CFP -CERTIFIED FINANCIAL PLANNER |ACTUAL
QUESTIONS AND VERIFIED ANSWERS|BRAND NEW
2026-2027 UPDATE|GRADED A+
Question 1
Which of the following does the Federal Reserve use to control the money supply?
1. Adjusting the discount rate
2. Open market operations
3. Fiscal policy
A)
2 only
B)
2 and 3
C)
1 only
D)
1 and 2
CORRECT ANSWER
D) 1 and 2
The Federal Reserve can control the money supply by adjusting the discount rate. For
example, a higher discount rate discourages banks from lending money and reduces the
amount of money in circulation. The Federal Reserve also uses open market operations
to control the money supply. By buying government securities in the open market, for
example, the Fed can increase the amount of money in circulation. Fiscal policy is
conducted by Congress.
Question 2
1
,Which of the following employee(s) is(are) highly compensated for qualified plan
nondiscrimination testing purposes in the current year?
1. Stephen, a 6% owner of an incorporated law firm
2. Franklin, who earned $145,000 last year and he was the top-paid employee
3. Jerome, whose salary was the 10th highest of 50 employees and who earned $75,000 last
year
4. Margo, a corporate vice president of marketing and 1% owner of the company, whose
salary last year was $68,000
A)
1 and 2
B)
1, 3, and 4
C)
2 only
D)
1, 2, and 4
CORRECT ANSWER
A) 1 and 2
Stephen and Franklin are highly compensated for qualified plan purposes in the current
year. A highly compensated employee is one who was a greater than 5% owner of the
employer at any time during the current year or preceding year, or for the preceding
year, had compensation greater than $135,000 (2022).
Question 3
Duane, a financial planner, is meeting with Lisa, who wants information regarding how
several investment sales she has completed this year will impact her income tax return.
Lisa has sold the following properties:
Section 1202 stock, which Lisa purchased on December 12, 2019, for $50,000 and sold on
December 15, 2022, for its FMV of $65,000.
2
,A vacation home Lisa inherited from her uncle, who died in 2020 and who had a basis of
$95,000 in the home. The home had a FMV of $135,000 in his gross estate. Lisa sold it for
$160,000 on July 1, 2022. Lisa has used the vacation home only four weeks since she
inherited it; otherwise it was vacant.
Stock Lisa inherited from another uncle, who also died in 2020. His basis in the stock was
$20,000 and the FMV in his gross estate was $15,000. Lisa sold it on November 1, 2022, for
$17,000.
What should Duane tell Lisa?
1. 100% of the gain on the sale of the Section 1202 stock is exclu
CORRECT ANSWER
C)
2 and 3
Statement 2 is correct. Lisa's basis in the stock is the FMV of the stock in her uncle's gross
estate, $15,000. Statement 3 is correct. All of the gain on the sale of the vacation home is
capital gain. Statement 1 is incorrect. Section 1202 stock must be held for five years in
order for Lisa to exclude the gain from her taxable income. Statement 4 is incorrect. The
total gain Lisa must recognize is $42,000 ($15,000 on the Section 1202 stock + $25,000 on
the vacation home sale + $2,000 from the stock sale). Note that the vacation home does
NOT qualify for the Section 121 gain exclusion, which applies to the sale of a personal
residence only.
Question 4
An 80-year-old widower explains to you that he is risk averse and wishes to find an
investment that will provide him with preservation of capital. Which of the following
should you recommend?
A)
preferred stock
B)
long-term U.S. government bonds
C)
3
, bank-insured CDs
D)
S&P 500 index fund
CORRECT ANSWER
C)
bank-insured CDs
The best answer is the bank-insured CDs. Certificates of deposit (CDs) are deposits made
with a bank or savings and loan for a specified period, commonly one month to five years.
CDs have traditionally been used to provide an income stream to retirees. CDs are FDIC
insured, which is often a reason for investors' interest in purchasing CDs.
Question 5
A client consults a financial professional for help in formulating an estate plan. The client is
in poor health and expects to die within the next 3 to 4 years. He has a large estate and
would like to begin taking steps to reduce any estate tax that might be due at his death.
The client is a widower with 1 adult daughter. The client owns the following property in his
name alone:
A life insurance policy insuring his own life, with a death benefit of $5 million
A personal residence with a market value of $6 million
A brokerage fund with a balance of $10 million
Which of the following steps should the client implement first to meet his objectives?
A)
Gift the residence to his daughter.
B)
Transfer his residence to an irrevocable living trust.
C)
Transfer ownership of the life insurance policy to his daughter.
D)
4
QUESTIONS AND VERIFIED ANSWERS|BRAND NEW
2026-2027 UPDATE|GRADED A+
Question 1
Which of the following does the Federal Reserve use to control the money supply?
1. Adjusting the discount rate
2. Open market operations
3. Fiscal policy
A)
2 only
B)
2 and 3
C)
1 only
D)
1 and 2
CORRECT ANSWER
D) 1 and 2
The Federal Reserve can control the money supply by adjusting the discount rate. For
example, a higher discount rate discourages banks from lending money and reduces the
amount of money in circulation. The Federal Reserve also uses open market operations
to control the money supply. By buying government securities in the open market, for
example, the Fed can increase the amount of money in circulation. Fiscal policy is
conducted by Congress.
Question 2
1
,Which of the following employee(s) is(are) highly compensated for qualified plan
nondiscrimination testing purposes in the current year?
1. Stephen, a 6% owner of an incorporated law firm
2. Franklin, who earned $145,000 last year and he was the top-paid employee
3. Jerome, whose salary was the 10th highest of 50 employees and who earned $75,000 last
year
4. Margo, a corporate vice president of marketing and 1% owner of the company, whose
salary last year was $68,000
A)
1 and 2
B)
1, 3, and 4
C)
2 only
D)
1, 2, and 4
CORRECT ANSWER
A) 1 and 2
Stephen and Franklin are highly compensated for qualified plan purposes in the current
year. A highly compensated employee is one who was a greater than 5% owner of the
employer at any time during the current year or preceding year, or for the preceding
year, had compensation greater than $135,000 (2022).
Question 3
Duane, a financial planner, is meeting with Lisa, who wants information regarding how
several investment sales she has completed this year will impact her income tax return.
Lisa has sold the following properties:
Section 1202 stock, which Lisa purchased on December 12, 2019, for $50,000 and sold on
December 15, 2022, for its FMV of $65,000.
2
,A vacation home Lisa inherited from her uncle, who died in 2020 and who had a basis of
$95,000 in the home. The home had a FMV of $135,000 in his gross estate. Lisa sold it for
$160,000 on July 1, 2022. Lisa has used the vacation home only four weeks since she
inherited it; otherwise it was vacant.
Stock Lisa inherited from another uncle, who also died in 2020. His basis in the stock was
$20,000 and the FMV in his gross estate was $15,000. Lisa sold it on November 1, 2022, for
$17,000.
What should Duane tell Lisa?
1. 100% of the gain on the sale of the Section 1202 stock is exclu
CORRECT ANSWER
C)
2 and 3
Statement 2 is correct. Lisa's basis in the stock is the FMV of the stock in her uncle's gross
estate, $15,000. Statement 3 is correct. All of the gain on the sale of the vacation home is
capital gain. Statement 1 is incorrect. Section 1202 stock must be held for five years in
order for Lisa to exclude the gain from her taxable income. Statement 4 is incorrect. The
total gain Lisa must recognize is $42,000 ($15,000 on the Section 1202 stock + $25,000 on
the vacation home sale + $2,000 from the stock sale). Note that the vacation home does
NOT qualify for the Section 121 gain exclusion, which applies to the sale of a personal
residence only.
Question 4
An 80-year-old widower explains to you that he is risk averse and wishes to find an
investment that will provide him with preservation of capital. Which of the following
should you recommend?
A)
preferred stock
B)
long-term U.S. government bonds
C)
3
, bank-insured CDs
D)
S&P 500 index fund
CORRECT ANSWER
C)
bank-insured CDs
The best answer is the bank-insured CDs. Certificates of deposit (CDs) are deposits made
with a bank or savings and loan for a specified period, commonly one month to five years.
CDs have traditionally been used to provide an income stream to retirees. CDs are FDIC
insured, which is often a reason for investors' interest in purchasing CDs.
Question 5
A client consults a financial professional for help in formulating an estate plan. The client is
in poor health and expects to die within the next 3 to 4 years. He has a large estate and
would like to begin taking steps to reduce any estate tax that might be due at his death.
The client is a widower with 1 adult daughter. The client owns the following property in his
name alone:
A life insurance policy insuring his own life, with a death benefit of $5 million
A personal residence with a market value of $6 million
A brokerage fund with a balance of $10 million
Which of the following steps should the client implement first to meet his objectives?
A)
Gift the residence to his daughter.
B)
Transfer his residence to an irrevocable living trust.
C)
Transfer ownership of the life insurance policy to his daughter.
D)
4
