CFP Practice Questions – Fundamentals Questions and
Answers format
As a rule of thumb, it is best if consumer debt does not exceed:
A. 20% of net income.
B. 20% of gross income.
C. 3 to 6 months of expenses.
D. 36% of gross monthly income. - AnswersA. 20% of net income
This is a rule of thumb, along with the others that recommend housing debt be limited to 28%
of gross income, and total debt not to exceed 36% of gross income.
David has won the Illinois state lottery. He must decide whether to receive annual payments of
$250,000 at the beginning of each year for the next 20 years, or a lump sum payout. What lump
sum amount does David need to receive to equal the $250,000 payments for the next 20 years,
if he can earn an 8% return on his investments, assuming inflation is 3%?
$2,454,537
$2,650,900
$2,875,900
$3,307,511 - Answers$2,650,900
This is a present value of an annuity due problem. So, N = 20, I = 8, PV = ?, PMT = 250,000, FV =
0. Put your calculator in BEGIN mode and solve for PV. Inflation is not necessary in this
calculation, lotto winnings income streams will not increase for inflation, they are the equivalent
to a fixed annuity.
Cathy and John Gonnerman would like to retire in twelve years. At that time, they would like to
have accumulated $350,000 in today's dollars. To achieve this goal, they plan to invest a sum at
the end of each year that will remain constant in purchasing power. They anticipate average
, CFP Practice Questions – Fundamentals Questions and
Answers format
inflation at 6% and have an after tax investment earning capacity of 9%. What payment is
required at the end of the first year for them to reach their goal?
$34,806.25
$26,394.63
$27,978.31
$50,104.88
$45,563.97 - Answers$26,394.63
The correct answer is B. The payments increasing each year will keep pace with inflation at the
end of 12 years.
N=12 i=[(1.09/1.06)-1] × 100=2.83 PMT=24,900 × 1.06=26,394 FV=350,000
Which of the following is/are true regarding registering as an investment adviser?
I. Exceptions are not governed by the Investment Advisers Act of 1940 at all.
II. Exemptions are governed by Section 206 of the Investment Advisers Act of 1940.
III. Exceptions include advisers whose only clients are insurance companies.
IV. Exemptions include banks and bank holding companies.
I only.
I and II only.
II and III only.
II and IV only. - AnswersI & II
Exceptions are not governed by the Act. Exemptions need not register, but are governed by the
"anti-fraud" provision (Section 206) of the Act.
, CFP Practice Questions – Fundamentals Questions and
Answers format
Hannah currently has $715,000 saved. She will retire in 10 years and wants to take $100,000
income for 25 years at the beginning of each year. She also wishes to have $1,000,000 35 years
from now to leave to her heirs. What is the internal rate of return needed to accomplish this?
6.99%
7.09%
7.13%
7.26% - Answers7.09%
The correct answer is B. Income needs to begin at the beginning of year 10, make end of year 9
the last year of inactivity. The 1,000,000 is entered separately as it is not part of the retirement
income stream.
10BII and 10BII+ (zeros were truncated to speed up calculation)
715 +/-CF
0 CF
9 [OS] Nj [OS] means Orange Shift
100 Cf
25 [OS] Nj
1000 CF
[OS] IRR/YR
Hannah currently has $915,000 saved. She will retire in 10 years and wants to take $80,000
income for 25 years at the beginning of each year. She also wishes to have $1,000,000 35 years
from now to leave to her heirs. What is the internal rate of return needed to accomplish this?
Answers format
As a rule of thumb, it is best if consumer debt does not exceed:
A. 20% of net income.
B. 20% of gross income.
C. 3 to 6 months of expenses.
D. 36% of gross monthly income. - AnswersA. 20% of net income
This is a rule of thumb, along with the others that recommend housing debt be limited to 28%
of gross income, and total debt not to exceed 36% of gross income.
David has won the Illinois state lottery. He must decide whether to receive annual payments of
$250,000 at the beginning of each year for the next 20 years, or a lump sum payout. What lump
sum amount does David need to receive to equal the $250,000 payments for the next 20 years,
if he can earn an 8% return on his investments, assuming inflation is 3%?
$2,454,537
$2,650,900
$2,875,900
$3,307,511 - Answers$2,650,900
This is a present value of an annuity due problem. So, N = 20, I = 8, PV = ?, PMT = 250,000, FV =
0. Put your calculator in BEGIN mode and solve for PV. Inflation is not necessary in this
calculation, lotto winnings income streams will not increase for inflation, they are the equivalent
to a fixed annuity.
Cathy and John Gonnerman would like to retire in twelve years. At that time, they would like to
have accumulated $350,000 in today's dollars. To achieve this goal, they plan to invest a sum at
the end of each year that will remain constant in purchasing power. They anticipate average
, CFP Practice Questions – Fundamentals Questions and
Answers format
inflation at 6% and have an after tax investment earning capacity of 9%. What payment is
required at the end of the first year for them to reach their goal?
$34,806.25
$26,394.63
$27,978.31
$50,104.88
$45,563.97 - Answers$26,394.63
The correct answer is B. The payments increasing each year will keep pace with inflation at the
end of 12 years.
N=12 i=[(1.09/1.06)-1] × 100=2.83 PMT=24,900 × 1.06=26,394 FV=350,000
Which of the following is/are true regarding registering as an investment adviser?
I. Exceptions are not governed by the Investment Advisers Act of 1940 at all.
II. Exemptions are governed by Section 206 of the Investment Advisers Act of 1940.
III. Exceptions include advisers whose only clients are insurance companies.
IV. Exemptions include banks and bank holding companies.
I only.
I and II only.
II and III only.
II and IV only. - AnswersI & II
Exceptions are not governed by the Act. Exemptions need not register, but are governed by the
"anti-fraud" provision (Section 206) of the Act.
, CFP Practice Questions – Fundamentals Questions and
Answers format
Hannah currently has $715,000 saved. She will retire in 10 years and wants to take $100,000
income for 25 years at the beginning of each year. She also wishes to have $1,000,000 35 years
from now to leave to her heirs. What is the internal rate of return needed to accomplish this?
6.99%
7.09%
7.13%
7.26% - Answers7.09%
The correct answer is B. Income needs to begin at the beginning of year 10, make end of year 9
the last year of inactivity. The 1,000,000 is entered separately as it is not part of the retirement
income stream.
10BII and 10BII+ (zeros were truncated to speed up calculation)
715 +/-CF
0 CF
9 [OS] Nj [OS] means Orange Shift
100 Cf
25 [OS] Nj
1000 CF
[OS] IRR/YR
Hannah currently has $915,000 saved. She will retire in 10 years and wants to take $80,000
income for 25 years at the beginning of each year. She also wishes to have $1,000,000 35 years
from now to leave to her heirs. What is the internal rate of return needed to accomplish this?
