NEWEST CERTIFIED FINANCIAL PLANNER
(CFP) EXAM | ULTIMATE EXAM WITH
CORRECT ANSWERS AND RATIONALES
FOR CERTIFICATION SUCCESS
1. The CFP Board's Code of Ethics requires that a
CFP professional act as a fiduciary. This means that
the CFP must:
A) Act in the best interest of the client at all times
B) Act in the best interest of the firm
C) Act in the best interest of the financial products
being sold
D) Act in the best interest of the regulator
E) Act in the best interest of the public at large
Correct answer: A
Rationale: The fiduciary standard requires placing
the client's interests above the planner's own.
2. A CFP professional discovers an error in a client's
previous tax return that the client did not prepare.
The error results in an underpayment of taxes. The
CFP should:
,A) Ignore the error because the client did not prepare
the return
B) Advise the client to file an amended return and
disclose the error
C) Report the error to the IRS without the client's
consent
D) Correct the error on the current year's return
without amending prior years
E) Recommend that the client ignore the error
because the statute of limitations may have expired
Correct answer: B
Rationale: Clients have a duty to correct material
errors; the CFP should advise accordingly.
3. A client has a marginal tax rate of 24%. She is
considering investing in a municipal bond with a tax-
free yield of 3.5%. The taxable equivalent yield is:
A) 3.5%
B) 4.0%
C) 4.6%
D) 5.0%
E) 5.5%
,Correct answer: C
Rationale: Taxable equivalent yield = 3.5% / (1 - 0.24)
= 3.5% / 0.76 = 4.605% ≈ 4.6%.
4. A client with a 30-year mortgage has 10 years
remaining. The interest rate is 4.5%. The client is
considering refinancing to a 10-year mortgage at
3.5%. Closing costs are $5,000. Which of the
following factors should the client consider most
carefully?
A) The client's current monthly payment
B) The length of time the client plans to stay in the
home
C) The client's credit score
D) The client's other debt obligations
E) The client's marginal tax rate
Correct answer: B
Rationale: The break-even point depends on how long
the client will remain in the home.
, 5. A client has a 401(k) plan with a balance of
$500,000. The client is age 55 and is considering a
loan from the 401(k). Which of the following is a
disadvantage of a 401(k) loan?
A) The loan is tax-free
B) The loan repayment is with after-tax dollars, and
the funds are taxed again upon withdrawal
C) The loan is not reported to credit bureaus
D) The loan has no impact on retirement savings
E) The loan can be defaulted without penalty
Correct answer: B
Rationale: Double taxation of the loan proceeds is a
key disadvantage.
6. A client is age 62 and considering taking Social
Security benefits early. If the client takes benefits at
age 62, the monthly benefit is reduced by
approximately:
A) 10% from the full retirement age benefit
B) 20% from the full retirement age benefit
C) 30% from the full retirement age benefit
D) 40% from the full retirement age benefit
(CFP) EXAM | ULTIMATE EXAM WITH
CORRECT ANSWERS AND RATIONALES
FOR CERTIFICATION SUCCESS
1. The CFP Board's Code of Ethics requires that a
CFP professional act as a fiduciary. This means that
the CFP must:
A) Act in the best interest of the client at all times
B) Act in the best interest of the firm
C) Act in the best interest of the financial products
being sold
D) Act in the best interest of the regulator
E) Act in the best interest of the public at large
Correct answer: A
Rationale: The fiduciary standard requires placing
the client's interests above the planner's own.
2. A CFP professional discovers an error in a client's
previous tax return that the client did not prepare.
The error results in an underpayment of taxes. The
CFP should:
,A) Ignore the error because the client did not prepare
the return
B) Advise the client to file an amended return and
disclose the error
C) Report the error to the IRS without the client's
consent
D) Correct the error on the current year's return
without amending prior years
E) Recommend that the client ignore the error
because the statute of limitations may have expired
Correct answer: B
Rationale: Clients have a duty to correct material
errors; the CFP should advise accordingly.
3. A client has a marginal tax rate of 24%. She is
considering investing in a municipal bond with a tax-
free yield of 3.5%. The taxable equivalent yield is:
A) 3.5%
B) 4.0%
C) 4.6%
D) 5.0%
E) 5.5%
,Correct answer: C
Rationale: Taxable equivalent yield = 3.5% / (1 - 0.24)
= 3.5% / 0.76 = 4.605% ≈ 4.6%.
4. A client with a 30-year mortgage has 10 years
remaining. The interest rate is 4.5%. The client is
considering refinancing to a 10-year mortgage at
3.5%. Closing costs are $5,000. Which of the
following factors should the client consider most
carefully?
A) The client's current monthly payment
B) The length of time the client plans to stay in the
home
C) The client's credit score
D) The client's other debt obligations
E) The client's marginal tax rate
Correct answer: B
Rationale: The break-even point depends on how long
the client will remain in the home.
, 5. A client has a 401(k) plan with a balance of
$500,000. The client is age 55 and is considering a
loan from the 401(k). Which of the following is a
disadvantage of a 401(k) loan?
A) The loan is tax-free
B) The loan repayment is with after-tax dollars, and
the funds are taxed again upon withdrawal
C) The loan is not reported to credit bureaus
D) The loan has no impact on retirement savings
E) The loan can be defaulted without penalty
Correct answer: B
Rationale: Double taxation of the loan proceeds is a
key disadvantage.
6. A client is age 62 and considering taking Social
Security benefits early. If the client takes benefits at
age 62, the monthly benefit is reduced by
approximately:
A) 10% from the full retirement age benefit
B) 20% from the full retirement age benefit
C) 30% from the full retirement age benefit
D) 40% from the full retirement age benefit
