Certified Financial Planner (CFP) Exam
Questions And Correct Answers (Verified
Answers) Plus Rationales 2025/2026 Q&A |
Instant Download Pdf
1. Which of the following best describes the primary goal of
financial planning?
A. Maximizing income
B. Minimizing taxes
C. Achieving client financial goals
D. Increasing investment returns
Answer: C
Financial planning is client-focused and aims to help clients achieve
their financial goals, not just maximize returns or minimize taxes.
2. A client wants to ensure their children are financially secure if
they pass away prematurely. Which insurance product is most
appropriate?
A. Disability insurance
B. Term life insurance
C. Long-term care insurance
D. Annuity
Answer: B
Term life insurance provides coverage for a specified period and pays
a death benefit if the insured dies within that term, protecting
dependents.
3. Which of the following is a characteristic of a Roth IRA?
A. Contributions are tax-deductible
B. Distributions are tax-free if qualified
,C. No income limits for contributions
D. Must begin distributions at age 72
Answer: B
Roth IRA contributions are made with after-tax dollars, but qualified
distributions are tax-free.
4. Which of the following ratios measures a client’s liquidity?
A. Debt-to-income ratio
B. Current ratio
C. Price-to-earnings ratio
D. Return on equity
Answer: B
The current ratio compares current assets to current liabilities,
indicating liquidity.
5. A client has a marginal tax rate of 32% and is considering a
municipal bond yielding 4%. What is the after-tax equivalent yield?
A. 2.72%
B. 3.68%
C. 4.32%
D. 5.88%
Answer: B
Municipal bonds are generally tax-exempt, so the after-tax yield is
approximately the stated yield: 4%. If it were taxable, the after-tax
yield = yield × (1 − tax rate), but tax-exempt municipal bonds remain
4%.
6. Which investment is most appropriate for a client seeking capital
preservation?
A. Stock mutual funds
,B. Treasury bills
C. Corporate bonds with low rating
D. Real estate
Answer: B
Treasury bills are short-term government securities with minimal risk,
making them ideal for capital preservation.
7. A client is in the 24% federal tax bracket and wants to invest in a
tax-deferred account. Which account should they consider?
A. Roth IRA
B. Traditional IRA
C. Taxable brokerage account
D. Health Savings Account (HSA)
Answer: B
Traditional IRA contributions may be tax-deductible, allowing for tax-
deferred growth, beneficial for clients in higher current tax brackets.
8. Which of the following is considered a “liability” on a personal
balance sheet?
A. Mortgage
B. Cash savings
C. Investment in stocks
D. Retirement account
Answer: A
Liabilities are obligations the client owes; a mortgage represents
debt.
9. Which type of insurance is designed to replace lost income due
to an illness or injury?
A. Life insurance
, B. Health insurance
C. Disability insurance
D. Long-term care insurance
Answer: C
Disability insurance replaces a portion of income when the insured
cannot work due to disability.
10. Which estate planning document allows a person to appoint
someone to make healthcare decisions if they become
incapacitated?
A. Will
B. Living trust
C. Power of attorney for healthcare
D. Beneficiary designation
Answer: C
A healthcare power of attorney (or medical power of attorney) grants
decision-making authority if the client is incapacitated.
11. What is the primary benefit of diversification in an investment
portfolio?
A. Maximizes returns
B. Reduces risk
C. Minimizes taxes
D. Eliminates market volatility
Answer: B
Diversification spreads investments across asset classes to reduce
unsystematic risk.
12. Which of the following is an example of a non-qualified
retirement plan?
Questions And Correct Answers (Verified
Answers) Plus Rationales 2025/2026 Q&A |
Instant Download Pdf
1. Which of the following best describes the primary goal of
financial planning?
A. Maximizing income
B. Minimizing taxes
C. Achieving client financial goals
D. Increasing investment returns
Answer: C
Financial planning is client-focused and aims to help clients achieve
their financial goals, not just maximize returns or minimize taxes.
2. A client wants to ensure their children are financially secure if
they pass away prematurely. Which insurance product is most
appropriate?
A. Disability insurance
B. Term life insurance
C. Long-term care insurance
D. Annuity
Answer: B
Term life insurance provides coverage for a specified period and pays
a death benefit if the insured dies within that term, protecting
dependents.
3. Which of the following is a characteristic of a Roth IRA?
A. Contributions are tax-deductible
B. Distributions are tax-free if qualified
,C. No income limits for contributions
D. Must begin distributions at age 72
Answer: B
Roth IRA contributions are made with after-tax dollars, but qualified
distributions are tax-free.
4. Which of the following ratios measures a client’s liquidity?
A. Debt-to-income ratio
B. Current ratio
C. Price-to-earnings ratio
D. Return on equity
Answer: B
The current ratio compares current assets to current liabilities,
indicating liquidity.
5. A client has a marginal tax rate of 32% and is considering a
municipal bond yielding 4%. What is the after-tax equivalent yield?
A. 2.72%
B. 3.68%
C. 4.32%
D. 5.88%
Answer: B
Municipal bonds are generally tax-exempt, so the after-tax yield is
approximately the stated yield: 4%. If it were taxable, the after-tax
yield = yield × (1 − tax rate), but tax-exempt municipal bonds remain
4%.
6. Which investment is most appropriate for a client seeking capital
preservation?
A. Stock mutual funds
,B. Treasury bills
C. Corporate bonds with low rating
D. Real estate
Answer: B
Treasury bills are short-term government securities with minimal risk,
making them ideal for capital preservation.
7. A client is in the 24% federal tax bracket and wants to invest in a
tax-deferred account. Which account should they consider?
A. Roth IRA
B. Traditional IRA
C. Taxable brokerage account
D. Health Savings Account (HSA)
Answer: B
Traditional IRA contributions may be tax-deductible, allowing for tax-
deferred growth, beneficial for clients in higher current tax brackets.
8. Which of the following is considered a “liability” on a personal
balance sheet?
A. Mortgage
B. Cash savings
C. Investment in stocks
D. Retirement account
Answer: A
Liabilities are obligations the client owes; a mortgage represents
debt.
9. Which type of insurance is designed to replace lost income due
to an illness or injury?
A. Life insurance
, B. Health insurance
C. Disability insurance
D. Long-term care insurance
Answer: C
Disability insurance replaces a portion of income when the insured
cannot work due to disability.
10. Which estate planning document allows a person to appoint
someone to make healthcare decisions if they become
incapacitated?
A. Will
B. Living trust
C. Power of attorney for healthcare
D. Beneficiary designation
Answer: C
A healthcare power of attorney (or medical power of attorney) grants
decision-making authority if the client is incapacitated.
11. What is the primary benefit of diversification in an investment
portfolio?
A. Maximizes returns
B. Reduces risk
C. Minimizes taxes
D. Eliminates market volatility
Answer: B
Diversification spreads investments across asset classes to reduce
unsystematic risk.
12. Which of the following is an example of a non-qualified
retirement plan?
