CHFC CORRECT FINAL EXAMS QUESTIONS AND
ANSWERS SURE A+
✔✔entity agreement - ✔✔A buy-sell arrangement where the business entity purchases
ownership interests.
✔✔What are the seven steps of the financial planning process? - ✔✔Establish the
relationship, gather data, analyze information, develop recommendations, communicate
recommendations, implement recommendations, and monitor the plan.
✔✔Why is diversification important in investing? - ✔✔Diversification reduces
unsystematic risk by spreading investments across different assets.
✔✔What is the primary purpose of estate planning? - ✔✔To ensure orderly transfer of
assets, minimize taxes and expenses, and carry out the client's wishes.
✔✔What is the difference between systematic and unsystematic risk? - ✔✔Systematic
risk affects the entire market and cannot be diversified away, while unsystematic risk is
specific to individual investments and can be reduced through diversification.
✔✔What is probate avoidance? - ✔✔Using strategies such as trusts, beneficiary
designations, and joint ownership to transfer assets outside probate.
,✔✔Why are assumptions important in financial planning? - ✔✔Assumptions such as
inflation and investment returns affect projections and planning recommendations.
✔✔What is a grantor trust? - ✔✔A trust in which the grantor is treated as the owner for
income tax purposes.
✔✔What is a QDRO used for? - ✔✔To divide qualified retirement plan assets between
spouses during divorce.
✔✔What is the purpose of life insurance in estate planning? - ✔✔To provide liquidity,
replace income, fund taxes, and preserve assets for heirs.
✔✔What is the difference between qualitative and quantitative goals? - ✔✔Quantitative
goals are measurable and numerical, while qualitative goals relate to lifestyle or
emotional objectives.
✔✔What is systematic risk? - ✔✔Risk that affects the entire market and cannot be
eliminated through diversification
✔✔What is unsystematic risk? - ✔✔Company-specific risk that can be reduced through
diversification
✔✔According to CAPM, investors are compensated for which type of risk? -
✔✔Systematic risk only
✔✔What does a beta greater than 1 indicate? - ✔✔The stock is more volatile than the
overall market
✔✔What does a beta less than 1 indicate? - ✔✔The stock is less volatile than the
market
✔✔What does a beta equal to 0 represent? - ✔✔A risk-free asset with no correlation to
market movement
✔✔What is the primary assumption of neoclassical economics? - ✔✔Individuals
possess sufficient information and rationality to maximize utility
✔✔What does utility mean in economics? - ✔✔A measure of satisfaction or benefit
received from a choice
✔✔What is bounded rationality? - ✔✔The concept that people make decisions with
limited information and cognitive constraints
, ✔✔What is satisficing? - ✔✔Choosing an acceptable solution rather than the optimal
solution
✔✔What is confirmation bias? - ✔✔The tendency to seek information supporting
existing beliefs while ignoring contradictory evidence
✔✔What is availability bias? - ✔✔Relying on information that is easiest to recall rather
than most relevant
✔✔What is recency bias? - ✔✔Giving excessive weight to recent events when making
decisions
✔✔What is framing bias? - ✔✔Reaching different conclusions depending on how
information is presented
✔✔What is loss aversion? - ✔✔The tendency for losses to feel more painful than
equivalent gains feel rewarding
✔✔What is hindsight bias? - ✔✔Believing past events were predictable after they
already occurred
✔✔What is overconfidence bias? - ✔✔Overestimating one's investing skill or knowledge
✔✔What is anchoring bias? - ✔✔Relying too heavily on an initial value or reference
point
✔✔What is gambler's fallacy? - ✔✔Believing previous random outcomes influence
future independent events
✔✔What is reference dependence? - ✔✔Evaluating outcomes relative to a prior
benchmark or expectation
✔✔What is mental accounting? - ✔✔Separating money into subjective categories
instead of viewing wealth holistically
✔✔What is home bias? - ✔✔Preference for investments that are geographically familiar
✔✔What is illusion of control? - ✔✔Believing one can influence outcomes largely
determined by chance
✔✔What is the efficient market hypothesis (EMH)? - ✔✔The theory that asset prices
rapidly reflect available information
ANSWERS SURE A+
✔✔entity agreement - ✔✔A buy-sell arrangement where the business entity purchases
ownership interests.
✔✔What are the seven steps of the financial planning process? - ✔✔Establish the
relationship, gather data, analyze information, develop recommendations, communicate
recommendations, implement recommendations, and monitor the plan.
✔✔Why is diversification important in investing? - ✔✔Diversification reduces
unsystematic risk by spreading investments across different assets.
✔✔What is the primary purpose of estate planning? - ✔✔To ensure orderly transfer of
assets, minimize taxes and expenses, and carry out the client's wishes.
✔✔What is the difference between systematic and unsystematic risk? - ✔✔Systematic
risk affects the entire market and cannot be diversified away, while unsystematic risk is
specific to individual investments and can be reduced through diversification.
✔✔What is probate avoidance? - ✔✔Using strategies such as trusts, beneficiary
designations, and joint ownership to transfer assets outside probate.
,✔✔Why are assumptions important in financial planning? - ✔✔Assumptions such as
inflation and investment returns affect projections and planning recommendations.
✔✔What is a grantor trust? - ✔✔A trust in which the grantor is treated as the owner for
income tax purposes.
✔✔What is a QDRO used for? - ✔✔To divide qualified retirement plan assets between
spouses during divorce.
✔✔What is the purpose of life insurance in estate planning? - ✔✔To provide liquidity,
replace income, fund taxes, and preserve assets for heirs.
✔✔What is the difference between qualitative and quantitative goals? - ✔✔Quantitative
goals are measurable and numerical, while qualitative goals relate to lifestyle or
emotional objectives.
✔✔What is systematic risk? - ✔✔Risk that affects the entire market and cannot be
eliminated through diversification
✔✔What is unsystematic risk? - ✔✔Company-specific risk that can be reduced through
diversification
✔✔According to CAPM, investors are compensated for which type of risk? -
✔✔Systematic risk only
✔✔What does a beta greater than 1 indicate? - ✔✔The stock is more volatile than the
overall market
✔✔What does a beta less than 1 indicate? - ✔✔The stock is less volatile than the
market
✔✔What does a beta equal to 0 represent? - ✔✔A risk-free asset with no correlation to
market movement
✔✔What is the primary assumption of neoclassical economics? - ✔✔Individuals
possess sufficient information and rationality to maximize utility
✔✔What does utility mean in economics? - ✔✔A measure of satisfaction or benefit
received from a choice
✔✔What is bounded rationality? - ✔✔The concept that people make decisions with
limited information and cognitive constraints
, ✔✔What is satisficing? - ✔✔Choosing an acceptable solution rather than the optimal
solution
✔✔What is confirmation bias? - ✔✔The tendency to seek information supporting
existing beliefs while ignoring contradictory evidence
✔✔What is availability bias? - ✔✔Relying on information that is easiest to recall rather
than most relevant
✔✔What is recency bias? - ✔✔Giving excessive weight to recent events when making
decisions
✔✔What is framing bias? - ✔✔Reaching different conclusions depending on how
information is presented
✔✔What is loss aversion? - ✔✔The tendency for losses to feel more painful than
equivalent gains feel rewarding
✔✔What is hindsight bias? - ✔✔Believing past events were predictable after they
already occurred
✔✔What is overconfidence bias? - ✔✔Overestimating one's investing skill or knowledge
✔✔What is anchoring bias? - ✔✔Relying too heavily on an initial value or reference
point
✔✔What is gambler's fallacy? - ✔✔Believing previous random outcomes influence
future independent events
✔✔What is reference dependence? - ✔✔Evaluating outcomes relative to a prior
benchmark or expectation
✔✔What is mental accounting? - ✔✔Separating money into subjective categories
instead of viewing wealth holistically
✔✔What is home bias? - ✔✔Preference for investments that are geographically familiar
✔✔What is illusion of control? - ✔✔Believing one can influence outcomes largely
determined by chance
✔✔What is the efficient market hypothesis (EMH)? - ✔✔The theory that asset prices
rapidly reflect available information
