CFP PRACTICE TEST QUESTIONS AND
CORRECT ANSWERS
Question 1
Le'Veon wants to purchase a life insurance policy on his own life. He is concerned that
the policy may lapse if he inadvertently forgets to pay the premiums. Le'Veon's family
has a history of medical issues, and he is concerned that he may become uninsurable
in the future. Which of the following policy provisions would best address Le'Veon's
concerns?
A)
Automatic premium loan provision
B)
Nonforfeiture provision
C)
Reinstatement provision
D)
Contestability provision
Correct Answer
A. The answer is automatic premium loan provision. The automatic premium loan
provision provides that the premium will automatically be charged against the
policy cash value if it is not paid by the due date. A reinstatement provision allows a
policyholder to reinstate a policy after it lapses, but only if the insured can prove
insurability. A nonforfeiture provision specifies what will happen to the cash value if
the policyowner discontinues premium payments, and an incontestability provision
prevents the insurer from challenging the validity of a policy after it has been in
force for a specific period.
Page 1 of 490
,Question 2
Over the years, Quinn has made timely payments on four of his credit card accounts,
all which have balances near the available credit limits. He did pay off a fifth credit
card account, which he had for 20 years, and immediately closed it. Which of the
following statements regarding Quinn's credit score is CORRECT?
By immediately closing his long-standing account when it was paid off, Quinn likely
decreased his credit score.
Having four credit card account balances near their available credit limits will in all
likelihood adversely affect Quinn's credit score.
A)
Both I and II
B)
I only
C)
Neither I nor II
D)
II only
Correct Answer
The correct answer is both I and II. Immediately closing long-standing accounts will
likely decrease Quinn's credit score. Keeping account balances near the available
credit limit has a negative effect.
Question 3
Calculate the number of years it will take $100,000 to grow to $5,000,000 assuming an
annual rate of return of 7%, compounded monthly (rounded to two decimal places).
A) 56.05
B) 693.84
C) 672.59
D) 57.82
Correct Answer
The answer is 56.05.
END Mode
12, DOWNSHIFT, P/YR
C ALL
100,000, +/‒, PV
7, I/YR
5,000,000, FV
Solve for N = 672.5866 months = 56.0489 years (56.05, rounded)
Page 2 of 490
,Question 4
Select the category of conduct defined in the Fitness Standards for which a petition
for consideration is NOT permitted.
A)Conduct Deemed Unacceptable
B)Conduct Deemed a Temporary Bar
C)Conduct Deemed a Presumptive Bar
D)Conduct Deemed Adverse
Correct Answer
The answer is Conduct Deemed Unacceptable.
.Conduct Deemed Unacceptable is the category of conduct defined in the Fitness
Standards under which an individual may not submit a petition for consideration.
Question 5
As a financial planner you must be familiar with several different economic and
interest rates, and how to use them in calculations that are important to your clients.
Assume the following rates:
Prime rate5.5%Interest rate − Investment A8.0%Inflation rate2.5%Discount rate2.0%
Considering all the interest rates above, calculate the inflation-adjusted return for
investment A.
A)
2.37%
B)
5.88%
C)
3.20%
D)
5.37%
Correct Answer
The correct answer is 5.37%.
[(1.08 ÷ 1.025) − 1] x 100 = 5.3659, rounded to 5.37%
This can also be calculated using the method below.
1.025, INPUT
1.08, DOWNSHIFT, % CHG
Solve for I/YR = 5.37%
Page 3 of 490
, Question 6
All of the following are personal risk exposures that may indicate a need for life
insurance except
A)
death of a client with considerable liquid assets.
B)
death before debt repayment.
C)
a spouse outliving the pension plan of a pure life annuitant.
D)
death of client before reaching personal goals.
Correct Answer
A The answer is death of a client with considerable liquid assets. Generally, the
greater the assets, the less need for life insurance at death. However, this does not
totally preclude the need for some amount of life insurance.
Question 7
Kristoff has been advised by his financial planner that he needs to increase his
savings. Which of the following are ways Kristoff can save for this purpose?
Cancel his video game subscription
Choose a more economical cable channel plan
Use his overdraft feature on his debit cards
Decrease the deductible on his homeowners policy
A)
II, III, and IV
B)
I and II
C)
I, II, and IV
D)
I, II, and III
Correct Answer
The correct answer is I and II. Using an overdraft feature on debit cards may tempt
Kristoff to spend money he does not have available in his account. Decreasing
insurance deductibles increases premiums, which is not a savings strategy.
Page 4 of 490
CORRECT ANSWERS
Question 1
Le'Veon wants to purchase a life insurance policy on his own life. He is concerned that
the policy may lapse if he inadvertently forgets to pay the premiums. Le'Veon's family
has a history of medical issues, and he is concerned that he may become uninsurable
in the future. Which of the following policy provisions would best address Le'Veon's
concerns?
A)
Automatic premium loan provision
B)
Nonforfeiture provision
C)
Reinstatement provision
D)
Contestability provision
Correct Answer
A. The answer is automatic premium loan provision. The automatic premium loan
provision provides that the premium will automatically be charged against the
policy cash value if it is not paid by the due date. A reinstatement provision allows a
policyholder to reinstate a policy after it lapses, but only if the insured can prove
insurability. A nonforfeiture provision specifies what will happen to the cash value if
the policyowner discontinues premium payments, and an incontestability provision
prevents the insurer from challenging the validity of a policy after it has been in
force for a specific period.
Page 1 of 490
,Question 2
Over the years, Quinn has made timely payments on four of his credit card accounts,
all which have balances near the available credit limits. He did pay off a fifth credit
card account, which he had for 20 years, and immediately closed it. Which of the
following statements regarding Quinn's credit score is CORRECT?
By immediately closing his long-standing account when it was paid off, Quinn likely
decreased his credit score.
Having four credit card account balances near their available credit limits will in all
likelihood adversely affect Quinn's credit score.
A)
Both I and II
B)
I only
C)
Neither I nor II
D)
II only
Correct Answer
The correct answer is both I and II. Immediately closing long-standing accounts will
likely decrease Quinn's credit score. Keeping account balances near the available
credit limit has a negative effect.
Question 3
Calculate the number of years it will take $100,000 to grow to $5,000,000 assuming an
annual rate of return of 7%, compounded monthly (rounded to two decimal places).
A) 56.05
B) 693.84
C) 672.59
D) 57.82
Correct Answer
The answer is 56.05.
END Mode
12, DOWNSHIFT, P/YR
C ALL
100,000, +/‒, PV
7, I/YR
5,000,000, FV
Solve for N = 672.5866 months = 56.0489 years (56.05, rounded)
Page 2 of 490
,Question 4
Select the category of conduct defined in the Fitness Standards for which a petition
for consideration is NOT permitted.
A)Conduct Deemed Unacceptable
B)Conduct Deemed a Temporary Bar
C)Conduct Deemed a Presumptive Bar
D)Conduct Deemed Adverse
Correct Answer
The answer is Conduct Deemed Unacceptable.
.Conduct Deemed Unacceptable is the category of conduct defined in the Fitness
Standards under which an individual may not submit a petition for consideration.
Question 5
As a financial planner you must be familiar with several different economic and
interest rates, and how to use them in calculations that are important to your clients.
Assume the following rates:
Prime rate5.5%Interest rate − Investment A8.0%Inflation rate2.5%Discount rate2.0%
Considering all the interest rates above, calculate the inflation-adjusted return for
investment A.
A)
2.37%
B)
5.88%
C)
3.20%
D)
5.37%
Correct Answer
The correct answer is 5.37%.
[(1.08 ÷ 1.025) − 1] x 100 = 5.3659, rounded to 5.37%
This can also be calculated using the method below.
1.025, INPUT
1.08, DOWNSHIFT, % CHG
Solve for I/YR = 5.37%
Page 3 of 490
, Question 6
All of the following are personal risk exposures that may indicate a need for life
insurance except
A)
death of a client with considerable liquid assets.
B)
death before debt repayment.
C)
a spouse outliving the pension plan of a pure life annuitant.
D)
death of client before reaching personal goals.
Correct Answer
A The answer is death of a client with considerable liquid assets. Generally, the
greater the assets, the less need for life insurance at death. However, this does not
totally preclude the need for some amount of life insurance.
Question 7
Kristoff has been advised by his financial planner that he needs to increase his
savings. Which of the following are ways Kristoff can save for this purpose?
Cancel his video game subscription
Choose a more economical cable channel plan
Use his overdraft feature on his debit cards
Decrease the deductible on his homeowners policy
A)
II, III, and IV
B)
I and II
C)
I, II, and IV
D)
I, II, and III
Correct Answer
The correct answer is I and II. Using an overdraft feature on debit cards may tempt
Kristoff to spend money he does not have available in his account. Decreasing
insurance deductibles increases premiums, which is not a savings strategy.
Page 4 of 490
