CFP - General Principles Exam Questions With Verified Answers
Which of the following would be the most recommended method of implementing a
savings plan?
a. pay all your expenses first, including credit cards, then deposit the remainder in a
money market account
b. simply wait until the end of the month and see if any money is left over
c. deposit a fixed or specific amount from a paycheck into a savings or money market
account.
d. complete a one-year budget, then see if the client can save money - ANSWER-
deposit a fixed or specific amount from a paycheck into a savings or money market
account - pay yourself first is generally the best advice to give to succeed at savings
A client, married, has come to you for financial planning advice. He has a high-paying
occupation. His wife is a stay-at-home mom with two young children. He has a very high
risk-tolerance with adequate insurance coverage. After a review of his financial
statement, you and he find about 1 month of cash/cash equivalents and excessive debt.
His large investment position is also highly leveraged but doing very well. What should
you suggest he do first?
a. liquidate some investments and reduce his debt
b. establish a budget and save more of the cash flow into liquid assets
c. establish an emergency fund with at least 6 months of fixed and variable expenses
available in emergency fund type assets
d. do a risk tolerance survey and review his investments - ANSWER-establish a budget
and save more of the cash flow into liquid assets - emergency fund not realistic
investment for risk tolerance
,After completing a client questionnaire including a complete financial statement, cash
flow statement, goals, needs, and priorities you have found the following weaknesses.
How would you prioritize them (first, second, etc.)
Lack of Disability Insurance
No Umbrella Coverage
No Emergency Fund
Total Monthly Debt is Greater than 40% of Gross Income - ANSWER-IV, III, I, II -
assume the exam might consider emergency fund first, even above debt reduction.
however no money available for emergency fund so debt reduction first
Your client, age 35, has a wife and 2 young children. Which of the following makes the
most sense for your goal?
a. establish a 6 month emergency fund in the next year from excess cash flow
b. contribute to a 529 plan at the end of the month until two children go to college
c. make contributions to two Roth IRAs each year until retirement
d. make contributions to two deductible IRAs each year until retirement
e. reduce consumer debt over the next year from excess cash flow - ANSWER-
establish a 6 month emergency fund in the next year from excess cash flow - having
proper emergency fund has the highest priority
Mr. and Mrs. Delay are approaching retirement. Their statement of financial position
shows limited retirement assets. Although Mr. Delay has worked all his life, his income
has always been below the maximum Social Security threshold. As a result, his benefits
for both he and his wife will be about half the maximum available at NRA. His pension
benefits available through a prior employer are also minimal. Since he has been
working almost 40 years, he wants to retire early, what should you do if he approached
you to do a financial plan.
a. tell him he cannot retire until at least NRA
,b. do a risk tolerance survey to see if his investments could produce better returns
c. decline him as a client
d. have the client keep a budget to determine current cash flow needs and potential
savings
e. suggest he get a better job or second job for the next few years to increase savings
and get higher SS benefits - ANSWER-have the client keep a budget to determine
current cash flow needs and potential savings - the budget will determine both their
current situation and their potential needs
Which agencies monitor or oversee commercial banks?
FDIC
Federal Reserve
Comptroller of Currency
Department of Commerce
Department of Treasury - ANSWER-I, II, and III
What is in a mutual fund prospectus?
Prior Performance
Future return performance
Fund manager
Investment objectives - ANSWER-I, III, IV - the prospectus cannot show future return
performance
Tech co. is going to have initial public offering. Which of the following Acts apply?
a. Securities Act of 1933
b. Securities Act of 1934
c. Insider Trading Act of 1988 - ANSWER-Securities Act of 1933 - act regulates new
securities
, The provisions of the Securities Act of 1933 apply to which of the following?
a. trading securities
b. regulation of secondary market
c. issuance of IPOs
d. trading of federal issues (like Treasury Bonds) - ANSWER-issuance of IPOs - relates
to issuance of new securities and trading takes place on secondary market
Under the Securities Act of 1934, "sales" include which of the following?
Giving a security as a bonus for securities purchased
Making a bona-fide loan of stock
Entering into a contract to sell a security for value - ANSWER-I and III - by definition a
sale is an agreement between uncompleted buyer and seller on the price of a security
Fiscal policy activities of the federal government include which of the following?
Expenditures
Taxation
The money supply
Debt management - ANSWER-I, II, and IV - the Federal Reserve controls the money
supply, reflecting monetary policy
All of the following tools are used by the Federal Reserve to control the money supply
except which of the following?
a. open market securities
b. setting the discount rate
c. setting the federal funds rate
Which of the following would be the most recommended method of implementing a
savings plan?
a. pay all your expenses first, including credit cards, then deposit the remainder in a
money market account
b. simply wait until the end of the month and see if any money is left over
c. deposit a fixed or specific amount from a paycheck into a savings or money market
account.
d. complete a one-year budget, then see if the client can save money - ANSWER-
deposit a fixed or specific amount from a paycheck into a savings or money market
account - pay yourself first is generally the best advice to give to succeed at savings
A client, married, has come to you for financial planning advice. He has a high-paying
occupation. His wife is a stay-at-home mom with two young children. He has a very high
risk-tolerance with adequate insurance coverage. After a review of his financial
statement, you and he find about 1 month of cash/cash equivalents and excessive debt.
His large investment position is also highly leveraged but doing very well. What should
you suggest he do first?
a. liquidate some investments and reduce his debt
b. establish a budget and save more of the cash flow into liquid assets
c. establish an emergency fund with at least 6 months of fixed and variable expenses
available in emergency fund type assets
d. do a risk tolerance survey and review his investments - ANSWER-establish a budget
and save more of the cash flow into liquid assets - emergency fund not realistic
investment for risk tolerance
,After completing a client questionnaire including a complete financial statement, cash
flow statement, goals, needs, and priorities you have found the following weaknesses.
How would you prioritize them (first, second, etc.)
Lack of Disability Insurance
No Umbrella Coverage
No Emergency Fund
Total Monthly Debt is Greater than 40% of Gross Income - ANSWER-IV, III, I, II -
assume the exam might consider emergency fund first, even above debt reduction.
however no money available for emergency fund so debt reduction first
Your client, age 35, has a wife and 2 young children. Which of the following makes the
most sense for your goal?
a. establish a 6 month emergency fund in the next year from excess cash flow
b. contribute to a 529 plan at the end of the month until two children go to college
c. make contributions to two Roth IRAs each year until retirement
d. make contributions to two deductible IRAs each year until retirement
e. reduce consumer debt over the next year from excess cash flow - ANSWER-
establish a 6 month emergency fund in the next year from excess cash flow - having
proper emergency fund has the highest priority
Mr. and Mrs. Delay are approaching retirement. Their statement of financial position
shows limited retirement assets. Although Mr. Delay has worked all his life, his income
has always been below the maximum Social Security threshold. As a result, his benefits
for both he and his wife will be about half the maximum available at NRA. His pension
benefits available through a prior employer are also minimal. Since he has been
working almost 40 years, he wants to retire early, what should you do if he approached
you to do a financial plan.
a. tell him he cannot retire until at least NRA
,b. do a risk tolerance survey to see if his investments could produce better returns
c. decline him as a client
d. have the client keep a budget to determine current cash flow needs and potential
savings
e. suggest he get a better job or second job for the next few years to increase savings
and get higher SS benefits - ANSWER-have the client keep a budget to determine
current cash flow needs and potential savings - the budget will determine both their
current situation and their potential needs
Which agencies monitor or oversee commercial banks?
FDIC
Federal Reserve
Comptroller of Currency
Department of Commerce
Department of Treasury - ANSWER-I, II, and III
What is in a mutual fund prospectus?
Prior Performance
Future return performance
Fund manager
Investment objectives - ANSWER-I, III, IV - the prospectus cannot show future return
performance
Tech co. is going to have initial public offering. Which of the following Acts apply?
a. Securities Act of 1933
b. Securities Act of 1934
c. Insider Trading Act of 1988 - ANSWER-Securities Act of 1933 - act regulates new
securities
, The provisions of the Securities Act of 1933 apply to which of the following?
a. trading securities
b. regulation of secondary market
c. issuance of IPOs
d. trading of federal issues (like Treasury Bonds) - ANSWER-issuance of IPOs - relates
to issuance of new securities and trading takes place on secondary market
Under the Securities Act of 1934, "sales" include which of the following?
Giving a security as a bonus for securities purchased
Making a bona-fide loan of stock
Entering into a contract to sell a security for value - ANSWER-I and III - by definition a
sale is an agreement between uncompleted buyer and seller on the price of a security
Fiscal policy activities of the federal government include which of the following?
Expenditures
Taxation
The money supply
Debt management - ANSWER-I, II, and IV - the Federal Reserve controls the money
supply, reflecting monetary policy
All of the following tools are used by the Federal Reserve to control the money supply
except which of the following?
a. open market securities
b. setting the discount rate
c. setting the federal funds rate
