CFP - HS 300
A 55-year-old client wants to take a distribution from a Roth IRA to pay for higher education expenses but does not want to pay a 10% penalty or be subject to any taxes. Which of the following types of distributions meets those conditions? A) A distribution of a prior contribution to a Roth IRA B) A distribution of any kind from a Roth IRA C) A distribution of any kind from a traditional IRA D) A distribution of earnings from a Roth IRA
A
A financial planner analyzing a client's data is trying to determine the probability that the client's goals will be met. To this end, they input the client's income, expenses, savings rate, and investment returns into financial planning software and model thousands of potential futures over the next 40 years. What is the common name of this type of statistical analysis? A) Monte Carlo analysis B) Sensitivity analysis C) Futures analysis D) Time value of money analysis
A
All of the following are principles of modern portfolio theory (MPT) EXCEPT: A) Markets are inefficient. B) Returns are determined by risk. C) Investors are rational. D) The mean-variance portfolio theory governs.
A
All of the following factors are strongly predictive of successful financial planning careers EXCEPT A) having exceptional mental math abilities. B) having a college degree. C) holding a certification such as the CFP®. D) having sales skills.
A
All of the following statements about presenting recommendations are correct EXCEPT: A) A lengthy comprehensive written plan is widely regarded as the best presentation modality. B) Planners should adjust their presentations to their clients' learning styles. C) The use of visual aids is generally encouraged, particularly for complex subjects. D) If clients appear to misunderstand a presentation, the planner should adjust their approach.
A
Lee earns $50,000 by working as a part-time lawyer in Baton Rouge. The company provides a matching contribution to Lee's 401(k) plan of 50% of Lee's contribution up to a maximum matching contribution of 4% of Lee's compensation. Her 401(k) plan account had $60,000 in it at the beginning of the year. She contributed $15,000 to the plan this year, and the employer made the matching contribution before year-end. The ending balance of the account is $100,000. What is Lee's savings rate this year? A) 30% B) 31.67% C) 34% D) 38%
C
Shadi has just received a check for $41,250. This is a return from an investment that he made 12 years ago. He was told that the return was the equivalent of 8% per year. How much was his original investment? A) $15,845 B) $15,870 C) $16,381 D) $16,660
C
The idea that the counselor must identify behavioral excesses and inadequacies and try to manipulate these forces to change the client's behavior and thought process follows which school of thought? A) The developmental school of thought B) The humanistic school of thought C) The cognitive-behavioral school of thought
C
When a financial planner partners with another financial services professional to provide a service to a client, which form(s) of compensation must be disclosed to the client? I. Monetary compensationII. Nonmonetary compensation A) I only B) II only C) Both I and II D) Neither I nor II
C
Which of the following statements is (are) correct? I. The real rate of return decreases as the inflation rate increases.II. The real rate of return increases as the nominal rate increases. A) I only B) II only C) Both I and II D) Neither I nor II
C
Which of the following statements is correct in regard to financial planning and financial advice? A) Financial planning and financial advice are synonymous. B) Only in financial planning does a financial planner implement and monitor recommendations. C) More written documentation is expected when providing financial planning than when providing financial advice. D) Financial planning can only occur if the client signs an engagement letter.
C
Using the data in this table, what is Jen's return on assets (ROA) for last year? Financial DataTotal Assets at Year-End $600,000Total Assets at Beginning of the Year $600,000Savings Put Aside During the Year $27,000Employer Match to 401(k) Plan $5,000 A) -5.33% B) -4.50% C) 0.00% D) 100.00%
A
Vertibird, Inc., makes a special type of very expensive high-end helicopters. Demand for these helicopters would most likely be considered A) elastic. B) inelastic. C) stable. D) high.
A
Which of the following statements about "Monitoring Progress and Updating" is (are) correct? I. This step is included in the seven-step practice standards.II. This step is required of every financial planning engagement. A) I only B) II only C) Both I and II D) Neither I nor II
A
Which of the following statements about the different types of assets found on a balance sheet is correct? A) Personal-use assets are used to maintain a client's lifestyle. B) Cash assets include any assets a client expects to convert to cash within the next 5 years. C) Business assets generally are classified as personal-use assets. D) Bonds within a retirement portfolio generally are classified as cash assets.
A
Which school of thought has its origin in and was influenced by Freudian psychoanalytic theory? A) The developmental school of thought B) The humanistic school of thought C) The cognitive-behavioral school of thought
A
An investigation by the CFP board has determined that a financial planner must be disciplined. Which of the following forms of discipline may this planner be subject to? A) A private censure B) A 10-year suspension from using the CFP® marks C) A monetary fine D) A lifetime ban from working in financial services
A - Private censure, public letter of adminition, 5 yr suspension, and revocation
A "rule of thumb" that provides guidance for where a client's financial profile should be is called a A) pie chart. B) benchmark. C) ratio. D) financial plan.
B
A 25-year-old has just decided to start saving for retirement. They are not sure what their retirement savings rate should be. Which of the following benchmarks is most appropriate for this person? A) 3% B) 12% C) 25% D) 50%
B
All of the following will shift the demand curve down and to the left EXCEPT A) higher tax rates. B) higher disposable income. C) higher savings rates. D) increased prices of complementary products.
B
Geraldo, aged 40, is married and has two sons. His primary goals are saving for retirement, paying down the mortgage on his new home, managing his risks, and funding his sons' education. Which phase(s) of the life-cycle approach is Geraldo most likely in? A) The asset-accumulation phase B) The asset-accumulation and conservation/risk management phases C) The conservation/risk management phase D) The conservation/risk management and distribution/gifting phases
B
Jose and Maria are a young couple who met while earning their graduate degrees. They are concerned about having sufficient cash liquidity if one of them is fired from their jobs. Which of the following strategies is most appropriate for covering this risk? A) Disability insurance B) An emergency fund C) A large 401(k) balance D) Long-term care insurance
B
Lorena is looking to buy a condo in 5 years for $300,000 in today's dollars. If she can earn a 6% return on her investments, what contribution should she make at the end of each month? A) $4,278 B) $4,300 C) $5,000 D) $5,800
B
Miguel has been dollar-cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 10 years. He earns an average annual compound return of 11% on this investment, compounded quarterly. How much is the fund worth today? A) $142,536 B) $146,456 C) $157,105 D) $161,032
B
Prospect theory makes all the following observations EXCEPT: A) Generally, people are loss averse. B) Large losses make a person feel even worse than one would expect based on how bad small losses make a person feel. C) Framing can affect whether a particular outcome is considered a gain or a loss. D) Losses generally make a person feel worse than an equivalent gain makes the same person feel good.
B
Seeking information that supports the beliefs you already have is the definition of which of the following? A) The disposition effect B) Confirmation bias C) Overconfidence D) Representative heuristic
B
The U.S. Securities Exchange Commission was created with the passage of which of the following acts? A) The Securities Act of 1933 B) The Securities Exchange Act of 1934 C) The Investment Company Act of 1940 D) The Investment Advisers Act of 1940
B
Which of the following analyses is most suitable to directly assess the financial impact of a series of negative investment returns in the years immediately following retirement? A) Monte Carlo analysis B) Sensitivity analysis C) A retirement savings needs analysis D) Time value of money analysis
B
Which of the following may be delivered orally when providing financial advice but must be in writing when providing financial planning? A) Conflicts of interest B) How the client pays C) The privacy policy D) All of the above
B
Which of the following statements about the employment outlook for financial planners is correct? A) The number of financial planners is expected to decrease in the next few years. B) The mass retirement of Baby Boomers is expected to substantially influence the profession. C) The vast majority of financial planners are dissatisfied with their current occupation. D) The majority of financial planners are self-employed.
B
All of the following statements about the Federal Reserve's use of open market operations in an easing policy are true EXCEPT: A) More cash would enter the open market. B) More Treasury securities would enter the open market. C) Interest rates would likely decrease. D) The money supply would increase.
B - Easing policy means less no tightening which means FED buying less treasuries and more money in the open market
An individual engaging in a behavior that appears on the presumption list will be A) permanently barred from using the CFP® marks. B) barred from using the CFP® marks until the individual files a successful petition. C) privately censured by the CFP board. D) investigated by the CFP board to determine whether the individual should be privately censured, suspended from using the CFP® marks, or have their right to use the CFP® marks permanently revoked.
B - If on the presumption list must file a petition as presumption list is equivalent of immediate rejection
Loan balances may be forgiven or cancelled at the end of all the following Stafford loan repayment plans EXCEPT A) the Income-Contingent Repayment (ICR) plan. B) the graduated repayment plan. C) the Revised Pay as You Earn (REPAYE) repayment plan. D) the Income-Based Repayment (IRB) plan.
B - graduated and standard do not offer loan forgiveness
All of the following are unanswered questions from traditional financial theories (such as modern portfolio theory), EXCEPT: A) Why do investors have so many biases? B) Why are markets sometimes inefficient? C) Why do some people prefer riskier assets? D) Why do market anomalies persist?
C
All of the following factors would prevent a person from being considered unemployed EXCEPT: A) The person works part-time. B) The person is retired. C) The person is not working after being fired for gross incompetence. D) The person is not actively looking for work.
C
Carl saved enough money to place $325,000 in an investment generating 8%, compounded monthly. He wants to collect a monthly income of $3,000 at the beginning of each month for as long as the money lasts. For how many months will he receive this income? A) 81 B) 108 C) 190 D) 193
C
Doris is 82 years old and has recently been widowed. Most of her income comes from Social Security payments and the survivorship benefits from an annuity she had purchased with her late husband. She has a few hundred thousand dollars in various stocks and bonds that she gifts periodically to her grandchildren and favorite charities. Which phase of the life cycle is Doris most likely in? A) The asset-accumulation phase B) The conservation phase C) The distribution phase D) The end-of-life phase
C
Gregory purchased a stock 15 years ago for $1,500. He sold the stock today for $2,500. Given this information, what is the average annual compound rate of return that he realized on this stock? A) 3.35% B) 3.41% C) 3.46% D) 4.44%
C
Jackson is an accountant and contributes 10% of his salary to his 401(k). His employer makes matching contributions of 3% of Jackson's salary. Last year, Jackson earned $60,000, but he received a raise and will earn $65,000 this year. Also, Jackson contributes $2,000 to an IRA at the end of each year. What is his total savings rate this year? A) 13.00% B) 14.08% C) 16.08% D) 17.42%
C
Jason earns an annual salary of $50,000. His company matches 50% of Jason's 401(k) contributions of up to 6% of his compensation, which equals a maximum company contribution of 3%. Jason contributed $5,000 to the plan this year, and his company made the matching contribution before the end of the year. The balance of his account at year's end was $95,000. What is his savings rate this year? A) 10.00% B) 11.00% C) 13.00% D) 16.00%
C - Savings Rate = Total contributions / income
Orlando recently purchased a house for $300,000. He made a down payment of $50,000 and financed the balance over 30 years at 7%. If his first payment is due on August 1st of the current year, how much interest will he pay in the current year? A) $1,036.64 B) $2,539.52 C) $7,279.64 D) $17,419.55
C - END MODE
Alexa has the following accounts with the following balances at her local bank: Individual checking account: $100,000 Individual savings account: $200,000 Irrevocable trust account: $500,000 Revocable testamentary trust account: $250,000 How much of the money in her accounts will be insured by the FDIC? A) $500,000 B) $750,000 C) $800,000 D) $1,050,000
C - The individual checking and savings are combined up to $250,000 in FDIC coverage
One of your clients, aged 55, has a high net worth and retired 3 years ago. To pay for his expenses, he pulls cash from his savings and therefore has an adjusted gross income (AGI) of under $10,000. Meanwhile, his 18-year-old daughter is filling out her FAFSA as his dependent. Based on this information, which of the following methods for determining her financial need is both available to her and will allow her to qualify for the most financial aid? A) The regular method B) The simplified method C) The automatically assessed formula D) The lifetime learning credit
C - only considers parents income not assets to qualify for the automatically assessed formula which assumes a $0 EFC
A French architect working in Germany would count toward which of the following? I. Germany's gross national productII. France's gross domestic product A) I only B) II only C) Both I and II D) Neither I nor II
D
All of the following are part of identifying and selecting goals EXCEPT A) prioritizing goals. B) discussing whether a goal is realistic and attainable. C) understanding a client's wants and needs. D) monitoring goal progress.
D
All of the following occur when a planner is establishing and defining the client relationship with a prospective client EXCEPT: A) The planner discusses their background and investment philosophy. B) The planner discloses any conflicts of interest. C) The planner provides relevant and required disclosures. D) The planner analyzes client data.
D
All of the following statements about the three-panel approach are correct EXCEPT: A) Panel 1 includes the highest-priority goals, and Panel 3 includes the lowest-priority goals. B) Buying life insurance is considered a higher-priority goal than building an emergency fund. C) Saving for retirement and funding an education goal are both part of Panel 3. D) Meeting financial security goals is part of Panel 2.
D
All the following statements about average annual earnings by degree attainment are correct EXCEPT: A) Average earnings for a person with a master's degree are about twice as high as those of a person with only a high school degree. B) The typical person with only a high school degree earns less than $40,000 per year. C) There is a clear positive relationship between degree attainment and earnings. D) The typical person with a college degree earns over $100,000 per year.
D
Tammy and Tara want to save for their 8-year-old daughter's education. The cost today, due at the beginning of the year, is $12,000. They expect that cost to inflate at 5% per year and they plan to pay for 4 years of college. If they can earn an 8% return on their investments, how much must they save at the end of each year if they want to make their last savings payment at the beginning of their daughter's first year of college (when she is 18 years old)? A) $3,930 B) $4,042 C) $4,793 D) $5,176
D
Treating others with dignity, courtesy, and respect embodies which of the following duties? A) Competence B) Diligence C) Integrity D) Professionalism
D
Updating responsibilities, checking goal progress, and gathering up-to-date client information are part of which step in the financial planning process? A) Understanding the Client's Personal and Financial Circumstances B) Identifying and Selecting Goals C) Developing the Financial Planning Recommendation(s) D) Monitoring Progress and Updating
D
When would a financial planner analyze alternative courses of action as part of the analysis step of the financial planning process? A) The planner should only do this when a client does not appear on track to meet a particular goal. B) The planner should only do this when the planner is uncertain about a particular assumption. C) The planner should only do this when a client specifically asks for alternative recommendations. D) Analyzing alternative courses of action is part of every financial plan.
D
Which of the following behaviors is consistent with prospect theory's concept of narrow framing? A) A client focuses so much attention on his finances that he ignores his other responsibilities. B) A client feels the pain of losing money more acutely than he feels the pleasure of gaining money. C) A client seeks out evidence that confirms the beliefs he already has. D) A client considers gains and losses in each of his accounts separately rather than thinking holistically about his financial situation.
D
Which of the following is considered best practice for asking open-ended "why" questions when gathering client data? A) Avoid awkward silences by moving on if clients take too long to answer. B) Generally, stick with close-ended questions and ask "why" questions sparingly. C) Ask questions that are very broad. D) Be careful not to press clients too much if they appear defensive.
D
Which of the following is most likely to be considered a variable expense on a cash-flow statement? A) Gasoline B) Rent C) Education savings fund contributions D) Gifts
D
Which of the following statements about interest rates and monetary policy are correct? A) The overnight rate is the rate at which banks borrow from the Federal Reserve. B) Increases to the discount rate generally boost economic growth. C) The discount rate is the rate at which banks may lend to each other overnight. D) The discount rate is controlled by the Federal Reserve.
D - Discount Rate = Fed Fed Funds Rate = Bank to Bank
Which of the following statements is consistent with theories about the supply curve? A) Companies will produce more of a good if consumers will pay less for the good. B) Increased manufacturing costs tend to shift the supply curve down and to the right. C) More competition tends to shift the supply curve up and to the left. D) New technologies tend to shift the supply curve down and to the right.
D - Firms can produce higher quantities at lower prices so it shifts the curve down and to the right
Based on the information provided, which of the following people is a client of a financial planner or financial advisor? A) A person who consented to a financial advising engagement orally but not in writing B) A person who has received a financial planning firm's brochure C) A person whom a financial planner hired to perform routine office work D) A person who receives general information from the planner's radio show
A
Generally, financial planners may not share confidential and nonpublic client information. There are certain circumstances, however, in which a planner may share this information. All the following are examples of such circumstances EXCEPT: A) A member of the client's immediate family requests the information. B) An employee paraplanner requires the information to conduct an analysis. C) The IRS has requested the information as part of an audit. D) A local government agency has subpoenaed the information.
A
All of the following are associated with the cognitive-behavioral school of counseling EXCEPT: A) It is important to understand the underlying environmental and social causes of behavior. B) Human behavior follows the same general principles as animal behavior. C) There is a focus on one's inherent value as a person. D) Planners can help change client behavior by assigning them "homework."
C
All of the following are best practices for helping clients to prepare a budget EXCEPT: A) Build in a line-item expense for miscellaneous expenses and emergencies. B) Calculate both the difference between income and expenses as well as the percent of expenses to income. C) Recommend increasing expenses until net discretionary cash flow is neither positive nor negative. D) Be realistic with spending behavior - but also add a line item for unforeseen expenses.
C
All of the following are considered lagging economic indicators EXCEPT A) the average duration of unemployment. B) average debt-to-income ratios. C) the average number of new building permits filed. D) the ratio of inventories to sales.
C
All the following statements about overturning a ruling that a CFP® candidate must be denied from using the marks because the candidate committed a transgression are correct EXCEPT: A) The reconsideration process begins when the candidate submits a written petition. B) Professional staff ensure the candidate's transgression is on the presumption list, as opposed to the transgression being considered unacceptable conduct. C) The commission grants or denies the petition based on information provided by the candidate. D) If the commission denies the petition, the candidate may appeal to the full CFP board.
D
For the typical client, which of the following methods for paying for a child's college education should take the lowest precedence? A) Scholarships B) Grants C) Work study D) Paying out of pocket
D
A client provides you with the following financial information: Item AmountSalary $60,000Retirement Savings$10,000"Rainy day" Savings for Weekend Trips$5,000Housing Expenses$20,000Transportation, Food, and Other Needs$15,000Vacations, Entertainment, and Other Wants$5,000 Based on this information, what is their net discretionary cash flow? A) $5,000 B) $15,000 C) $20,000 D) $30,000
A
A client provides you with the following financial information: Item AmountSalary $90,000Retirement Savings$20,000"Rainy Day" Savings for Weekend Trips$5,000Housing Expenses$30,000Transportation $20,000Food and Other Expenses$15,000 Based on this information, what is their net discretionary cash flow? A) $0 B) $20,000 C) $25,000 D) There is insufficient information to make this calculation.
A
All of the following statements about certification in financial planning are correct EXCEPT: A) Most certifications are issued by the federal government and state governments. B) Planners with certifications are generally viewed as more trustworthy. C) Several independent financial services organizations offer certifications. D) Certifications help to hold financial planners to higher ethical standards.
A
All the following are problems with using UTMAs or UGMAs to help fund a child's education EXCEPT: A) Account holders are only allowed to own cash; younger children may be better served by investing in riskier assets such as equities. B) Once the child reaches the age of majority, they may use the assets in the account for other expenses besides education. C) Both are considered student assets, which count much more than parental assets on the FAFSA and therefore limit financial aid eligibility. D) Income in both is subject to the kiddie tax, which in 2020 taxes account income at the parent's marginal tax rate.
A
By definition, an economy is in an expansion when A) gross domestic product increased from one year to the next. B) the inflation rate is positive. C) the inflation rate has increased from one year to the next. D) the gross domestic product increased by more than the inflation rate.
A
David earns $85,000 by working as an administrative assistant in a public company based in South Hampton. The company provides a matching contribution of 50% of his contribution to the 401(k) plan, up to a maximum matching contribution of 4% of his compensation. His 401(k) account had $20,000 in it at the beginning of the year. He contributed $5,000 to the plan this year, and the employer made the matching contribution before year-end. The ending balance of the account is $28,000. What is his return on investment (ROI) this year for the 401(k) account? A) 2.50% B) 5.00% C) 10.00% D) 20.00%
A
Melvin has struggled to build rapport with his client. Which of the following behaviors is most likely to improve this situation? A) Taking a genuine interest in the client's hobbies and activities B) Switching from in-person to video or phone client meetings C) Leaving all discussions of private life outside of the planner-client relationship D) Wearing more formal business attire
A
One of your clients is highly motivated to help their child pay for college. You are concerned, however, that this client will not be able to fund their own retirement plan. Of the four options listed below, which will have the most negative impact on your client's retirement plan? A) Taking an IRA distribution B) Opening a HELOC C) Taking a permanent life insurance policy loan D) Taking a graduate PLUS loan
A
When is the scope of a financial planning engagement typically defined? A) Typically, the scope is defined when establishing and defining the client relationship. B) Typically, the scope is defined when implementing recommendations. C) Typically, the scope is defined after client data has been gathered. D) The scope is continually defined and redefined throughout the engagement.
A
Which of the following best describes the cognitive bias called "herding"? A) Individuals mimic the actions or decisions of a larger group, even though the individuals may not have necessarily agreed with those actions or decisions. B) Investors have a propensity to believe that they can outperform the market based on their beliefs or skills. C) People attach their thoughts to a reference point, even though the reference point may be irrelevant and may not be pertinent to the issue in question. D) People tend to filter information and focus on information that supports their opinions.
A
Which of the following best describes the financial approach that uses quantitative benchmarks that provide guidelines of where a client's financial profile should be? A) The metrics approach B) The strategic approach C) The cash-flow approach D) The present value of goals approach
A
Which of the following clients appears to have a high risk capacity but a low risk tolerance? A) Sophia has an emergency fund with 12 months of living expenses and a large retirement portfolio made up mostly of bonds and money market securities. B) Ross has a low net worth and uses an app to day trade in cryptocurrencies. C) Michael has a sizable 401(k) invested almost entirely in growth stocks. D) Timi's only asset is a savings account worth $5,000.
A
A financial planner analyzes a client's financial situation and then presents the client with a summary of what the client is doing good at, how the client could improve, some possibilities for improving the client's financial situation, and some possibilities that could harm the client's financial situation. What kind of analysis has this financial planner performed? A) A financial security ratio analysis B) A SWOT analysis C) A four-panel analysis D) A performance ratio analysis
B
A financial planner calculates the proportion of a client's net worth that is held in investment assets. This calculation is one example of a A) horizontal analysis. B) vertical analysis. C) performance ratio analysis. D) liquidity ratio analysis.
B
A financial planner consistently finds that her clients do not actually implement her recommendations. What might she do to improve this aspect of her practice? A) Purchase new and improved financial planning software. B) Incorporate into her practice principles from counseling psychology. C) Identify more niche and exotic investment opportunities. D) She could implement all of the above.
B
A large firm announces that it has hired a design company to change its corporate logo. The new logo will be shown publicly for the first time the following day. Shareholders react by bidding up the shares by 10 percent over the relevant benchmark. No other information about this firm is released. The shareholder reaction can best be described as A) anchoring. B) representativeness. C) confirmation bias. D) mental accounting.
B
All of the following are generally true of clients working with financial planners EXCEPT: A) They tend to have more confidence that they can accomplish their financial goals. B) They can go on autopilot while the planner handles everything for them. C) They are better able to establish and prioritize goals. D) They are more aware of their financial risks and the steps to manage those risks.
B
All of the following are true regarding financial advisers EXCEPT: A) Advisers should strive to be active listeners throughout their sessions with clients. B) Advisers should only use open questions during their client meetings. C) It is important for advisers to understand their clients' values and attitudes. D) Nonverbal cues, or body language, can communicate feelings and attitudes between clients and advisers.
B
An investment experienced a 10% nominal return this year. What is its real rate of return if inflation was 4%? A) 2.50% B) 5.77% C) 6.00% D) 11.54%
B
Arthur owns one share of Bubbly Drink stock. He purchased the share 3 years ago for $26. The stock is currently trading for $25 per share. The stock has paid the following dividends over the past 3 years: Year 1: $1.00Year 2: $2.00Year 3: $3.00 What is the compounded rate of return (IRR) that he has earned on his investment? A) 4.9% B) 6.3% C) 6.4% D) 10.3%
B
Based on the information in this table, calculate Erica and Jordan's Housing Ratio 1 in numbers. Expenses and Account BalancesAnnual 401(k) Plan Contribution $16,500Annual Salary$100,000Current Liabilities $18,000Monthly Housing Costs (P&I and T&I) $3,000Cash and Cash Equivalents$24,000Monthly Nondiscretionary Cash Flows $6,000Monthly Debt Payments Other than Housing $500 The employer makes dollar-for-dollar matching contributions of up to 3% of the salary to the 401(k) plan. A) 13% B) 36% C) 42% D) 50%
B
Roger is 67 years old and hopes to retire next year. His current gross pay is $100,000, and he hopes to maintain that income in retirement. His investment portfolio is currently $2,000,000 and is expected to grow at 10% per year. He also has a savings account with $100,000 in cash, expected to grow at 0% per year. Based on this information, what is his investment-assets-to-gross-pay ratio? A) 20:1 B) 21:1 C) 22:1 D) 23:1
B
Which of the following investor behaviors can be explained by behavioral finance theories but not by traditional finance theories? A) An investor intentionally selects a very volatile portfolio. B) A stock is priced substantially higher than one would expect based on its risk. C) An investor invests to build long-term wealth because they want a happy retirement. D) A portfolio of passive index funds outperforms an actively managed portfolio.
B
Evaluating your client's emergency fund will fall into which of the following panels of the three-panel approach? A) This would fall into Panel 1. B) This would fall into Panel 2. C) This would fall into Panel 3. D) The emergency fund is not addressed in the three-panel approach.
B - Panel 1: Risks Panel 2: Short term savings, investments, and debt Panel 3: Long term savings, investments, and debt
All of the following statements about risk are true EXCEPT: A) Risk capacity is the degree of risk that a client can or should take. B) Risk tolerance is the degree of risk that a client feels comfortable taking. C) Financial planners generally assume that their client's risk tolerance level is based on objective data without first consulting their client. D) Work history, income volatility, and asset allocation can be used as data when determining a client's risk capacity.
C
All of the following types of income should be included in a budget EXCEPT A) earned income. B) stable income from an investment. C) expected inheritances. D) Social Security income.
C
All the following are advantages of Stafford loans over private student loans EXCEPT: A) Most private student loans require someone besides the student to cosign or guarantee the loan. B) Stafford loans generally offer lower interest rates and more favorable terms. C) Unlike private loans, Stafford loans do not have a limit on how much a person may borrow. D) Private student loans are not funded or subsidized by the federal government.
C
All the following are important and positive aspects of nonverbal behavior with clients EXCEPT: A) maintaining eye contact. B) making open and reassuring gestures. C) calling prospective clients by their formal titles. D) expressing interest by taking notes and nodding when listening.
C
All the following statements about performance ratios are correct EXCEPT: A) The benchmark for the return-on-assets ratio is lower than for the return-on-investments ratio. B) High debt levels tend to inflate the return-on-assets ratio. C) The return-on-investments ratio benchmark is higher for goals with short time horizons. D) Performance ratios help address whether clients are attaining sufficient returns
C
Based on the information in this table, calculate Erin's current ratio in numbers. Expenses and Account Balances Annual 401(k) Plan Contribution $16,500Annual Salary $100,000Current Liabilities $18,000Monthly Housing Costs (P&I and T&I) $2,167Cash and Cash Equivalents $24,000Monthly Nondiscretionary Cash Flows $6,000Monthly Debt Payments Other than Housing $500 The employer makes dollar-for-dollar matching contributions of up to 3% of salary to the 401(k) plan. A) 0.75:1 B) 1:1 C) 1.33:1 D) 2:1
C
Bill is paid the same no matter how wealthy a particular client is. Which of the following forms of compensation is Bill LEAST likely to use? A) An hourly rate or fee B) A flat subscription or retainer fee C) Commissions on the sale of financial products D) A percentage of the assets managed
C
Maeve and Manisha are dating and file as single filers. Maeve is earning a master's degree, while Manisha is taking continuing education classes online. This year, Maeve incurs $10,000 of qualified education expenses, and Manisha incurs $2,000 of qualified education expenses. What is the total amount of lifetime learning credits they may claim this year between their tax returns? A) $1,200 B) $2,000 C) $2,400 D) $2,500
C
Which of the following best describes the financial approach that provides a visual representation of the way in which a client distributes resources? A) The strategic approach B) The two-step/three-panel approach C) The pie chart approach D) The life-cycle approach
C
Which of the following insurance recommendations will result in a positive cash flow? A) Increase the amount of current coverage. B) Change the name of the beneficiary to someone with a better credit score. C) Raise insurance deductibles. D) Purchase a new life insurance policy.
C
Which of the following is most likely the beginning of a closed question? A) "Why did you...?" B) "How did you...?" C) "Is it true that...?" D) None of the above are closed questions.
C
Which of the following is the formula to calculate net discretionary cash flow (NDCF)? A) income - savings = net discretionary cash flow B) income + savings - expenses = net discretionary cash flow C) income - savings - expenses = net discretionary cash flow D) income + savings + expenses = net discretionary cash flow
C
Which of the following items appears on a cash-flow statement? A) Home equity B) Credit card limits C) Deposits to retirement accounts D) Debt balances
C
Which of the following statements about nonverbal cues and body language is correct? A) Crossing one's arms during conversation tends to enhance communication. B) Maintaining eye contact is often seen as threatening. C) Nonverbal cues can sometimes convey more information than the spoken word. D) Planners who take notes while a client is speaking are generally seen as being distracted.
C
Which of the following statements about subsidized and unsubsidized Stafford student loans is (are) correct? I. For both types of loans, the first payment is due 6 months after the borrower graduates.II. From the time the funds are dispersed until the borrower graduates, only unsubsidized loans accrue interest. A) I only B) II only C) Both I and II D) Neither I nor II
C
Which of the following statements is (are) correct regarding the role of formality within the financial planner-client relationship? I. Formality can include addressing clients by their proper title, respecting the client's time, and being punctual.II. Formality can be relaxed later in the relationship as the planner and client become more well acquainted. A) I only B) II only C) Both I and II D) Neither I nor II
C
Which of the following would be considered a discretionary cash flow? A) Food B) Tuition C) A Netflix subscription D) An auto loan
C
Your client invested $3,000 in a certificate of deposit that pays a 3% annual interest rate, compounded quarterly. How much will the note be worth at the end of 3 years, assuming that all interest is reinvested at the 3% rate? A) $3,270 B) $3,278 C) $3,281 D) $4,277
C
Pauline and Mel are a married couple with two children in college this year. They have a combined adjusted gross income of $75,000 and file jointly. They paid $3,000 in qualified educational expenses for one of their children and $2,000 for the other. What is the amount of the American Opportunity tax credit they can claim on their tax return this year? A) $2,000 B) $2,500 C) $4,250 D) $5,000
C - AOTC = 100% first 2000 and 25% of next 2000
According to behavioral finance theories, all the following people are likely to be influenced by irrational thinking and biases EXCEPT A) a client who is not very confident about managing their finances. B) a "do it yourselfer" client who is very confident about managing their finances. C) an experienced financial planner who manages their clients' finances. D) There are no exceptions. All of these people are likely to be influenced by irrational thinking and biases.
D
Annie is a Certified Financial Planner™. In which of the following instances would she be held to the fiduciary standard? I. When she provides general financial planning information during a radio interviewII. When acting as a broker and executing a stock trade A) I only B) II only C) Both I and II D) Neither I nor II
D
Ezra's current gross pay is $90,000. Her investment portfolio is currently $765,000, and she has a savings account with $45,000 in cash. If she also has $180,000 in student loans, what is her investment-assets-to-gross-pay ratio? A) 6.5:1 B) 7.0:1 C) 8.5:1 D) 9.0:1
D
In the late 1990s, the stock prices of internet companies rose dramatically. Individual investors and professional money managers saw many people become very rich by investing in these companies. They became excited by the rising prices and bought in, even though many of these companies never turned a profit. The popularity of these stocks (and the ultimate crash in 2001) seems like a practical example of which behavioral mistake? A) the disposition effect. B) mental accounting. C) assuming market efficiency. D) herding.
D
Mac is saving so that he can retire in 25 years. At the beginning of each year, he plans to save $10,000 toward this goal. Each year, he plans to increase his retirement savings by 2%. When estimating his total retirement portfolio in 25 years, which time value of money technique is most appropriate? A) Uneven cash flows B) An ordinary annuity C) An annuity due D) Serial payments
D
Scott's salary is $90,000 per year. He contributes 12% of his salary to his 401(k) plan. His employer makes a matching contribution of 5% of Scott's salary. Scott also contributes $2,500 per year to an IRA. His annual savings rate is A) 12.00% B) 14.78% C) 17.00% D) 19.78%
D
Which of the following is true in terms of biases that affect a rational investor as described in traditional finance? A) The rational investor is affected by the disposition effect. B) The rational investor is affected by the overreaction bias. C) The rational investor is affected by anchoring. D) In traditional finance theory, a rational investor is not affected by bias.
D
You would expect to find all the following items on a balance sheet EXCEPT A) the amount of cash in a savings account. B) a car loan. C) the estimated value of a client's furniture. D) monthly utility payments.
D
Your client wants to help their child with educational expenses but is not able to pay out of pocket at the moment. The client and their child are considering student loans. Which of the following risks should you discuss with the client? A) If their child defaults on a Stafford loan, the federal government may garnish your client's wages. B) The child will not be eligible for a Stafford loan unless the client cosigns the loan. C) If the client cosigns a private loan, the client will be responsible for making half of the monthly payments. D) If the child defaults on a private loan which the client cosigned, the client may have their Social Security payments reduced.
D
Your favorite clients are retiring today and want to receive $55,000 per year in today's dollars at the beginning of each year for the next 35 years. If they earn 6% per year and inflation will be 3% each year, about how large does their investment portfolio need to be today to meet this goal? A) $633,000 B) $845,000 C) $1,197,000 D) $1,232,000
D
The McCartneys plan to retire in 20 years and are interested in refinancing their home. Their current mortgage balance is $177,000. They recently discovered that they could reduce their mortgage interest rate from 10% to 4%. The value of homes in their neighborhood has been increasing at the rate of 5% annually. If the McCartneys were to refinance their house with $3,000 in closing costs added to their current mortgage balance over a period of time that coincides with their chosen retirement date, what would be their new monthly payment including principal and interest? A) $1,069 B) $1,073 C) $1,087 D) $1,091
D - Just PMT not AMORT
Parker buys a piece of equipment for $9,000. He pays $5,000 for upgrades in year 1, and the equipment generates $2,000 in cash flow for that year. In year 2, the equipment generates $8,000. In year 3, it generates $4,000. In that same year, he sells it for $6,000 and pays a $500 commission. Parker's required rate of return is 8%. What is the net present value (NPV)? A) ‹$5,500› B) $5,500 C) ‹$2,622› D) $2,622
D - Need to include I/YR in formula
