Certified Financial Planner Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationale 2026
Q&A| Instant Download Pdf
1. A client in the 32% marginal tax bracket invests in a taxable bond
yielding 6%. What is the tax-equivalent yield required for a municipal
bond to be equally attractive?
A. 4.08%
B. 7.89%
C. 8.82%
D. 5.12%
Correct answer: C
The tax-equivalent yield is calculated by dividing the municipal bond
yield by (1 − tax rate), so 6% ÷ (1 − 0.32) = 8.82%, reflecting the pre-
tax yield needed to match the tax-free return.
2. A 45-year-old client contributes $10,000 annually to a retirement
account earning 7% compounded annually. What is the approximate
value after 10 years?
A. $138,000
B. $142,000
C. $153,000
D. $170,000
, Correct answer: B
The future value of an annuity with annual contributions grows
through compounding, and using standard annuity calculations at 7%
yields approximately $142,000 after 10 years.
3. Which investment is generally considered to have the highest
systematic risk?
A. Treasury bills
B. Utility stocks
C. Technology sector stocks
D. Short-term corporate bonds
Correct answer: C
Technology stocks typically exhibit higher sensitivity to market
movements and economic cycles, reflecting higher systematic risk
compared to defensive or fixed-income securities.
4. Under the efficient market hypothesis (semi-strong form), which
information is already reflected in asset prices?
A. Insider information
B. Only historical prices
C. All publicly available information
D. Only earnings announcements
Correct answer: C
The semi-strong form asserts that all publicly available information is
already incorporated into security prices, making it difficult to
achieve abnormal returns through public analysis.
5. A client withdraws funds from a traditional IRA at age 60. What is the
primary tax consequence?
A. Tax-free withdrawal
B. Subject to ordinary income tax
C. Subject to capital gains tax
, D. Subject to penalty only
Correct answer: B
Withdrawals from traditional IRAs are taxed as ordinary income
regardless of age, though early withdrawal penalties may apply
before age 59½.
6. Which asset allocation strategy requires periodic rebalancing to
maintain target weights?
A. Tactical allocation
B. Strategic allocation
C. Insured allocation
D. Dynamic allocation
Correct answer: B
Strategic asset allocation establishes long-term target weights that
must be periodically rebalanced to maintain the intended risk-return
profile.
7. What is the primary purpose of diversification in portfolio
management?
A. Increase returns without risk
B. Eliminate unsystematic risk
C. Eliminate systematic risk
D. Guarantee positive returns
Correct answer: B
Diversification reduces unsystematic (idiosyncratic) risk by spreading
investments across assets, though it cannot eliminate market-wide
systematic risk.
8. A bond’s duration is best described as:
A. Time to maturity
B. Sensitivity to interest rate changes
C. Coupon payment frequency
Practice Questions And Correct Answers
(Verified Answers) Plus Rationale 2026
Q&A| Instant Download Pdf
1. A client in the 32% marginal tax bracket invests in a taxable bond
yielding 6%. What is the tax-equivalent yield required for a municipal
bond to be equally attractive?
A. 4.08%
B. 7.89%
C. 8.82%
D. 5.12%
Correct answer: C
The tax-equivalent yield is calculated by dividing the municipal bond
yield by (1 − tax rate), so 6% ÷ (1 − 0.32) = 8.82%, reflecting the pre-
tax yield needed to match the tax-free return.
2. A 45-year-old client contributes $10,000 annually to a retirement
account earning 7% compounded annually. What is the approximate
value after 10 years?
A. $138,000
B. $142,000
C. $153,000
D. $170,000
, Correct answer: B
The future value of an annuity with annual contributions grows
through compounding, and using standard annuity calculations at 7%
yields approximately $142,000 after 10 years.
3. Which investment is generally considered to have the highest
systematic risk?
A. Treasury bills
B. Utility stocks
C. Technology sector stocks
D. Short-term corporate bonds
Correct answer: C
Technology stocks typically exhibit higher sensitivity to market
movements and economic cycles, reflecting higher systematic risk
compared to defensive or fixed-income securities.
4. Under the efficient market hypothesis (semi-strong form), which
information is already reflected in asset prices?
A. Insider information
B. Only historical prices
C. All publicly available information
D. Only earnings announcements
Correct answer: C
The semi-strong form asserts that all publicly available information is
already incorporated into security prices, making it difficult to
achieve abnormal returns through public analysis.
5. A client withdraws funds from a traditional IRA at age 60. What is the
primary tax consequence?
A. Tax-free withdrawal
B. Subject to ordinary income tax
C. Subject to capital gains tax
, D. Subject to penalty only
Correct answer: B
Withdrawals from traditional IRAs are taxed as ordinary income
regardless of age, though early withdrawal penalties may apply
before age 59½.
6. Which asset allocation strategy requires periodic rebalancing to
maintain target weights?
A. Tactical allocation
B. Strategic allocation
C. Insured allocation
D. Dynamic allocation
Correct answer: B
Strategic asset allocation establishes long-term target weights that
must be periodically rebalanced to maintain the intended risk-return
profile.
7. What is the primary purpose of diversification in portfolio
management?
A. Increase returns without risk
B. Eliminate unsystematic risk
C. Eliminate systematic risk
D. Guarantee positive returns
Correct answer: B
Diversification reduces unsystematic (idiosyncratic) risk by spreading
investments across assets, though it cannot eliminate market-wide
systematic risk.
8. A bond’s duration is best described as:
A. Time to maturity
B. Sensitivity to interest rate changes
C. Coupon payment frequency
