFP® professional, was discussing the prior year's investment results with her long standing client Deidra as part of their semi-annual meeting to review the status and progress of a comprehensive financial plan Sally had developed for Deidra a number of years ago. The initial plan included a risk tolerance assessment of moderately aggressive for Deidra and over the years, her reactions to market ups and downs had supported this assessment in Sally's opinion. As a result, well diversified equity investments comprised about 70-75% of Deidra's portfolio, on average. It had not been a good year in the market. The S&P 500 had declined slightly more than 30%, as the economic recovery faltered and concerns about the European debt crisis mounted. Deidra's portfolio lost 35% of its value over the last 12 months. Deidra became very concerned as she began to recognize the extent of the losses, and was bordering on becoming hysterical. As they talked, Sally discovered that Deidra had become pregnant, was getting married next month and had planned to use some of her investments to help support the family while she stayed home for the first six months of the child's life. According to the Co
Solution: The correct answer D. The question is looking for the false statement. A CFP® professional would need to create a new financial planning engagement to add Deidra's new husband as a client. B and C are conversation that will need to be had as part of Monitoring and Updating. However a new scope of engagement is not required when a client changes their risk aversion.
Derek Faust, age 47, has worked for XYZ Company the past 12 years. XYZ Company has lost a major contract and must begin downsizing immediately. Derek was laid off yesterday. What should Derek do first? A- File for unemployment benefits. B- Rollover his company 401(k) plan. C- Convert disability coverage under COBRA provisions. D- Notify the bank holding the mortgage on his house.
Solution: The correct answer is A. All the other options have 30 or more days before elections must be made, but Derek should secure his cash flow resources as soon as possible.
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.
Solution: The correct answer is A. As a rule of thumb, consumers should not be spending more than 20% of their take home pay (net income) on consumer debt (credit cards). This rule of thumb should factor along with the other recommendations for housing debt to be limited to 28% of gross income, and total debt not to exceed 36% of gross income.
Gilligan's 52-year-old father opened a Uniform Transfers to Minors Act (UTMA) account for Gilligan, to help save for college. Gilligan is age 16, and plans on matriculating in two years. Which of the following is an accurate statement regarding college savings vehicles? A- Gilligan could own bonds, cash or securities in the UTMA account, but the income may be subject to kiddie tax. B- Gilligan's father can use his traditional IRA to make a tax-free distribution when paying college costs. C- A scholarship that paid for tuition, fees, room, board, books and a travel stipend would be income tax-free. D- Room and board are not considered qualified distributions from a Section 529 college savings plan.
Solution: The correct answer is A. B is incorrect. IRA distributions are taxable when used for college. However, they are not subject to the 10% early withdrawal penalty. C is incorrect. Amounts used for incidental expenses, such as room and board, or travel, are taxable. D is incorrect. Room and board are qualified expenses.
A CFP® professional and an advisor who is advertising multiple financial designations are having a discussion about the differences between CFP® certification and other designations. The CFP® professional explains the difference between the CFP® marks and the other designations. Is this conversation allowed under the CFP Board's Code of Ethics and Standards of Conduct? A- Yes, if everything that the CFP® Professional said was factual. B- Yes, because CFP® marks are the superior designation. C- No, because this conversation violates professionalism. D- No, because CFP Board restricts discussing other professional designations.
Solution: The correct answer is A. The CFP® professional may discuss the differences between the CFP® certification and other designations as long as the statements are factual and accurate. B is incorrect because the code of ethics require objectivity, which precludes a CFP® professional from making this statement. C is incorrect because the principle of professionalism requires a certificant to behave with dignity and courtesy to clients, fellow professionals others in business-related activities. Describing factual differences between the CFP® mark and other designations is not a violation of professionalism. D is incorrect as the code ethics are meant to differentiate those advisors that have demonstrated a higher level of competency through education, exam, experience and practicing in compliance with the code of ethics.
Doug, a CFP® professional, has enjoyed a 10-year relationship with Stephen and Danielle, a married couple. Doug is compensated exclusively from hourly financial planning fees. Both Stephen and Danielle are Doug's clients. Danielle calls Doug and shares that she is planning on leaving Stephen and filing for divorce within the next week. Danielle asks Doug to prepare a balance sheet and develop recommendations to help protect Danielle's assets from creditor claims. Stephen is unaware of Danielle's divorce plans. Which of the following describes Doug's best course of action? A- Withdraw from the engagement. B- Call Stephen and ask for his authorization to work on a separation plan. C- Offer to act as mediator between Stephen and Danielle. D- Move forward creating recommendations for Danielle.
Solution: The correct answer is A. Under the Standards of Professional Conduct, Doug is obligated to act in the best interests of his clients. Since Doug is practicing financial planning, he is also obligated to carry a fiduciary duty to both Stephen and Danielle. Moving forward with recommendations for Danielle would breach his fiduciary duty to Stephen. Doug is not a counselor or mediator, and would be over-stepping the financial planning relationship by acting as such.
In which of the following circumstances would a CFP® professional owe a client a fiduciary standard of care? A- The CFP® professional recommends a Roth IRA for a client as part of a comprehensive financial plan. B- The CFP® professional conducts an educational seminar on the advantages of contributing to a 401k plan. C- The CFP® professional explains mutual fund fees to a client. D- The CFP® professional, who is also a broker, executes a directed stock trade for a client.
Solution: The correct answer is A. When recommending specific actions or strategies for a client, the CFP® professional is acting in a fiduciary capacity. General financial information is not considered financial advice. Responses to directed orders will not be financial advice.
John and Jane have a net worth of $20,000 and total assets of $150,000. If their revolving credit and unpaid bills total $8,000, how much are their total liabilities? A: $122,000 B: $130,000 C: $138,000 D: $150,000
Solution: The correct answer is B. A - L = Net Worth 150,000 - L = 20,000 L = 130,000
Which of the following is/are not a duty owed by a CFP® professional under the CFP Board Code of Ethics and Standards of Conduct? A- Duties Owed to CFP Board B- Duties Owed to other CFP® Professionals C- Duties Owed to Clients D- Duties Owed to Firms and Subordinates
Solution: The correct answer is B. A CFP® professional has duties owed to the Client, CFP Board, their firm and subordinates. CFP® professionals must act in a manner that reflects positively on the profession and certifications, though there is no direct obligation for other financial planning professionals.
If the Federal Reserve wants to increase interest rates, which of the following actions might they take? A: Buy government securities. B: Sell government securities. C: Decrease the reserve requirement D: Decrease the prime lending rate.
Solution: The correct answer is B. To increase interest rates, the Fed needs to decrease the money supply or sell government securities. If the fed buys government securities, the money supply will increase and interest rates will decrease.
John, age 58, has been using a CFP® practitioner for the last 15 years. The CFP® practitioner recently retired and, as a result, John has decided to engage Tom, who is also a CFP® practitioner, but unaffiliated with John's original practitioner. After analyzing and evaluating John's current financial position, Tom made his recommendations. Those recommendations differed from that of John's original practitioner. According to Tom's Duty to John, how should differences in recommendations be handled? A- The Code of Ethics requires a CFP® practitioner to act in a professional manner and recommendations should not conflict with other CFP® practitioners. B- Significant differences in recommendations between planners are acceptable, as long as the recommendations reasonably meet the client's goals, needs and priorities. C- The Code of Ethics require Tom to contact John's prior practitioner to reconciled differences in their recommendations. D- Tom must exercise professionalism, limit the scope of the engagement to recommendations that are consistent with the John's previous practitioner.
Solution: The correct answer is B. Practice Standards 4(b) do not require uniform recommendations between advisers. The basis for making the recommendation, including how the recommendation is designed to maximize the potential to meet the Client's goals, the anticipated material effects of the recommendation on the Client's financial and personal circumstances, and how the recommendation integrates relevant elements of the Client's personal and financial circumstances.
Which of the following is not a Conflict of Interest that must be disclosed? A- The offering of proprietary products and Material limitations on the universe of products. B- The CFP® professional's public disciplinary history. C- The receipt of additional compensation when the Client increases the amount of assets under management. D- Receipt of third-party payments for recommending products.
Solution: The correct answer is B. Public disciplinary history must be disclosed to a Client when providing Financial Advice, but it is not an example of a Conflict of Interest.
The husband of one of your clients had his wallet stolen. He had five credit cards in his wallet when this occurred. He reported the cards as missing the next morning, but the following transactions had already occurred: (JCPenney - $350) (MasterCard - $100) (VISA - $425) (Sears - $25) (Marshall Fields - $685) What is the client's liability for the fraudulent transactions on these cards? A- $50 B- $225 C- $250 D- $1,235
Solution: The correct answer is B. The maximum on any missing card that the client would have to pay would be $50. But remember the thief only charged $25 on the Sears Card. Therefore, the total is 4 cards times $50 plus $25, which equals $225. If the physical card is stolen, the maximum the holder can be held responsible for is up to $50 in fraudulent charges. If the credit card number is stolen and the holder still has possession of the card (such as a data breach), the holder isn't responsible for any fraudulent charges. (Fair Credit Billing Act)
Kim and Mark make $65,000 per year combined gross income. Their housing costs are $1,625 per month, while another $300 covers the balance of any other debt they currently owe. Other household expenses bring their total expenses to $3,200 per month. The total portion of their obligations that are monthly interest payments (included in the mortgage and other debt amounts) is $1,000. Their take home averages $3,500 per month. Over the last several years, they have managed to save 3% to 5% of their income. They have set aside $22,400 in money market funds. Select "A" if their savings level can be considered a strength. Select "B" if their savings level can be considered a weakness. A- Their savings level is a strength. B- Their savings level is a weakness.
Solution: The correct answer is B. They should be saving 10% to 12% of their gross income.
Which of the following is/are a Duty Owed to Clients in the CFP Board Standards of Conduct? I- Independence II- Professionalism III- Competence IV- Fairness A- I only B- II only C- II and III D- I, II, III, and IV
Solution: The correct answer is C. Fairness is not specifically listed in the Standards of Conduct but is a value to uphold while dealing with clients and fellow professionals.
Which of the following statements concerning investment strategies to accomplish education-funding goals is (are) correct? 1. The time horizon is probably the most important factor (besides risk tolerance) to consider in deciding what securities to invest in, how much to invest, and when to invest. 2. QTPs generally reduce the risk level of investment the closer a child gets to college. A- I only B- II only C- Both I and II D- Neither I nor II
Solution: The correct answer is C. Qualified Tuition plans, such as the 529 savings plan, have age banded investment options. The Investments will re-allocate as the child gets older and closer to their goal.
Which of the following are necessary inputs to determine a client's goals? I- Client's attitude II- Clients values III- Client's current income IV- Client's expectations of the future A- I and II only. B- II, III, and IV only. C- I, II and IV only. D- I, II and III only.
Solution: The correct answer is C. A client's attitudes, values, expectations, and time horizon are all necessary to determine financial goals, needs, and priorities. Income will come in as part of the analysis phase; can (and how) they meet they their goals and needs? A wealthy couple may want their child to fund their own education to learn the value of money and education. Their goal has little to do with their income level. Choice A is incorrect because it is lacking the client's expectations. Choice B is incorrect because using a client's current income is not a variable for determining goals and it is missing the client's attitude. Choice D is incorrect because using the client's current income is not a variable for determining goals and it is missing the client's expectations.
In a typical business cycle, which of the following phases would exhibit periods of increasing employment and increasing output? A- Recession. B- Trough. C- Expansion. D- Peak.
Solution: The correct answer is C. An expansion is indicated by rising employment and output. When employment and output are no longer rising, the cycle is in its peak. If employment and output begins to decrease, this indicates a recession. Finally, when employment and output are no longer decreasing, the cycle has reached a trough.
Which of the following statements is correct concerning the effect of prepaid tuition plans on federal financial aid? A-The amount of prepaid tuition is not treated as an asset of the parent or child when determining financial aid. B- The current value of the prepaid account is included in the student's assets. C- The current value of the prepaid account is included in the parents' assets when calculating expected family contributions. D- The amount of prepaid tuition has no impact on the expected family contribution formula.
Solution: The correct answer is C. Prepaid tuition is not a student asset for federal financial aid purposes. Prepaid tuition is treated as an asset of the parents' and is included in the expected family contribution formula.
A principal in your financial planning office, who is a CFP® professional, has been tried and convicted of securities fraud and malfeasance of funds by virtue of the fact that he commingled client funds with funds of the financial planning firm and with his own funds, as well. The CFP Board Code of Ethics prohibits a CFP® professional from doing such. As a result, which of the following is the CFP Board likely to undertake? A- Private censure. B- Public letter of admonition. C- Revocation. D- Temporary suspension of right to use the marks (up to 5 years). E- The CFP Board has no jurisdiction in this case, as it is a matter for the SEC to determine.
Solution: The correct answer is C. The Board could use suspension, but since it seems to be an offense that has been ongoing, and not an error or misjudgment, it is far more likely to go with the revocation in this case. The Board does have jurisdiction over its own, and the other options are simply too light for the level of offense.
Julie White, a CFP® professional, has proof that Susan Porter, another CFP® professional in her office, has utilized clients' funds under management to cover gambling debts. Susan returned the funds to the clients' accounts and made them whole, including the earnings that would have accrued during the time the funds were withdrawn. Under the Code of Ethics and Professional Responsibility and Disciplinary Rules and Procedures, Julie is obligated to: A- Report Susan's actions to the local Financial Planning Association Chapter for proper processing. B- Report Susan's action to the CFP Board because Susan has violated her duty of confidentiality to the client. C- Report Susan's action to the CFP Board because Susan has violated her fiduciary duty to the client. D- NOT report Susan's action to the CFP Board because Julie would violate the Confidentiality Principle.
Solution: The correct answer is C. While a CFP® professional is not required to initiate a complaint against another CFP® professional, they are able to and such a report may help the integrity of the designation. Misusing funds is a violation of fiduciary duty. A CFP® professional may not make false or misleading representations to CFP Board or obstruct CFP Board in the performance of its duties. A CFP® professional must satisfy the cooperation requirements set forth in CFP Board's Procedural Rules, including by cooperating fully with CFP Board's requests, investigations, disciplinary proceedings, and disciplinary decisions.
Holly's salary is $80,000 per year. She contributes 10% of her salary to her 401(k) plan. Her employer contributes 5% of her salary to a profit share plan. She also contributes $2,500 per year to an IRA. Holly's savings ratio is? A- 5%. B- 10%. C- 15%. D- 18%.
Solution: The correct answer is D. (8,000 + 4,000 + 2,500)/80,000 = 18%
Brian purchased 10 shares of an aggressive growth mutual fund at $90 per share, for a total of $900, 7 years ago. Today he sold all 10 shares for $4,500. What was his average annual compound rate of return on this investment before tax? A:17.46%. B:19.58%. C:21.73%. D:25.85%
Solution: The correct answer is D. N = 7 I = ? PV = <900> PMT = FV = 4,500 Answer: 25.8499
Which of the following is necessary for a certificant to disclose to a client if providing financial planning? A- That you own 50% of a corporation. B- Your secondary education. C- The IRS has a lien on your personal property. D- An active FINRA license suspension.
Solution: The correct answer is D. D is the best answer. A CFP® professional must disclose significant information to a client prior or when engaging in a financial planning relationship. This includes compensation information, how a client pays, disclosing conflicts of interest and Existence of any public discipline and locations of any Self Regulatory Organization (SRO) or government websites where the CFP® professional is a control person. A license suspension is an example of public discipline.
What is the duty of care that a CFP® professional owes his or her clients when performing professional services? A- Practice and negotiate at arm's length. Ensure the client is well informed, educated and capable of making financial decisions. B- Apply reasonable judgment and maintain a suitability standard of care. C- Follow the prudent investor rule. D- Act as a fiduciary upholding a duty of care, loyalty and following client instructions.
Solution: The correct answer is D. Duties owed to clients (1 a. b. and c.)
In analyzing the financial statements of a client's business, you notice the collection period for accounts receivable has been increasing. What does this increase suggest about the firm's credit policy? A- The firm's current ratio is also increasing. B- The collection period has NO relationship to a firm's credit policy. C- The firm is losing qualified customers. D- The credit policy is too lenient.
Solution: The correct answer is D. Longer periods of time for collection of receivables indicates less money collected, and less to use by your client's firm.
Which of the following statements about the selected industry relative to its regulatory body and the relationship between the two are true? I- The insurance industry is primarily regulated by each of the 50 states. II- The majority of banks are subject to federal regulation by the Federal Reserve System and the Federal Deposit Insurance Corporation. III- Pension plan funds are primarily subject to federal regulation. IV- The organized stock exchanges, such as the New York Stock Exchange, are primarily regulated by the federal government. A- I, II and III only. B- I and III only. C- II and IV only. D- I, II, III and IV.
Solution: The correct answer is D. Option "III" - Pension funds are governed by PBGC (also known as the Pension Benefit Guarantee Corporation) and ERISA (also known as the Employees Retirement Income Security Act) rules as to reporting and requirements on the federal level. Option "IV" - Organized stock exchanges are regulated by the U.S. Government agency, the Securities Exchange Commission (SEC).
Arrange the following financial planning steps into the proper sequence in which these functions are performed by a CFP® Professional: I- Understanding The Client's Personal and Financial Circumstances II- Presenting the Financial Planning Recommendation(s) III- Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action IV- Developing the Financial Planning Recommendation(s) V- Identifying and Selecting Goals A- I, III, V, IV and then II. B- V, I, III, II and then IV. C- I, V, IV, III and then II. D- I, V, III, IV and then II.
Solution: The correct answer is D. The proper sequence of practice standard steps is to - Understanding The Client's Personal and Financial Circumstances, Identifying and Selecting Goals, Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action, Developing the Financial Planning Recommendation(s), Presenting the Financial Planning Recommendation(s), Implementing the Financial Planning Recommendation(s), Monitoring Progress and Updating
According to the cash flow approach, all of the following recommendations may have a positive impact to cash flow except: A- Raise insurance deductibles. B- Reduce the amount of insurance coverage. C- Payoff existing debt with balance sheet assets. D- Purchase new insurance to cover an existing risk.
Solution: The correct answer is D. The purchase of a new insurance product will have a negative cash flow impact.
Calculate the NPV of a machine that is purchased for $5,000, sold at the end of year 4 for $2,500, and produces the following cash flows: Year 1) $700 Year 2) $800 Year 3) $900 Year 4) $1,000 Assume the discount rate is 6%. A: <$99.64> B: $99.64 C: <$2,079.87> D: $2,079.87
The correct answer is A. 12c 5000 CHS g CF0 700 g CFj 800 g CFj 900 g CFj 1,000 + 2,500 g CFj 6 i f NPV 10BII 5000 +/- CFj 700 CFj 800 CFj 900 CFj 1,000 + 2,500 CFj 6 i Orange shift key NPV Answer: <99.64>
Darrin and Kathi recently gave you the following financial information. Current Liabilities $6,921 Monthly Non-discretionary Expenses $4,693 Yearly Income $70,000 Annual Debt Expenses (excluding monthly housing costs) $22,084 Which of the following lender thresholds will Darrin and Kathi meet assuming their monthly housing costs will be $1,500? 1. The 28% benchmark 2. The 36% benchmark A: I only B: II only C: I and II D: Neither I nor II
The correct answer is A. 28% Benchmark = 1,500 / (70,000/12) = 25.7% YES 36% Benchmark = (1,500 + (22,084/12)) / (70,000/12) = 57.2% NO
Which of the following is not necessary to identify the client's life cycle position? A: Attitudes (beliefs). B: Marital Status. C: Dependents. D: Income Level. E: Net Worth
The correct answer is A. Age, marital status, dependents, income and net worth determine a client's life cycle position.
Which of the following statements accurately describes a financial advisor's communication with a client? 1. One of the main responsibilities of the advisor is to extract the goals of the client through verbal and nonverbal communication. 2. Clarifying and restating a client's statement is not part of the process of feedback under active listening. A: I only. B: II only. C: I and II. D: None.
The correct answer is A. Both statements are accurate regarding how a financial advisor communicates with a client.
Marge has been dollar cost averaging in a mutual fund by investing $2,000 at the end of every quarter for the past 7 years. She has been earning an average annual compound return of 11% compounded quarterly on this investment. How much is the fund worth today? A: $82,721.95. B: $93,902.42. C: $91,389.22. D: $84,996.80.
The correct answer is A. End N = 7 × 4 I = 11 / 4 PV = 0 PMT = 2,000 FV = ? 82,721.95
Which of the following statements concerning educational funding is correct? A: A student must submit a FAFSA (Free Application for Federal Student Aid) form to become eligible for federal financial aid. B: The EFC (Expected Family Contribution) is a formula that indicates how much financial aid a student's family can expect to receive. C: There are only 2 factors used in calculating the EFC-taxable income and assets. D: A common method for reducing a family's EFC is creating a trust for the parents and increasing the family's estate.
The correct answer is A. FAFSA will start the financial aid process and should be completed for the first time while the student is completing their final year in high school. EFC is what the family is expected to contribute. Many factors are used to calculated EFC. Increasing the family's estate will lead to a larger EFC.
Holly would like to plan for her daughter's college education. She would like for her daughter, who was born today, to attend college for 4 years, beginning at age 18. Tuition is currently $10,000 per year and tuition inflation is 7%. Holly can earn an after-tax rate of return of 10%. How much must Holly save at the end of each year, if she wants to make the last payment at the beginning of her daughter's first year of college? A:$2,845.81 B:$3,345.31 C:$4,009.87 D:$4,900.78
The correct answer is A. HP 10BII or HP 10BII+ 0 CFj (starting amount) 0 CFj (first year cashflow) 17 Nj (times to repeat first year cashflow) 10,000 CFj (year 18 starts the tuition payments) 4 Nj (1.10/1.07) - 1 × 100, i Orange shift key NPV Answer: 23,339.62 N = 18 I = 10 PV = 23,339.62 PMT = ? FV = 0 Answer: 2,845.80 HP 12c 0 g CF0 0 g CFj 17 g Nj 10,000 g CFj 4 g Nj (1.10 / 1.07) - 1 × 100 f NPV = ? 23,339.62 N = 18 I = 10 PV = 23,339.62 PMT = ? FV = 0
Ann recently purchased a house for $220,000. She made a down payment of $20,000 and financed the balance over 15 years at 6%. If Ann's first payment is due on October 1st of the current year, how much interest will she pay in the current year? A:$2,989.67 B: $5,885.09 C:$3,288.63 D:$2,073.47
The correct answer is A. HP 10BII or HP 10BII+ Your calculator should be set to 1 payment per year. Loans are always in END mode. N = 15 × 12 I = 6 / 12 PV = 200,000 PMT = ? FV = 0 1 INPUT 3 Orange shift key, AMORT, = = INT answer: 2,989.6671 12c N = 15 × 12 I = 6 / 12 PV = 200,000 PMT = ? FV = 0 3 f AMORT
Phoebe purchased a car for $19,500. She is financing the auto at 11% annual interest rate, compounded monthly for 4 years. What payment is required at the end of each month to finance Phoebe's car? A: $503.99. B: $638.40. C: $632.61. D: $684.97
The correct answer is A. N = 4 × 12 I = 11 / 12 PV = 19,500 PMT = ? FV = 0
Which of the following is a primary responsibility of the Federal Reserve (Fed)? A: Maintain sustainable long-term economic growth. B: Maintain fair practices between securities dealers. C: Maintain competition between member banks. D: Maintain a balanced budget.
The correct answer is A. One of the Federal Reserve's main priorities is controlling the money supply. Maintaining a stable money supply will aid in long-term economic growth. The SEC monitors security dealers. The states and banking association monitors the bank channels. A balance budget is a Federal government responsibility.
Which of the following is true regarding demand? 1. The average income or standard of living is a key determinant of demand. 2. Downward sloping demand indicates that if the price is decreased, the quantity demanded will fall. A: Only statement I is correct. B: Only Statement II is correct. C: Statements I and II are both correct. D: Neither Statements I or II are correct.
The correct answer is A. Statement I is a true statement. Demand for products will be greater when disposable income is greater. Statement II is a false statement. The correct version of the statement is: Downward sloping demand curve indicates that as price decrease, quantity demanded will INCREASE.
Which of the following debts are not discharged in bankruptcy? A: Student loans. B: Credit Card debt. C: Medical bills. D: Consumer debt
The correct answer is A. Student loans are not discharged.
If the Federal Reserve wants to decrease interest rates, which of the following actions might they take? A:Buy government securities. B: Sell government securities. C: Increase the reserve requirement. D: Decrease the prime lending rate.
The correct answer is A. To decrease interest rates, the Fed needs to increase the money supply or buy government securities. If the fed sells government securities, the money supply will decrease and interest rates will increase.
Which of the following is not correct regarding the Federal Reserve? A: The Bank Borrowing Rate is the overnight lending rate between member banks. B: The Federal Reserve discount rate is the rate at which member banks can borrow funds from the Federal Reserve to meet reserve requirements. C: The reserve requirement for a member bank of the Federal Reserve is the percent of deposit liabilities that must be held in reserve. D: Open market operations is the process by which the Federal Reserve purchases and sells government securities in the open market.
The correct answer is A. The Fed controls the overnight or discount rate. The lending rate between banks is called the Fed Funds Rate.
Which one of the following statements is not true regarding insurance planning for an individual with special needs? A: Term insurance is not the best choice for life insurance protection due to long term needs. B: In calculating the death benefit of the policy, one generation's need is considered. C: The individual with special needs should not be named as a beneficiary. D: Life insurance can be purchased in a trust that will benefit an individual with special needs .
The correct answer is B Choice B is a false statement because two generations should be considered, the generation of the individual with special needs and their parent's generation. Choices A, C, and D are all true statements.
Which of the following statements concerning a CFP® professional's disclosure of confidential client data is generally correct? I- Disclosure may be made to any state agency without subpoena. II- Disclosure may be made to any party on consent of the client. III- Disclosure may be made to comply with an IRS audit request. A- I only B- II only C- III only D- I, II, and III
The correct answer is B.
Trusts can be very beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a special needs person. Which of the following types of trusts would generally be used to protect an award from winning a lawsuit or an inheritance on behalf of a special needs child? A:Family trust or third party trust B:A trust under 42 U.S.C. Sec 1396p(d)(4)(A) C:A pooled trust D:A qualified trust
The correct answer is B. A trust under 42 U.S.C. Sec. 1396p(d)(4)(A) can be used to hold assets that are owned by the beneficiary, such as from a lawsuit or an inheritance.
Which of the following is not a primary responsibility of the Federal Reserve (Fed)? A:Maintain sustainable long-term economic growth. B:Maintain fair practices between securities dealers. C:Maintain price levels that are supported by economic growth. D:Maintain full employment.
The correct answer is B. Choice B is the job of the SEC.
All of the following statements concerning financial aid programs for education funding are correct EXCEPT A: A Pell Grant is a grant from the federal government awarded to undergraduate students who have not earned a bachelors or professional degree. B: The EFC calculation, which is based on one's ACT score, is used to determine a student s eligibility for a Pell Grant and how much is awarded to a student. C: One type of Stafford Loan is the Direct Stafford Loan that is provided to the student directly from the Department of Education. D: One type of Stafford Loan is the FFEL Stafford Loan where funds are lent to the student through a lender (such as a bank or other approved financial institution) that participates in the FFEL program.
The correct answer is B. EFC is based on Free Application for Federal Student Aid (FAFSA).
Kasey wants to give her daughter $25,000 in 8 years to start her own business. How much should she invest today at an annual interest rate of 8% compounded annually to have $25,000 in 8 years? A:$12,802.95. B:$13,506.72. C:$13,347.70. D:$13,210.34.
The correct answer is B. N = 8 I = 8 PV = ? PMT = 0 FV = 25,000 Answer: 13,506.72
Jennifer has the transactions below, what is the combined impact on her net worth when considering all of the transactions? I. She purchases $5,000 worth of a mutual fund with cash from her savings account. II. She spends $6,000 on a two-week vacation to Italy using funds in her money market account. III. She purchases $10,000 worth of furniture for her house and uses her credit card to finance the purchase. A: $21,000 decrease in net worth B: $6,000 decrease in net worth C: $15,000 increase in net worth D: $6,000 increase in net worth
The correct answer is B. I- No change. Decrease in current assets of $5,000 and increase in invested assets of $5,000 II- Decrease of $6,000 in current assets III- No change. Personal use assets increases by $10,000 and current liabilities increase by $10,000
What are the responsibilities of a CFP® professional who does not have a client agreement to engage in financial planning? A- Perform transactional services for the client but do not receive any direct or indirect fee based compensation. B- Limit the Scope of Engagement to services that do not require application of the Practice Standards, and describe to the Client the services the Client requests that the CFP® professional will not be performing. C- Help the Client select and prioritize goals. The CFP® professional must discuss with the Client any goals the Client has selected that the CFP® professional believes are not realistic. D- A CFP® professional must present to the Client the selected recommendations and the information that was required to be considered when developing the recommendation(s).
The correct answer is B. B is one of the options provided to a CFP® professional who does not have a client agreement to engage in financial planning. A is irrelevant, compensation models do not impact practice standards. C and D are practice standards, which are not required if a CFP® professional is not performing financial planning.
Phoebe purchased a car for $19,500. She is financing the auto at 11% annual interest rate, compounded monthly for 3 years. What payment is required at the end of each month to finance Phoebe's car? A:$606.71. B:$638.40. C:$632.61. D:$684.97.
The correct answer is B. N = 3 × 12 I = 11 / 12 PV = 19,500 PMT = ? FV = 0 Answer: 638.40
Darrin and Kathi recently gave you the following financial information. Current Assets $9,243 Current Liabilities $6,921 Monthly Non-discretionary Expenses $4,693 Yearly Income $70,000 Annual Debt Expenses (excluding monthly housing costs) $22,084 What would Darrin and Kathi's Emergency Fund Ratio be? A:1.2430 months B:1.3355 months C:1.9695 months D:3.1697 months
The correct answer is C. 9,243 / 4,693
Which of the following statements accurately describes a financial advisor's communication with a client? I: One of the main responsibilities of the advisor is to extract the goals of the client through verbal and nonverbal communication. II: Clarifying and restating a client's statement is part of the process of feedback under active listening. A: I only. B: II only. C: I and II. D: None.
The correct answer is C. Both statements are accurate regarding how a financial advisor communicates with a client.
Which of the following is not correct regarding the Federal Reserve? A: The Federal Funds rate is the overnight lending rate between member banks. B: The Federal Reserve discount rate is the rate at which member banks can borrow funds from the Federal Reserve to meet reserve requirements. C: The reserve requirement for a member bank of the Federal Reserve is the percent of deposits that member banks are required to lend out to consumers. D: Open market operations is the process by which the Federal Reserve purchases and sells government securities in the open market
The correct answer is C. Reserve Requirement is the percentage the bank needs to keep on hand, not lend out.
You are a CFP® professional who has been approached by the general partner of Silky Industries (SI) to provide financial planning services to the top executives at SI. Your sister has a fifteen percent limited partnership interest in SI. Can you accept this engagement? A: No, because your integrity is impaired. B: No, because your objectivity is impaired. C: Yes, but only after proper disclosure. D: Yes, because your integrity and objectivity are not impaired; no disclosure is needed
The correct answer is C. Yes, just make sure you disclose the conflict of interest.
During which step of the financial planning process would a planner review financial statement information? A: Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action B: Identifying and Selecting Goals C: Understanding the Client's Personal and Financial Circumstances. D: Developing the financial plan recommendations.
The correct answer is C. From the CFP Board Code and Standards 1. Understanding the Client's Personal and Financial Circumstances A: Obtaining Qualitative and Quantitative Information. ACFP® professional must describe to the Client the qualitative and quantitative information concerning the Client's personal and financial circumstances needed to fulfill the Scope of Engagement and collaborate with the Client to obtain the information. 1:Examples of qualitative or subjective information include the Client's health, life expectancy, family circumstances, values, attitudes, expectations, earnings potential, risk tolerance, goals, needs, priorities, and current course of action. 2:Examples of quantitative or objective information include the Client's age, dependents, other professional advisors, income, expenses, cash flow, savings, assets, liabilities, available resources, liquidity, taxes, employee benefits, government benefits, insurance coverage, estate plans, education and retirement accounts and benefits, and capacity for risk. B: Analyzing Information. ACFP® professional must analyze the qualitative and quantitative information to assess the Client's personal and financial circumstances. C: Addressing Incomplete Information. If unable to obtain information necessary to fulfill the Scope of Engagement, the CFP® professional must either limit the Scope of Engagement to those services the CFP® professional is able to provide or terminate the Engagement.
Anthony has been investing $1,000 at the end of each year for the past 15 years. How much has accumulated assuming he has earned 10.5% compounded annually on his investment? A:$20,303.72. B:$23,349.28. C:$33,060.04. D:$36,531.34
The correct answer is C. N = 15 I = 10.5 PV = 0 PMT = 1,000 FV = ? 33,060.0354
Which of the following is/are forms of discipline? 1. Private Censure 2. Revocation 3. Suspension 4. Public Letter of Admonition A: I and II B: I, II and III C: II, III and IV D: I, II, III, and IV
The correct answer is D.
John and Jane have a net worth of $20,000 and total assets of $170,000. If their revolving credit and unpaid bills total $8,000, how much are their total liabilities? A: $122,000 B: $130,000 C: $138,000 D: $150,000
The correct answer is D. A - L = Net Worth 170,000 - L = 20,000 L = 150,000
Which of the following situations would cause a shift in the demand curve, as opposed to a change in the quantity demanded? A: Federal income tax rates are decreased. B: Auto sales increase due to increased employment. C: Gasoline consumption decreases as the taxes on gasoline increase. D: Both a and b.
The correct answer is D. Anytime income increases, the demand curve will shift up and to the right. More consumers employed, more discretionary income, therefore the demand curve shifts up and to the right. Choice C is a movement along the demand curve.
Gathering client data includes gathering which of the following? A: Bank statements B: Tax returns C: Beliefs, attitude and desires of the client D: All of the above
The correct answer is D. Gathering client data includes both gathering the numbers, but also a client's beliefs, attitude and desires to determine if goals and objectives are reasonable or unreasonable.
Gathering client data includes gathering which of the following? A: Bank statements B- Tax returns C- Beliefs, attitude and desires of the client D- All of the above
The correct answer is D. Gathering client data includes both gathering the numbers, but also a client's beliefs, attitude and desires to determine if goals and objectives are reasonable or unreasonable.
Gathering client data includes gathering which of the following? A: Bank statements B: Tax returns C: Beliefs, attitude and desires of the client D: All of the above
The correct answer is D. Gathering client data includes both gathering the numbers, but also a client's beliefs, attitude and desires to determine if goals and objectives are reasonable or unreasonable.
Kevin owns 1 share of Acme, Inc. stock. He purchased the stock three years ago for $25. The stock is currently trading for $29.50 per share. The stock has paid the following dividends over the past three years. Year 1) $1.50 Year 2) $2.00 Year 3) $2.50 What is the compounded rate of return (IRR) that Kevin has earned on this investment? A: 10.10% B: 5.60% C: 6.60% D: 13.11%
The correct answer is D. HP 10BII or HP 10BII+ 25 +/- CFj 1.50 CFj 2.00 CFj 2.50 + 29.50 CFj Orange shift key IRR/YR Answer: 13.11 HP 12c 25 CHS g CFo 1.50 g CFj 2.00 g CFj 29.50 + 2.50 g CFj f IRR
All of the following statements regarding NPV are true EXCEPT A: A positive NPV indicates the present value of the cash flows exceeds the initial investment. B: A negative NPV indicates the present value of the cash flows is less than the initial investment. C: An NPV equal to zero indicates the present value of the cash flows is equal to the initial investment. D: The internal rate of return is the discount rate that causes the initial investment to exceed the present value of the cash flows.
The correct answer is D. IRR sets the initial investment equal to the present value of the cash flows.
Paul recently applied for CFP® Certification. Which of the following would always bar him from certification? A: One or more personal bankruptcies. B: Felony conviction for perjury last year. C: Felony conviction for aggravated assault. D: Felony conviction of embezzlement.
The correct answer is D. One or more personal bankruptcies is on the presumed list. Felony conviction of a financially based crime, like embezzlement, will always bar.
All of the following statements concerning educational funding are correct EXCEPT: A: QTPs allow individuals to participate in prepaid tuition plans whereby tuition credits are purchased for a designated beneficiary for payment or waiver of higher education expenses, or participate in savings plans whereby contributions of money are made to an account to eventually pay for higher education expenses of a designated beneficiary. B: Prepaid Tuition Plans are plans where prepayment of college tuition is allowed at a fixed price for enrollment in the future. C: A Savings Plan is a type of QTP where the owner of the account contributes cash to the account so that the contributions can grow tax deferred. D: One of the disadvantages of QTPs is that the owner/contributor shares control of the account with the student/beneficiary.
The correct answer is D. The owner controls the account, not with the beneficiary.
All of the following statements concerning educational funding is correct EXCEPT A: A student must submit a FAFSA (Free Application for Federal Student Aid) form to become eligible for federal financial aid. B: The EFC (Expected Family Contribution) is a formula that indicates how much of a student's family's resources ought to be available to assist in paying for the student's college education. C: Factors used in calculating the EFC include taxable and nontaxable income, assets, and benefits, such as unemployment and Social Security. D: A common method for reducing a family's EFC is creating a trust for the parents and increasing the family's estate.
The correct answer is D. The trust should be for the child, thus reducing the family's estate.
All of the following statements concerning educational funding are correct EXCEPT: A: The American Opportunity Tax is a tax credit available for qualified tuition and enrollment fees incurred in the first four years of post-secondary education for the taxpayer, spouse, or dependent. B: The Lifetime Learning Credit is a tax credit available to pay for tuition and enrollment fees for undergraduate, graduate or professional degree programs. C: If used to pay for qualified higher education expenses at an eligible institution or state tuition plan, Series EE United States Savings Bonds bestow significant tax savings. D: The Uniform Gift to Minor's Act (UGMA) allows parents the option to put assets in a custodial account for a child once the child exceeds the age of 14.
The correct answer is D. UGMA accounts will allow the child to access the funds when they reach age 18 or 21 depending on state law.
Marge has been dollar cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 7 years. She has been earning an average annual compound return of 11% compounded quarterly on this investment. How much is the fund worth today? A:$82,721.95. B:$93,902.42. C:$91,389.22. D:$84,996.80
The correct answer is D. Begin mode N = 7 × 4 I = 11 / 4 PV = 0 PMT = 2,000 FV = ? Answer: 84,996.80
Ann recently purchased a house for $220,000. She made a down payment of $20,000 and financed the balance over 15 years at 6%. If Ann's first payment is due on October 1st of the current year, how much of her current year's payments will be applied to the outstanding principal on the loan? A:$2,989.67 B:$5,885.09 C:$3,288.63 D:$2,073.47
The correct answer is D. HP 10BII or HP 10BII+ Your calculator should be set to 1 payment per year. Loan payments are in END mode. N = 15 × 12 I = 6 / 12 PV = 200,000 PMT = ? FV = 0 1 INPUT 3 Orange shift key, AMORT, = PRIN answer: 2,073.4740 HP 12c N = 15 × 12 I = 6 / 12 PV = 200,000 PMT = ? FV = 0 3 f AMORT X < > Y
A client invested $10,000 in an interest bearing promissory note earning an 11% annual rate of interest compounded monthly. How much will the note be worth at the end of 7 years assuming all interest is reinvested at the 11% rate? A:$13,788.43. B:$20,761.60. C:$21,048.52. D:$21,522.04.
The correct answer is D. Your calculator should be set to 1 payment per year. Dividing the N and I by 12 accounts for monthly compounding. N = 7 × 12 I = 11 / 12 PV = 10,000 PMT = 0 FV = ? Answer for FV is $21,522.036124, rounded to $21,522.04
