CFP PRACTICE TEST QUESTIONS
WITH CORRECT DETAILED
ANSWERS UPDATED| VERIFIED
( Case Study)
Analyze the following scenario. Ryan's neighbor, Dan, asked you to prepare
his tax return and financial statements for the previous year. You do this for
Dan and meet with him when the documents are completed. During your
meeting, you present an investment plan for Dan based on the information
he provided for the tax return preparation. Dan thanks you for completing the
tax return and financial statements and pays you a fee for your work. Dan,
however, tells you he is not interested in an investment plan at this time but
may contact you in the future if circumstances change. Assuming you are
competent to prepare the tax return and financial statements, did you
provide financial planning for Dan based on the facts presented?
A)
Yes, because you charged Dan a fee for his services.
B)
No, because Dan did not ask you to prepare, nor did he expect you to create,
an investment plan.
C)
Yes, because you - Ans--The correct answer is no, because Dan did not ask
you to prepare, nor did he expect you to create, an investment plan. Dan
expected no more from you than the preparation of his tax return and
financial statements; he did not request any of the financial planning subject
areas be addressed. The fact that Dan paid you a fee for your services, and
that Dan is Ryan's neighbor, does not make the assistance you provided to
Dan financial planning. In some cases, a client's request for a singular
service may rise to the level of financial planning. Depending on the depth
and breadth of a service and the intent of the client, as well as the
comprehensiveness of information gathered, a service might be considered
financial planning.
(Martin Case Study)
,Assume the Martins
paid $2,000 of their credit card debt using a gift from Emile and Dee;
financed the purchase of an $800 laptop using a new line of credit; and
bought Justin a vintage trombone, valued at $500, online for $300 using their
checking account debit card.
Calculate the Martins' net worth after these transactions.
A)
$219,053
B)
$219,653
C)
$220,153
D)
$218,753 - Ans--The correct answer is $218,753. Paying $2,000 of credit
card debt reduces the Martins' liabilities by this amount. This has a positive
effect of $2,000 on net worth. Although the purchase of the laptop will
increase the Martins' assets by $800, the use of credit will increase liabilities
by the same amount; therefore, this transaction has no effect on net worth.
Using checking account funds (via a debit card) of $300 to purchase the
vintage trombone valued at $500 will result in an increase in assets of $200
($500 − $300). This results in a total net worth of $218,753 ($216,553 net
worth from Statement of Financial Position + $2,000 + $200).
(Martin Case Study)
Assuming the Martins' original 30-year fixed mortgage loan amount was
$200,000, what is the interest rate on the loan?
A)
9.75%
B)
8.75%
C)
10.5%
D)
10.75% - Ans--The correct answer is 10.5%
END Mode
12, DOWNSHIFT, P/YR
C ALL
,200,000, PV
30, DOWNSHIFT, N
1.829.50, PMT (Mortgage payments from Statement of Cash Flows ÷ 12)
Solve for I/YR = 10.5%
(Martin Case Study)
Calculate the Martins' savings from refinancing their home loan over the first
year of the new loan. Assume they refinance with a 30-year loan. The result
is
A)
$7,716.72.
B)
$643.06.
C)
$1,829.50.
D)
$1,186.44. - Ans--he correct answer is $7,716.72.
Current monthly mortgage payment—$1,829.50
Mortgage payment after refinancing—$1,186.44
END Mode
12, DOWNSHIFT, P/YR
DOWNSHIFT, C ALL
197888, PV
6, I/YR
30, DOWNSHIFT, N = 360
Solve for PV = -1,186.4385, or $1,186.44
Monthly savings—643.06 × 12
Savings over the first year of the loan—$7,716.72
(Do not factor in closing costs because they are being paid from separate
funds.)
(Martin Case Study)
From your meetings with Ryan, you realize he has a tendency to follow the
actions of a larger group of people when making financial decisions,
whether those actions are rational or not. Choose the behavioral finance
theory that explains Ryan's behavior.
A)
Confirmation bias
, B)
Herding
C)
Anchoring
D)
Overconfidence - Ans--The correct answer is herding. Ryan's behavior is
known as herding. Confirmation bias is the tendency to pay attention to
information that supports one's preconceived opinions, while disregarding
accurate, unsupportive information. Overconfidence occurs when an
investor considers his abilities to be much better than they actually are.
Anchoring occurs when a person makes an irrational decision based on
information that should have no influence on the decision.
(Martin Case Study)
Ryan and Nicole have decided to contribute equally to the cost of a $16,000
used car for Joshua when he graduates from college in two years. Ryan can
earn a 5% annual after-tax rate of return. Calculate the amount Ryan must
save at the beginning of each month, starting today, to reach this goal.
A)
$317.67
B)
$632.67
C)
$309.72
D)
$316.32 - Ans--The correct answer is $316.32.
Use BEG mode because this is an annuity due calculation.
12, DOWNSHIFT, P/YR
DOWNSHIFT, C ALL
8000, FV (Ryan's share of the cost)
5, I/YR
2, DOWNSHIFT, N = 24
Solve for PMTAD = -316.32, or $316.32
(Martin Case Study)
Ryan is considering purchasing a variable universal life policy. Identify the
licenses you must maintain to sell him the policy.
1.) Series 24
WITH CORRECT DETAILED
ANSWERS UPDATED| VERIFIED
( Case Study)
Analyze the following scenario. Ryan's neighbor, Dan, asked you to prepare
his tax return and financial statements for the previous year. You do this for
Dan and meet with him when the documents are completed. During your
meeting, you present an investment plan for Dan based on the information
he provided for the tax return preparation. Dan thanks you for completing the
tax return and financial statements and pays you a fee for your work. Dan,
however, tells you he is not interested in an investment plan at this time but
may contact you in the future if circumstances change. Assuming you are
competent to prepare the tax return and financial statements, did you
provide financial planning for Dan based on the facts presented?
A)
Yes, because you charged Dan a fee for his services.
B)
No, because Dan did not ask you to prepare, nor did he expect you to create,
an investment plan.
C)
Yes, because you - Ans--The correct answer is no, because Dan did not ask
you to prepare, nor did he expect you to create, an investment plan. Dan
expected no more from you than the preparation of his tax return and
financial statements; he did not request any of the financial planning subject
areas be addressed. The fact that Dan paid you a fee for your services, and
that Dan is Ryan's neighbor, does not make the assistance you provided to
Dan financial planning. In some cases, a client's request for a singular
service may rise to the level of financial planning. Depending on the depth
and breadth of a service and the intent of the client, as well as the
comprehensiveness of information gathered, a service might be considered
financial planning.
(Martin Case Study)
,Assume the Martins
paid $2,000 of their credit card debt using a gift from Emile and Dee;
financed the purchase of an $800 laptop using a new line of credit; and
bought Justin a vintage trombone, valued at $500, online for $300 using their
checking account debit card.
Calculate the Martins' net worth after these transactions.
A)
$219,053
B)
$219,653
C)
$220,153
D)
$218,753 - Ans--The correct answer is $218,753. Paying $2,000 of credit
card debt reduces the Martins' liabilities by this amount. This has a positive
effect of $2,000 on net worth. Although the purchase of the laptop will
increase the Martins' assets by $800, the use of credit will increase liabilities
by the same amount; therefore, this transaction has no effect on net worth.
Using checking account funds (via a debit card) of $300 to purchase the
vintage trombone valued at $500 will result in an increase in assets of $200
($500 − $300). This results in a total net worth of $218,753 ($216,553 net
worth from Statement of Financial Position + $2,000 + $200).
(Martin Case Study)
Assuming the Martins' original 30-year fixed mortgage loan amount was
$200,000, what is the interest rate on the loan?
A)
9.75%
B)
8.75%
C)
10.5%
D)
10.75% - Ans--The correct answer is 10.5%
END Mode
12, DOWNSHIFT, P/YR
C ALL
,200,000, PV
30, DOWNSHIFT, N
1.829.50, PMT (Mortgage payments from Statement of Cash Flows ÷ 12)
Solve for I/YR = 10.5%
(Martin Case Study)
Calculate the Martins' savings from refinancing their home loan over the first
year of the new loan. Assume they refinance with a 30-year loan. The result
is
A)
$7,716.72.
B)
$643.06.
C)
$1,829.50.
D)
$1,186.44. - Ans--he correct answer is $7,716.72.
Current monthly mortgage payment—$1,829.50
Mortgage payment after refinancing—$1,186.44
END Mode
12, DOWNSHIFT, P/YR
DOWNSHIFT, C ALL
197888, PV
6, I/YR
30, DOWNSHIFT, N = 360
Solve for PV = -1,186.4385, or $1,186.44
Monthly savings—643.06 × 12
Savings over the first year of the loan—$7,716.72
(Do not factor in closing costs because they are being paid from separate
funds.)
(Martin Case Study)
From your meetings with Ryan, you realize he has a tendency to follow the
actions of a larger group of people when making financial decisions,
whether those actions are rational or not. Choose the behavioral finance
theory that explains Ryan's behavior.
A)
Confirmation bias
, B)
Herding
C)
Anchoring
D)
Overconfidence - Ans--The correct answer is herding. Ryan's behavior is
known as herding. Confirmation bias is the tendency to pay attention to
information that supports one's preconceived opinions, while disregarding
accurate, unsupportive information. Overconfidence occurs when an
investor considers his abilities to be much better than they actually are.
Anchoring occurs when a person makes an irrational decision based on
information that should have no influence on the decision.
(Martin Case Study)
Ryan and Nicole have decided to contribute equally to the cost of a $16,000
used car for Joshua when he graduates from college in two years. Ryan can
earn a 5% annual after-tax rate of return. Calculate the amount Ryan must
save at the beginning of each month, starting today, to reach this goal.
A)
$317.67
B)
$632.67
C)
$309.72
D)
$316.32 - Ans--The correct answer is $316.32.
Use BEG mode because this is an annuity due calculation.
12, DOWNSHIFT, P/YR
DOWNSHIFT, C ALL
8000, FV (Ryan's share of the cost)
5, I/YR
2, DOWNSHIFT, N = 24
Solve for PMTAD = -316.32, or $316.32
(Martin Case Study)
Ryan is considering purchasing a variable universal life policy. Identify the
licenses you must maintain to sell him the policy.
1.) Series 24
