CFP Fundamentals final review questions with rationales Answers
Robert Smith asks for your help in preparing his cash flow statement. He tells you that
his salary before taxes is $250,000 and that he has NO mortgage on his home. Which
of the following statements is true about Robert's cash flow statement?
The value of the home would be an income source, since there is NO mortgage.
The value of the home would be an asset.
The taxes on his salary would be a liability.
The taxes on his salary would be an expense. - ANSWER-The correct answer is D.
Option "A" - Home equity would not provide a source of income. Option "B" - The value
of the home is an asset, but this has nothing to do with cash flow statements. Option "C"
- Taxes on his salary are an expense. Liabilities are shown on the state of financial
position, not the cash flow statement.
When providing financial planning services to a client, everything must be disclosed in
writing, EXCEPT:
Material conflicts of interest that may impact the CFP® professional's ability to provide
impartial advice.
The process of maintaining client confidentiality.
How the client pays for products, services and additional incurred costs including
surrender charges and sales loads.
Disclosure of Economic Benefit for Referral or Engagement of Additional Persons. -
ANSWER-The correct answer is A.
Material conflicts of interest may be discussed orally or in writing. B, C & D must be in
writing when providing financial planning to a client (Duties owed to a client 10, Provide
Information to a Client).
,The primary difference between open end and closed end investment companies is:
Closed end funds always sell at par value.
Open end funds do not charge sales fees.
Closed end funds guarantee the Net Asset Value (NAV) at the time of sale or purchase.
Closed end funds sell only a limited number of shares. - ANSWER-D
The type of risk which CANNOT be eliminated through diversification is:
Unsystematic Risk.
Company Specific Risk.
Systematic Risk.
Business Risk. - ANSWER-The correct answer is C.
Unsystematic risk, company specific risk and business risk can all be eliminated through
diversification.
According to the cash flow approach, all of the following recommendations may have a
positive impact to cash flow except:
Raise insurance deductibles.
Reduce the amount of insurance coverage.
Payoff existing debt with balance sheet assets.
Purchase new insurance to cover an existing risk. - ANSWER-The correct answer is D.
The purchase of a new insurance product will have a negative cash flow impact.
Which of the following is/are a Duty Owed to Clients in the CFP Board Standards of
Conduct?
Independence
Professionalism
,Competence
Fairness
I only
II only
II and III
I, II, III, and IV - ANSWER-The correct answer is C.
Fairness is not specifically listed in the Standards of Conduct but is a value to uphold
while dealing with clients and fellow professionals.
Which of the following statements concerning a CFP® professional's disclosure of
confidential client data is generally correct?
Disclosure may be made to any state agency without subpoena.
Disclosure may be made to any party on consent of the client.
Disclosure may be made to comply with an IRS audit request.
I only
II only
III only
I, II, and III - ANSWER-B only
Which of the following statements concerning investment strategies to accomplish
education-funding goals is (are) correct?
The time horizon is probably the most important factor (besides risk tolerance) to
consider in deciding what securities to invest in, how much to invest, and when to
invest.
QTPs generally reduce the risk level of investment the closer a child gets to college.
I only
II only
Both I and II
, Neither I nor II - ANSWER-The correct answer is C.
Qualified Tuition plans, such as the 529 savings plan, have age banded investment
options. The Investments will re-allocate as the child gets older and closer to their goal.
A CFP® professional agrees to be bound by Continuing Education (CE) Requirements
established by Certified Financial Planner Board of Standards. The CE Requirements
for a regular continuing professional (not a new certificant or a certificant who has been
inactive) are as follows:
40 hours of CE every year.
The number of CE hours required by other designations the certificant may hold.
30 hours of CE every year.
30 hours of CE every two years. - ANSWER-D
John and Jane have a net worth of $20,000 and total assets of $150,000. If their
revolving credit and unpaid bills total $8,000, how much are their total liabilities?
$122,000
$130,000
$138,000
$150,000 - ANSWER-The correct answer is B.
A - L = Net Worth
150,000 - L = 20,000
L = 130,000
Which of the following is not necessary to identify the client's life cycle position?
Attitudes (beliefs).
Marital Status.
Dependents.
Income Level.
Net Worth. - ANSWER-The correct answer is A.
Robert Smith asks for your help in preparing his cash flow statement. He tells you that
his salary before taxes is $250,000 and that he has NO mortgage on his home. Which
of the following statements is true about Robert's cash flow statement?
The value of the home would be an income source, since there is NO mortgage.
The value of the home would be an asset.
The taxes on his salary would be a liability.
The taxes on his salary would be an expense. - ANSWER-The correct answer is D.
Option "A" - Home equity would not provide a source of income. Option "B" - The value
of the home is an asset, but this has nothing to do with cash flow statements. Option "C"
- Taxes on his salary are an expense. Liabilities are shown on the state of financial
position, not the cash flow statement.
When providing financial planning services to a client, everything must be disclosed in
writing, EXCEPT:
Material conflicts of interest that may impact the CFP® professional's ability to provide
impartial advice.
The process of maintaining client confidentiality.
How the client pays for products, services and additional incurred costs including
surrender charges and sales loads.
Disclosure of Economic Benefit for Referral or Engagement of Additional Persons. -
ANSWER-The correct answer is A.
Material conflicts of interest may be discussed orally or in writing. B, C & D must be in
writing when providing financial planning to a client (Duties owed to a client 10, Provide
Information to a Client).
,The primary difference between open end and closed end investment companies is:
Closed end funds always sell at par value.
Open end funds do not charge sales fees.
Closed end funds guarantee the Net Asset Value (NAV) at the time of sale or purchase.
Closed end funds sell only a limited number of shares. - ANSWER-D
The type of risk which CANNOT be eliminated through diversification is:
Unsystematic Risk.
Company Specific Risk.
Systematic Risk.
Business Risk. - ANSWER-The correct answer is C.
Unsystematic risk, company specific risk and business risk can all be eliminated through
diversification.
According to the cash flow approach, all of the following recommendations may have a
positive impact to cash flow except:
Raise insurance deductibles.
Reduce the amount of insurance coverage.
Payoff existing debt with balance sheet assets.
Purchase new insurance to cover an existing risk. - ANSWER-The correct answer is D.
The purchase of a new insurance product will have a negative cash flow impact.
Which of the following is/are a Duty Owed to Clients in the CFP Board Standards of
Conduct?
Independence
Professionalism
,Competence
Fairness
I only
II only
II and III
I, II, III, and IV - ANSWER-The correct answer is C.
Fairness is not specifically listed in the Standards of Conduct but is a value to uphold
while dealing with clients and fellow professionals.
Which of the following statements concerning a CFP® professional's disclosure of
confidential client data is generally correct?
Disclosure may be made to any state agency without subpoena.
Disclosure may be made to any party on consent of the client.
Disclosure may be made to comply with an IRS audit request.
I only
II only
III only
I, II, and III - ANSWER-B only
Which of the following statements concerning investment strategies to accomplish
education-funding goals is (are) correct?
The time horizon is probably the most important factor (besides risk tolerance) to
consider in deciding what securities to invest in, how much to invest, and when to
invest.
QTPs generally reduce the risk level of investment the closer a child gets to college.
I only
II only
Both I and II
, Neither I nor II - ANSWER-The correct answer is C.
Qualified Tuition plans, such as the 529 savings plan, have age banded investment
options. The Investments will re-allocate as the child gets older and closer to their goal.
A CFP® professional agrees to be bound by Continuing Education (CE) Requirements
established by Certified Financial Planner Board of Standards. The CE Requirements
for a regular continuing professional (not a new certificant or a certificant who has been
inactive) are as follows:
40 hours of CE every year.
The number of CE hours required by other designations the certificant may hold.
30 hours of CE every year.
30 hours of CE every two years. - ANSWER-D
John and Jane have a net worth of $20,000 and total assets of $150,000. If their
revolving credit and unpaid bills total $8,000, how much are their total liabilities?
$122,000
$130,000
$138,000
$150,000 - ANSWER-The correct answer is B.
A - L = Net Worth
150,000 - L = 20,000
L = 130,000
Which of the following is not necessary to identify the client's life cycle position?
Attitudes (beliefs).
Marital Status.
Dependents.
Income Level.
Net Worth. - ANSWER-The correct answer is A.
