CFP Certification Exam Prep: Realistic Practice Questions & Rationales | 2025/26 UPDATES.
About This Resource:
This CFP Exam Practice Set is designed for aspiring Certified Financial Planners® who want to test their
knowledge and prepare with confidence. Featuring realistic questions, verified answers, and detailed
explanations, this guide covers all major CFP exam domains including retirement, insurance,
investments, estate, tax, and financial planning principles. Use it as a diagnostic tool or a final review
— either way, it's built to help you pass the CFP exam with confidence.
An old Wall Street saying is "Cut your losses and let your profits run." However, investors often do the
opposite. It seems that people are reluctant to admit they made a mistake in purchasing a stock that
subsequently performs poorly. This behavior is most consistent with:
A. Anchoring
B. Herd Mentality
C. Regret Avoidance
D. Representativeness - ✔✔-C. Regret Avoidance
Regret avoidance, also known as the disposition effect, leads investors to take action or to refuse to act in
hopes of minimizing any regret over their actions or inactions. In investments, it leads people to sell
winners too soon and to hold on to losers too long.
Charlie has noticed that the stock she purchased tends to have a very tight distributions around the mean
but there seems to be a high probability of "outliers" (multi-deviation returns). this is most indicative of
what type of curve?
A. Positive skewness
B. Leptokurtosis
C. Normal
D. Lognormal - ✔✔-B. Leptokurtosis
Leptokurtic distribution reflects the tendency of observations to fall closely around the mean creating a
peaked distribution at the mean with thicker tails. If historical returns indicate leptokurtosis then there is
much more reserved variation in periodic returns but higher probability of large multi-sigma deviations
(i.e." fat tails")
, Fred has the following investment opportunities, which one has the highest risk per unit of return earned?
Stock A: Standard Deviation= 12% Average Return= 8%
Stock B: Standard Deviation= 8% Average Return= 5% - ✔✔-Stock B
Since the average returns are different you have to calculate the coefficient of variation to determine
which stock is riskier.
Stock A: CV = .12/.10 = 1.2
Stock B: CV = .08/.05 = 1.6
Fred has the following investment opportunities: which one is more risky?
Stock A: Standard Deviation = 12% and Average Return = 8%
Stock B: Standard Deviation = 10% and Average Return = 8% - ✔✔-Stock A
Since the average return is the same you have to look at the standard deviation. Stock A is more risky
because it has the same return, but a higher standard deviation.
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. - ✔✔-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.
About This Resource:
This CFP Exam Practice Set is designed for aspiring Certified Financial Planners® who want to test their
knowledge and prepare with confidence. Featuring realistic questions, verified answers, and detailed
explanations, this guide covers all major CFP exam domains including retirement, insurance,
investments, estate, tax, and financial planning principles. Use it as a diagnostic tool or a final review
— either way, it's built to help you pass the CFP exam with confidence.
An old Wall Street saying is "Cut your losses and let your profits run." However, investors often do the
opposite. It seems that people are reluctant to admit they made a mistake in purchasing a stock that
subsequently performs poorly. This behavior is most consistent with:
A. Anchoring
B. Herd Mentality
C. Regret Avoidance
D. Representativeness - ✔✔-C. Regret Avoidance
Regret avoidance, also known as the disposition effect, leads investors to take action or to refuse to act in
hopes of minimizing any regret over their actions or inactions. In investments, it leads people to sell
winners too soon and to hold on to losers too long.
Charlie has noticed that the stock she purchased tends to have a very tight distributions around the mean
but there seems to be a high probability of "outliers" (multi-deviation returns). this is most indicative of
what type of curve?
A. Positive skewness
B. Leptokurtosis
C. Normal
D. Lognormal - ✔✔-B. Leptokurtosis
Leptokurtic distribution reflects the tendency of observations to fall closely around the mean creating a
peaked distribution at the mean with thicker tails. If historical returns indicate leptokurtosis then there is
much more reserved variation in periodic returns but higher probability of large multi-sigma deviations
(i.e." fat tails")
, Fred has the following investment opportunities, which one has the highest risk per unit of return earned?
Stock A: Standard Deviation= 12% Average Return= 8%
Stock B: Standard Deviation= 8% Average Return= 5% - ✔✔-Stock B
Since the average returns are different you have to calculate the coefficient of variation to determine
which stock is riskier.
Stock A: CV = .12/.10 = 1.2
Stock B: CV = .08/.05 = 1.6
Fred has the following investment opportunities: which one is more risky?
Stock A: Standard Deviation = 12% and Average Return = 8%
Stock B: Standard Deviation = 10% and Average Return = 8% - ✔✔-Stock A
Since the average return is the same you have to look at the standard deviation. Stock A is more risky
because it has the same return, but a higher standard deviation.
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. - ✔✔-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.
