Comprehensive CFP 101 Financial Planning and
Analysis Guide EXAM Questions and Answers
Graded A+
What characterizes the Asset Accumulation Phase? - ✔✔✔It occurs from early 20s to mid 50s,
where cash flow for investing is low and debt to net worth is high, with risks including untimely death
and unemployment.
What characterizes the Conservation/Risk Management Phase? - ✔✔✔It occurs from late 20s to
early 70s, where cash flow, assets, and net worth have increased, and debt has decreased somewhat.
What components are included in the Housing Ratio 1 (HR1)? - ✔✔✔It includes principal payment
on the mortgage, rent, interest, homeowners insurance, property taxes, and HOA.
What defines reasonable debt? - ✔✔✔Debt with a longer payback period or uncertain returns that
are still positive.
What does 'N' represent in financial calculations? - ✔✔✔N represents the amount of time required
to accomplish a financial goal.
What does a balance sheet list? - ✔✔✔Assets, liabilities, and net worth at a specific moment in time.
What does a negative NPV indicate? - ✔✔✔A negative NPV indicates that an investment is
generating a shortfall of present value cash flows and should not be made without compelling reasons.
What does a positive NPV indicate? - ✔✔✔A positive NPV indicates that an investment is providing
excess cash flows and should be considered.
What does an NPV equal to zero indicate? - ✔✔✔An NPV equal to zero indicates that the
investment is generating cash flow equal to the required rate of return.
What does capital appreciation refer to in the context of ROI? - ✔✔✔The ending balance of
investments.
What does CFj represent in cash flow calculations? - ✔✔✔CFj represents the periodic cash flows,
where 'j' indicates each period of cash flows.
What does financial psychology focus on? - ✔✔✔The state of financial well-being, where a person
can meet financial obligations and feel secure about their financial future.
What does GNP measure? - ✔✔✔The total final output by the citizens of a country, regardless of
where it is produced.
What does Housing Ratio 2 (HR2) combine? - ✔✔✔It combines basic housing costs with all other
monthly debt payments, with a benchmark of less than or equal to 36% of gross pay.
What does Nj represent in cash flow calculations? - ✔✔✔Nj represents the number of consecutive
times the periodic cash flow repeats.
What does Return on Net Worth (RONW) measure? - ✔✔✔The return on the client's net worth.
What does the Balance Sheet Pie Chart illustrate? - ✔✔✔It shows the percentage of total assets in
various forms, separated into asset and liability categories.
, What does the behavioral prospect theory state? - ✔✔✔People value gains and losses differently
and base decisions on perceived gains rather than perceived losses.
What does the Current Ratio indicate? - ✔✔✔It provides insight into the client's ability to meet
short-term obligations if current liabilities come due immediately.
What does the GDP deflator measure? - ✔✔✔The current price of goods and services relative to a
base year.
What does the Housing Ratio 1 (HR1) measure? - ✔✔✔It measures how much of current income is
spent on housing costs, with a benchmark of less than or equal to 28% of gross pay.
What does the Liabilities and Net Worth Pie Chart represent? - ✔✔✔It shows current liabilities,
long-term liabilities, and net worth.
What does the Metrics Approach provide for financial planners? - ✔✔✔Example benchmarks for
guidance while following financial plans.
What does the Net Worth to Total Assets Ratio indicate? - ✔✔✔It provides the percentage of total
assets owned or paid for by the client.
What formula is used to calculate the investment assets to gross pay ratio? - ✔✔✔Investment
assets + cash & cash equivalents / Gross Pay.
What happens if there is incomplete information during the financial planning process? - ✔✔✔The
scope of what the CFP can provide may be limited or further engagement may be terminated.
What is a Graduate PLUS Loan based on? - ✔✔✔The student's credit.
What is a key aspect of monitoring responsibilities in financial planning? - ✔✔✔The planner almost
always has monitoring responsibilities.
What is a Parent PLUS Loan? - ✔✔✔A loan that does not require financial criteria, has higher
interest, and is for parents with undergraduate children.
What is an unsubsidized loan? - ✔✔✔Interest is accruing immediately.
What is analyzed in the third step of the financial planning process? - ✔✔✔The current course of
action and potential courses of action.
What is considered good debt? - ✔✔✔Debt with a low interest rate compared to expected inflation
and investment returns, and a payback period shorter than the asset's economic life.
What is created after the client agrees to the financial plan? - ✔✔✔A guideline outlining actions,
products, and services designed to implement the recommendations.
What is created during the implementation step of the financial planning process? - ✔✔✔A
guideline outlining actions, products, and services to implement the recommendations after client
agreement.
What is disinflation? - ✔✔✔A slowdown in the rate of inflation.
What is financial well-being? - ✔✔✔A state of being where a person can meet financial obligations,
feel secure about the future, and make choices to enjoy life.
What is included in the engagement letter prepared for the client? - ✔✔✔Description of services,
time horizon, fees and costs, obligations of each party, and monitoring responsibilities.
Analysis Guide EXAM Questions and Answers
Graded A+
What characterizes the Asset Accumulation Phase? - ✔✔✔It occurs from early 20s to mid 50s,
where cash flow for investing is low and debt to net worth is high, with risks including untimely death
and unemployment.
What characterizes the Conservation/Risk Management Phase? - ✔✔✔It occurs from late 20s to
early 70s, where cash flow, assets, and net worth have increased, and debt has decreased somewhat.
What components are included in the Housing Ratio 1 (HR1)? - ✔✔✔It includes principal payment
on the mortgage, rent, interest, homeowners insurance, property taxes, and HOA.
What defines reasonable debt? - ✔✔✔Debt with a longer payback period or uncertain returns that
are still positive.
What does 'N' represent in financial calculations? - ✔✔✔N represents the amount of time required
to accomplish a financial goal.
What does a balance sheet list? - ✔✔✔Assets, liabilities, and net worth at a specific moment in time.
What does a negative NPV indicate? - ✔✔✔A negative NPV indicates that an investment is
generating a shortfall of present value cash flows and should not be made without compelling reasons.
What does a positive NPV indicate? - ✔✔✔A positive NPV indicates that an investment is providing
excess cash flows and should be considered.
What does an NPV equal to zero indicate? - ✔✔✔An NPV equal to zero indicates that the
investment is generating cash flow equal to the required rate of return.
What does capital appreciation refer to in the context of ROI? - ✔✔✔The ending balance of
investments.
What does CFj represent in cash flow calculations? - ✔✔✔CFj represents the periodic cash flows,
where 'j' indicates each period of cash flows.
What does financial psychology focus on? - ✔✔✔The state of financial well-being, where a person
can meet financial obligations and feel secure about their financial future.
What does GNP measure? - ✔✔✔The total final output by the citizens of a country, regardless of
where it is produced.
What does Housing Ratio 2 (HR2) combine? - ✔✔✔It combines basic housing costs with all other
monthly debt payments, with a benchmark of less than or equal to 36% of gross pay.
What does Nj represent in cash flow calculations? - ✔✔✔Nj represents the number of consecutive
times the periodic cash flow repeats.
What does Return on Net Worth (RONW) measure? - ✔✔✔The return on the client's net worth.
What does the Balance Sheet Pie Chart illustrate? - ✔✔✔It shows the percentage of total assets in
various forms, separated into asset and liability categories.
, What does the behavioral prospect theory state? - ✔✔✔People value gains and losses differently
and base decisions on perceived gains rather than perceived losses.
What does the Current Ratio indicate? - ✔✔✔It provides insight into the client's ability to meet
short-term obligations if current liabilities come due immediately.
What does the GDP deflator measure? - ✔✔✔The current price of goods and services relative to a
base year.
What does the Housing Ratio 1 (HR1) measure? - ✔✔✔It measures how much of current income is
spent on housing costs, with a benchmark of less than or equal to 28% of gross pay.
What does the Liabilities and Net Worth Pie Chart represent? - ✔✔✔It shows current liabilities,
long-term liabilities, and net worth.
What does the Metrics Approach provide for financial planners? - ✔✔✔Example benchmarks for
guidance while following financial plans.
What does the Net Worth to Total Assets Ratio indicate? - ✔✔✔It provides the percentage of total
assets owned or paid for by the client.
What formula is used to calculate the investment assets to gross pay ratio? - ✔✔✔Investment
assets + cash & cash equivalents / Gross Pay.
What happens if there is incomplete information during the financial planning process? - ✔✔✔The
scope of what the CFP can provide may be limited or further engagement may be terminated.
What is a Graduate PLUS Loan based on? - ✔✔✔The student's credit.
What is a key aspect of monitoring responsibilities in financial planning? - ✔✔✔The planner almost
always has monitoring responsibilities.
What is a Parent PLUS Loan? - ✔✔✔A loan that does not require financial criteria, has higher
interest, and is for parents with undergraduate children.
What is an unsubsidized loan? - ✔✔✔Interest is accruing immediately.
What is analyzed in the third step of the financial planning process? - ✔✔✔The current course of
action and potential courses of action.
What is considered good debt? - ✔✔✔Debt with a low interest rate compared to expected inflation
and investment returns, and a payback period shorter than the asset's economic life.
What is created after the client agrees to the financial plan? - ✔✔✔A guideline outlining actions,
products, and services designed to implement the recommendations.
What is created during the implementation step of the financial planning process? - ✔✔✔A
guideline outlining actions, products, and services to implement the recommendations after client
agreement.
What is disinflation? - ✔✔✔A slowdown in the rate of inflation.
What is financial well-being? - ✔✔✔A state of being where a person can meet financial obligations,
feel secure about the future, and make choices to enjoy life.
What is included in the engagement letter prepared for the client? - ✔✔✔Description of services,
time horizon, fees and costs, obligations of each party, and monitoring responsibilities.
