Certified Financial Planner (CFP) Exam Questions
and Correct Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant Download Pdf
1. Which of the following best describes a CFP® professional’s
fiduciary duty to a client?
A. Provide investment advice that maximizes the planner’s
revenue
B. Act in the client’s best interest at all times
C. Ensure the client follows a specific investment strategy
D. Avoid all risks for the client
B. Act in the client’s best interest at all times
CFP® professionals are held to a fiduciary standard, requiring them to
put the client’s interests above their own.
2. Which investment is generally considered the safest in terms of
principal protection?
A. Corporate bonds
B. Treasury bonds
C. Mutual funds
D. Stocks
B. Treasury bonds
U.S. Treasury bonds are backed by the federal government, making
them low-risk investments.
3. An individual wants to minimize estate taxes. Which strategy is
most appropriate?
A. Investing in high-growth stocks
B. Using lifetime gift exemptions
, C. Purchasing a variable annuity
D. Maintaining large cash reserves
B. Using lifetime gift exemptions
Gifting assets within exemption limits can reduce the taxable value of
an estate.
4. Which type of insurance provides income for a specified period if
the insured becomes disabled?
A. Term life insurance
B. Disability insurance
C. Whole life insurance
D. Long-term care insurance
B. Disability insurance
Disability insurance replaces a portion of income for a set period if the
insured cannot work due to disability.
5. Which of the following retirement accounts allows for tax-free
withdrawals in retirement?
A. Traditional IRA
B. Roth IRA
C. SEP IRA
D. 401(k)
B. Roth IRA
Contributions are made with after-tax dollars, allowing qualified
withdrawals to be tax-free.
6. A client wants to diversify their investment portfolio. Which
option best achieves this goal?
A. Buying a single high-growth stock
B. Investing in a broad-based index fund
, C. Holding only cash
D. Investing exclusively in municipal bonds
B. Investing in a broad-based index fund
Index funds provide diversification across many securities, reducing risk.
7. Which type of risk is reduced through diversification?
A. Systematic risk
B. Unsystematic risk
C. Inflation risk
D. Interest rate risk
B. Unsystematic risk
Diversification can mitigate risks specific to individual companies or
sectors, known as unsystematic risk.
8. The time value of money concept emphasizes that:
A. Money today is worth less than money in the future
B. Money today is worth more than money in the future
C. Inflation does not affect investments
D. Interest rates are irrelevant
B. Money today is worth more than money in the future
Due to potential earning capacity, a dollar today can be invested to
earn interest.
9. Which of the following is a primary goal of financial planning?
A. Achieving short-term gains only
B. Managing financial risks and achieving goals
C. Maximizing debt usage
D. Avoiding taxes at all costs
B. Managing financial risks and achieving goals
Financial planning helps clients manage risks, plan for retirement, and
meet financial objectives.
, 10. Which retirement plan requires both employer and
employee contributions and is defined by contributions rather
than benefits?
A. Defined benefit plan
B. Defined contribution plan
C. Social Security
D. Pension plan
B. Defined contribution plan
The contributions are defined, but retirement benefits depend on
investment performance.
11. Which type of investment is most appropriate for an
investor seeking high liquidity and low risk?
A. Treasury bills
B. Corporate bonds
C. Real estate
D. Art collections
A. Treasury bills
T-bills are short-term, government-backed securities that are easily
converted to cash.
12. The primary purpose of an emergency fund is to:
A. Fund luxury purchases
B. Cover unexpected expenses
C. Maximize investment returns
D. Reduce tax liability
B. Cover unexpected expenses
An emergency fund provides a financial safety net for unforeseen events
like medical bills or job loss.
and Correct Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant Download Pdf
1. Which of the following best describes a CFP® professional’s
fiduciary duty to a client?
A. Provide investment advice that maximizes the planner’s
revenue
B. Act in the client’s best interest at all times
C. Ensure the client follows a specific investment strategy
D. Avoid all risks for the client
B. Act in the client’s best interest at all times
CFP® professionals are held to a fiduciary standard, requiring them to
put the client’s interests above their own.
2. Which investment is generally considered the safest in terms of
principal protection?
A. Corporate bonds
B. Treasury bonds
C. Mutual funds
D. Stocks
B. Treasury bonds
U.S. Treasury bonds are backed by the federal government, making
them low-risk investments.
3. An individual wants to minimize estate taxes. Which strategy is
most appropriate?
A. Investing in high-growth stocks
B. Using lifetime gift exemptions
, C. Purchasing a variable annuity
D. Maintaining large cash reserves
B. Using lifetime gift exemptions
Gifting assets within exemption limits can reduce the taxable value of
an estate.
4. Which type of insurance provides income for a specified period if
the insured becomes disabled?
A. Term life insurance
B. Disability insurance
C. Whole life insurance
D. Long-term care insurance
B. Disability insurance
Disability insurance replaces a portion of income for a set period if the
insured cannot work due to disability.
5. Which of the following retirement accounts allows for tax-free
withdrawals in retirement?
A. Traditional IRA
B. Roth IRA
C. SEP IRA
D. 401(k)
B. Roth IRA
Contributions are made with after-tax dollars, allowing qualified
withdrawals to be tax-free.
6. A client wants to diversify their investment portfolio. Which
option best achieves this goal?
A. Buying a single high-growth stock
B. Investing in a broad-based index fund
, C. Holding only cash
D. Investing exclusively in municipal bonds
B. Investing in a broad-based index fund
Index funds provide diversification across many securities, reducing risk.
7. Which type of risk is reduced through diversification?
A. Systematic risk
B. Unsystematic risk
C. Inflation risk
D. Interest rate risk
B. Unsystematic risk
Diversification can mitigate risks specific to individual companies or
sectors, known as unsystematic risk.
8. The time value of money concept emphasizes that:
A. Money today is worth less than money in the future
B. Money today is worth more than money in the future
C. Inflation does not affect investments
D. Interest rates are irrelevant
B. Money today is worth more than money in the future
Due to potential earning capacity, a dollar today can be invested to
earn interest.
9. Which of the following is a primary goal of financial planning?
A. Achieving short-term gains only
B. Managing financial risks and achieving goals
C. Maximizing debt usage
D. Avoiding taxes at all costs
B. Managing financial risks and achieving goals
Financial planning helps clients manage risks, plan for retirement, and
meet financial objectives.
, 10. Which retirement plan requires both employer and
employee contributions and is defined by contributions rather
than benefits?
A. Defined benefit plan
B. Defined contribution plan
C. Social Security
D. Pension plan
B. Defined contribution plan
The contributions are defined, but retirement benefits depend on
investment performance.
11. Which type of investment is most appropriate for an
investor seeking high liquidity and low risk?
A. Treasury bills
B. Corporate bonds
C. Real estate
D. Art collections
A. Treasury bills
T-bills are short-term, government-backed securities that are easily
converted to cash.
12. The primary purpose of an emergency fund is to:
A. Fund luxury purchases
B. Cover unexpected expenses
C. Maximize investment returns
D. Reduce tax liability
B. Cover unexpected expenses
An emergency fund provides a financial safety net for unforeseen events
like medical bills or job loss.
