CFP EXAM QUESTIONS WITH
COMPLETE ANSWERS
Kevin has subscribed to various investment magazines and data resources, which he
religiously reads and analyzes. Kevin utilizes this analysis to make shifts in his high beta
portfolio on a daily basis. Which behavioral finance bias is Kevin subject to?
A. Hindsight Bias
B. Overconfidence
C. Regret Avoidance
D. Herd Mentality - Answer-B. Overconfidence
This is a classic example of overconfidence. Kevin believes that his information is
perfect, that his analysis is perfect, so he trades too often and has a very risky portfolio
(high beta).
Which of the following would you use to ascertain the chairman's perspective for
progress completed and expected for the coming year?
A. 10K report.
B. Annual report.
C. 10Q report.
D. Quarterly report - Answer-B. Annual Report
You own 1,000 shares of ePlace stock. You purchased these shares for $25 per share
on margin with a %50 initial margin requirement and a 25% maintenance margin
requirement. ePlace has experienced some reversals in the pummeling that tech stocks
have received recently. The price has dropped to $13 per share. Will there be a margin
call? If so, how much?
A. $1,500
B. $2,750
C. $3,250
D. No margin call required - Answer-B. $2,750
Required Equity = Stock price X Main. Margin ( 13*12.5= 3.25)
Actual Equity= Stock price - Debt ( 13-12.5=.5)
Margin Call = Required - Actual (3.25-.5= 2.75) times 1000 shares.
How do the stock split and stock dividend impact the shareholders without bringing
about any changes in the value of the company on the balance sheet?
, A. The value of the stock split and value of the stock dividend are generally small
enough that the impact of the balance sheet is minimal
B. The value of the stock split and the value of the stock dividend increase the number
of shares but not the total value of those shares
C. The value of the stock split and value of the stock dividend cause dilution, which
keeps the value of the stock up, but without increasing the overall value o n the balance
sheet.
D. The value of the stock split and the value of the stock dividend offset one another,
thereby eliminating any changes that might occur to the balance sheet of the company.
- Answer-B. The value of the stock split and the value of the stock dividend increase the
number of shares but not the total value of those share.
Which of the following would serve as an analytical tool to provide information to a client
regarding small-cap growth stocks?
A. Wilshire 5000
B. S&P 500
C. Russell 2000
D Dow Jones Small-Cap Average - Answer-C. Russell 2000
Which broad market index would be more appropriate to use when conducting
comparisons between a large-cap, blue chip portfolio, and the securities market?
A. S&P 500
B. DJIA
C. Russell 5000
D Value Line 300 - Answer-A. S&P 500
Sydney buys a stock for $50 using an initial margin of 75% and a maintenance margin
of 40%. At what price will she receive a margin call?
A. $13.12
B. $20.83
C. $25.25
D. $66.67 - Answer-B. $20.83
Loan / (1-Maintenance margin)
Which of the following statements is true regarding the Securities Investors Protection
Act of 1970?
A. The act protects investors from losses arising from bad investment decisions.
B. The act requires a prospectus to accompany all new issues.
C. The act protects investors from negligence on the part of an investment adviser.
D. The act protects investors from losses arising from brokerage firm failures. - Answer-
D. The act protects investors from losses arising from brokerage firm failures.
COMPLETE ANSWERS
Kevin has subscribed to various investment magazines and data resources, which he
religiously reads and analyzes. Kevin utilizes this analysis to make shifts in his high beta
portfolio on a daily basis. Which behavioral finance bias is Kevin subject to?
A. Hindsight Bias
B. Overconfidence
C. Regret Avoidance
D. Herd Mentality - Answer-B. Overconfidence
This is a classic example of overconfidence. Kevin believes that his information is
perfect, that his analysis is perfect, so he trades too often and has a very risky portfolio
(high beta).
Which of the following would you use to ascertain the chairman's perspective for
progress completed and expected for the coming year?
A. 10K report.
B. Annual report.
C. 10Q report.
D. Quarterly report - Answer-B. Annual Report
You own 1,000 shares of ePlace stock. You purchased these shares for $25 per share
on margin with a %50 initial margin requirement and a 25% maintenance margin
requirement. ePlace has experienced some reversals in the pummeling that tech stocks
have received recently. The price has dropped to $13 per share. Will there be a margin
call? If so, how much?
A. $1,500
B. $2,750
C. $3,250
D. No margin call required - Answer-B. $2,750
Required Equity = Stock price X Main. Margin ( 13*12.5= 3.25)
Actual Equity= Stock price - Debt ( 13-12.5=.5)
Margin Call = Required - Actual (3.25-.5= 2.75) times 1000 shares.
How do the stock split and stock dividend impact the shareholders without bringing
about any changes in the value of the company on the balance sheet?
, A. The value of the stock split and value of the stock dividend are generally small
enough that the impact of the balance sheet is minimal
B. The value of the stock split and the value of the stock dividend increase the number
of shares but not the total value of those shares
C. The value of the stock split and value of the stock dividend cause dilution, which
keeps the value of the stock up, but without increasing the overall value o n the balance
sheet.
D. The value of the stock split and the value of the stock dividend offset one another,
thereby eliminating any changes that might occur to the balance sheet of the company.
- Answer-B. The value of the stock split and the value of the stock dividend increase the
number of shares but not the total value of those share.
Which of the following would serve as an analytical tool to provide information to a client
regarding small-cap growth stocks?
A. Wilshire 5000
B. S&P 500
C. Russell 2000
D Dow Jones Small-Cap Average - Answer-C. Russell 2000
Which broad market index would be more appropriate to use when conducting
comparisons between a large-cap, blue chip portfolio, and the securities market?
A. S&P 500
B. DJIA
C. Russell 5000
D Value Line 300 - Answer-A. S&P 500
Sydney buys a stock for $50 using an initial margin of 75% and a maintenance margin
of 40%. At what price will she receive a margin call?
A. $13.12
B. $20.83
C. $25.25
D. $66.67 - Answer-B. $20.83
Loan / (1-Maintenance margin)
Which of the following statements is true regarding the Securities Investors Protection
Act of 1970?
A. The act protects investors from losses arising from bad investment decisions.
B. The act requires a prospectus to accompany all new issues.
C. The act protects investors from negligence on the part of an investment adviser.
D. The act protects investors from losses arising from brokerage firm failures. - Answer-
D. The act protects investors from losses arising from brokerage firm failures.
