CFP FUNDAMENTALS FINAL REVIEW
QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS 100%
CORRECT RATED A+
Question 1
All of the following statements regarding higher education tax credits are accurate
except for which one? Why?
A. The American Opportunity Tax Credit applies strictly to the first four years of a
post-secondary degree or certificate program.
B. The American Opportunity Tax Credit completely excludes the cost of required
course materials.
C. The American Opportunity Tax Credit is calculated and awarded on an
individual student basis.
D. The Lifetime Learning Credit is calculated and awarded on a per-family basis.
ANSWER: B. The American Opportunity Tax Credit completely excludes the cost
of required course materials. ✔✔
Explanation: Statement B is incorrect because the American Opportunity Tax
Credit (AOTC) actually does cover required course materials (such as textbooks,
supplies, and equipment needed for the course of study), whether or not they are
purchased directly from the educational institution. In contrast, the Lifetime
Learning Credit (LLC) is broader in terms of years allowed but more restrictive on
materials, generally requiring them to be paid directly to the school. Additionally,
the AOTC is capped per student, while the LLC is capped per family tax return.
Question 2
,What specific category of risk gauges the degree to which a company incorporates
bonds, loans, and other debt instruments into its capital structure to fund operations
and assets?
A. Business risk
B. Systematic risk
C. Default risk
D. Financial risk
ANSWER: D. Financial risk ✔✔
Explanation: Financial risk specifically refers to a firm's choice to use financial
leverage. When a company relies heavily on borrowed funds and debt securities
rather than equity to finance its assets, it introduces fixed financial obligations,
which increases its overall financial risk profile.Bob, a CFP® professional, was in a
hurry to go out of the country on a 3 week family vacation. Bob, let his junior
partner, who recently passed the CFP® exam, and has 2 years of financial planning
experience, prepare and present a financial plan to a new client. Which of the
following Code of Ethics and Standards of Conduct did Bob violate, if any?
None, as the junior partner passed the CFP exam.
Duties Owed to Clients
Duties Owed to CFP® Board
Duties to Firms or Subordinates -ANSWER ✔✔The correct answer is D.
Bob must use Reasonable Care When Supervising A CFP® professional and must
exercise reasonable care when supervising persons acting under the CFP®
professional's direction, including employees and other persons over whom the
CFP® professional has responsibility, with a view toward preventing violations of
applicable laws, rules, regulations, and these Standards.
,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.
QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS 100%
CORRECT RATED A+
Question 1
All of the following statements regarding higher education tax credits are accurate
except for which one? Why?
A. The American Opportunity Tax Credit applies strictly to the first four years of a
post-secondary degree or certificate program.
B. The American Opportunity Tax Credit completely excludes the cost of required
course materials.
C. The American Opportunity Tax Credit is calculated and awarded on an
individual student basis.
D. The Lifetime Learning Credit is calculated and awarded on a per-family basis.
ANSWER: B. The American Opportunity Tax Credit completely excludes the cost
of required course materials. ✔✔
Explanation: Statement B is incorrect because the American Opportunity Tax
Credit (AOTC) actually does cover required course materials (such as textbooks,
supplies, and equipment needed for the course of study), whether or not they are
purchased directly from the educational institution. In contrast, the Lifetime
Learning Credit (LLC) is broader in terms of years allowed but more restrictive on
materials, generally requiring them to be paid directly to the school. Additionally,
the AOTC is capped per student, while the LLC is capped per family tax return.
Question 2
,What specific category of risk gauges the degree to which a company incorporates
bonds, loans, and other debt instruments into its capital structure to fund operations
and assets?
A. Business risk
B. Systematic risk
C. Default risk
D. Financial risk
ANSWER: D. Financial risk ✔✔
Explanation: Financial risk specifically refers to a firm's choice to use financial
leverage. When a company relies heavily on borrowed funds and debt securities
rather than equity to finance its assets, it introduces fixed financial obligations,
which increases its overall financial risk profile.Bob, a CFP® professional, was in a
hurry to go out of the country on a 3 week family vacation. Bob, let his junior
partner, who recently passed the CFP® exam, and has 2 years of financial planning
experience, prepare and present a financial plan to a new client. Which of the
following Code of Ethics and Standards of Conduct did Bob violate, if any?
None, as the junior partner passed the CFP exam.
Duties Owed to Clients
Duties Owed to CFP® Board
Duties to Firms or Subordinates -ANSWER ✔✔The correct answer is D.
Bob must use Reasonable Care When Supervising A CFP® professional and must
exercise reasonable care when supervising persons acting under the CFP®
professional's direction, including employees and other persons over whom the
CFP® professional has responsibility, with a view toward preventing violations of
applicable laws, rules, regulations, and these Standards.
,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.
