Certified Financial Planner (CFP)
Examination Practice Exam 2026 | 100
Questions & Answers with Detailed
Rationales | Complete CFP Exam Prep &
Study Guide
Question 1
A client has a portfolio with a high concentration in one company's stock. What is
the primary risk associated with this situation?
A. Inflation risk
B. Concentration risk
C. Liquidity risk
D. Reinvestment risk
Answer: Concentration risk
Rationale: Concentration risk arises when a large portion of a portfolio is
invested in one security, asset class, industry, or issuer. A significant decline in
that holding can have a disproportionately negative effect on the client's overall
wealth.
,Question 2
Which financial statement provides a snapshot of a client's assets, liabilities, and
net worth at a specific point in time?
A. Cash-flow statement
B. Income statement
C. Balance sheet
D. Budget worksheet
Answer: Balance sheet
Rationale: A balance sheet summarizes assets and liabilities at a particular date.
The difference between total assets and total liabilities represents the client's
net worth.
Question 3
A client's net worth is calculated as:
A. Income minus expenses
B. Assets plus liabilities
C. Assets minus liabilities
D. Income plus assets minus expenses
Answer: Assets minus liabilities
Rationale: Net worth represents the residual value available to the client after
all liabilities are deducted from total assets.
Question 4
Which financial planning principle is most directly concerned with ensuring that a
client can meet short-term obligations?
,A. Estate accumulation
B. Liquidity management
C. Tax deferral
D. Portfolio diversification
Answer: Liquidity management
Rationale: Liquidity management focuses on maintaining sufficient readily
available resources to meet near-term expenses, emergencies, and financial
obligations without having to sell assets under unfavorable conditions.
Question 5
Which of the following is generally considered a fixed expense?
A. Entertainment
B. Dining out
C. Mortgage principal and interest payment
D. Vacation spending
Answer: Mortgage principal and interest payment
Rationale: A mortgage payment is generally a recurring contractual obligation
and is therefore typically classified as a fixed expense, although certain
components such as property taxes and insurance may vary.
Question 6
An emergency fund is primarily designed to:
A. Maximize long-term investment returns
B. Avoid all taxation
C. Provide funds for unexpected financial needs
D. Replace retirement savings
, Answer: Provide funds for unexpected financial needs
Rationale: An emergency fund provides accessible resources for unexpected
expenses such as job loss, major repairs, or medical costs, reducing the need to
liquidate long-term investments or incur high-cost debt.
Question 7
Which factor generally has the greatest effect on the future value of a savings
account over a long period?
A. Account opening fee
B. Compounding rate of return
C. Number of account statements
D. Account title
Answer: Compounding rate of return
Rationale: Over long periods, the rate of return and the resulting compounding
effect can substantially increase the value of savings because returns are earned
on both the original principal and previously accumulated returns.
Question 8
What is the primary purpose of a personal budget?
A. Eliminate all debt immediately
B. Guarantee investment returns
C. Plan and control income and expenditures
D. Determine a client's life expectancy
Answer: Plan and control income and expenditures
Examination Practice Exam 2026 | 100
Questions & Answers with Detailed
Rationales | Complete CFP Exam Prep &
Study Guide
Question 1
A client has a portfolio with a high concentration in one company's stock. What is
the primary risk associated with this situation?
A. Inflation risk
B. Concentration risk
C. Liquidity risk
D. Reinvestment risk
Answer: Concentration risk
Rationale: Concentration risk arises when a large portion of a portfolio is
invested in one security, asset class, industry, or issuer. A significant decline in
that holding can have a disproportionately negative effect on the client's overall
wealth.
,Question 2
Which financial statement provides a snapshot of a client's assets, liabilities, and
net worth at a specific point in time?
A. Cash-flow statement
B. Income statement
C. Balance sheet
D. Budget worksheet
Answer: Balance sheet
Rationale: A balance sheet summarizes assets and liabilities at a particular date.
The difference between total assets and total liabilities represents the client's
net worth.
Question 3
A client's net worth is calculated as:
A. Income minus expenses
B. Assets plus liabilities
C. Assets minus liabilities
D. Income plus assets minus expenses
Answer: Assets minus liabilities
Rationale: Net worth represents the residual value available to the client after
all liabilities are deducted from total assets.
Question 4
Which financial planning principle is most directly concerned with ensuring that a
client can meet short-term obligations?
,A. Estate accumulation
B. Liquidity management
C. Tax deferral
D. Portfolio diversification
Answer: Liquidity management
Rationale: Liquidity management focuses on maintaining sufficient readily
available resources to meet near-term expenses, emergencies, and financial
obligations without having to sell assets under unfavorable conditions.
Question 5
Which of the following is generally considered a fixed expense?
A. Entertainment
B. Dining out
C. Mortgage principal and interest payment
D. Vacation spending
Answer: Mortgage principal and interest payment
Rationale: A mortgage payment is generally a recurring contractual obligation
and is therefore typically classified as a fixed expense, although certain
components such as property taxes and insurance may vary.
Question 6
An emergency fund is primarily designed to:
A. Maximize long-term investment returns
B. Avoid all taxation
C. Provide funds for unexpected financial needs
D. Replace retirement savings
, Answer: Provide funds for unexpected financial needs
Rationale: An emergency fund provides accessible resources for unexpected
expenses such as job loss, major repairs, or medical costs, reducing the need to
liquidate long-term investments or incur high-cost debt.
Question 7
Which factor generally has the greatest effect on the future value of a savings
account over a long period?
A. Account opening fee
B. Compounding rate of return
C. Number of account statements
D. Account title
Answer: Compounding rate of return
Rationale: Over long periods, the rate of return and the resulting compounding
effect can substantially increase the value of savings because returns are earned
on both the original principal and previously accumulated returns.
Question 8
What is the primary purpose of a personal budget?
A. Eliminate all debt immediately
B. Guarantee investment returns
C. Plan and control income and expenditures
D. Determine a client's life expectancy
Answer: Plan and control income and expenditures
