CTFA Practice Exam 2 Rated A+
Q. A $10,000 bond is issued with a duration of 4 years. Six months later interest rates
fall by 50 basis points. With the change in interest rates, the bond's value will change to:
A. 9600
B. 9800
C. 10200
D. 10400 - ANSWER-Solution: The correct answer is C.
Q. A 48-year-old widow asks for advice regarding the available options to pay for long-
term health care. The relationship manager should discuss all of the following topics
EXCEPT:
A. Medicaid.
B. Medicare.
C. Investments.
D. Long-term care insurance. - ANSWER-Solution: The correct answer is B.
Q. A bank is co-trustee with the widow of the grantor of an irrevocable trust. She is the
income beneficiary and has a limited testamentary power to appoint among the
grantor's descendants. In default of her exercise of this power, the residue goes outright
to the grantor's descendants per stirpes. There are three adult children and no
predeceased children. The account holds a concentration of your bank stock with a
large capital gain. The trust specifically authorizes retention of the bank stock and
provides exculpatory language. The co-trustee wants the trust to retain the bank stock.
To fully protect the trustees from liability, your BEST course of action is to:
A. Sell the stock immediately
B. Retain the stock, relying on the authorization language in the trust
C. Obtain a court order to retain the stock
D. Obtain a letter of direction and indemnification from the co-trustee to retain the stock
- ANSWER-Solution: The correct answer is C.
Q. A bank trust department manages assets for a local charity. The development
director of the charity contacts the bank because they believe a board member of the
charity has a revocable trust with the bank. The development director asks the bank to
determine whether the charity is a remainder beneficiary of that revocable trust. Which
action should the bank take?
A. Decline to provide any information to the development director
B. Refer the development director to the trust's drafting attorney
C. Provide the information because the requestor is a charity
D. Confirm the board member has a trust with the bank without providing information -
ANSWER-Solution: The correct answer is A.
, Q. A broker holds Jim's stock in custody. Jim gives his broker instructions to transfer the
stock to Nancy. The gift is complete when:
A. Nancy is notified by Jim
B. Nancy is notified by the broker
C. The instructions are delivered to the broker
D. The stock is transferred on the books of the corporation - ANSWER-Solution: The
correct answer is D.
Q. A client asks the trust advisor to review a proposed tax shelter in which the client
would like to invest. The MOST appropriate course of action for the trust advisor is to:
A. Refer the client to their CPA
B. Offer a letter of opinion along with a disclaimer
C. Respond on a recorded telephone line
D. Research the issue and give the client a covered opinion - ANSWER-Solution: The
correct answer is A.
Q. A client created a private foundation. The foundation has signed a 3-year lease for
office space in one of the client's properties at a significantly reduced rate. With regard
to self-dealing, this arrangement is:
A. An example of self-dealing
B. Not self-dealing because the foundation benefits
C. Not self-dealing because the lease is for fewer than 5 years
D. Not self-dealing because the lease deals with commercial property - ANSWER-
Solution: The correct answer is A.
Q. A client created a revocable trust during life and named the bank as successor
trustee. Upon the client's death, the trust split into "A" (marital) and "B" (residual) trusts.
The "A" trust provides the surviving spouse with a testamentary general power of
appointment over the assets. Which of the following is correct regarding the power of
appointment?
A. It must be specifically referenced and exercised by the surviving spouse in their last
will
B. The successor trustee can request that the power be waived by the executor of the
deceased client's estate
C. The probate court will entertain testimony from the surviving spouse's children
regarding intent and then distribute the assets accordingly
D. Upon the surviving spouse's death, their personal representative can exercise the
power by submitting a notarized document to the probate court as long as it occurs
within 30 days post mortem - ANSWER-Solution: The correct answer is A.
Q. A $10,000 bond is issued with a duration of 4 years. Six months later interest rates
fall by 50 basis points. With the change in interest rates, the bond's value will change to:
A. 9600
B. 9800
C. 10200
D. 10400 - ANSWER-Solution: The correct answer is C.
Q. A 48-year-old widow asks for advice regarding the available options to pay for long-
term health care. The relationship manager should discuss all of the following topics
EXCEPT:
A. Medicaid.
B. Medicare.
C. Investments.
D. Long-term care insurance. - ANSWER-Solution: The correct answer is B.
Q. A bank is co-trustee with the widow of the grantor of an irrevocable trust. She is the
income beneficiary and has a limited testamentary power to appoint among the
grantor's descendants. In default of her exercise of this power, the residue goes outright
to the grantor's descendants per stirpes. There are three adult children and no
predeceased children. The account holds a concentration of your bank stock with a
large capital gain. The trust specifically authorizes retention of the bank stock and
provides exculpatory language. The co-trustee wants the trust to retain the bank stock.
To fully protect the trustees from liability, your BEST course of action is to:
A. Sell the stock immediately
B. Retain the stock, relying on the authorization language in the trust
C. Obtain a court order to retain the stock
D. Obtain a letter of direction and indemnification from the co-trustee to retain the stock
- ANSWER-Solution: The correct answer is C.
Q. A bank trust department manages assets for a local charity. The development
director of the charity contacts the bank because they believe a board member of the
charity has a revocable trust with the bank. The development director asks the bank to
determine whether the charity is a remainder beneficiary of that revocable trust. Which
action should the bank take?
A. Decline to provide any information to the development director
B. Refer the development director to the trust's drafting attorney
C. Provide the information because the requestor is a charity
D. Confirm the board member has a trust with the bank without providing information -
ANSWER-Solution: The correct answer is A.
, Q. A broker holds Jim's stock in custody. Jim gives his broker instructions to transfer the
stock to Nancy. The gift is complete when:
A. Nancy is notified by Jim
B. Nancy is notified by the broker
C. The instructions are delivered to the broker
D. The stock is transferred on the books of the corporation - ANSWER-Solution: The
correct answer is D.
Q. A client asks the trust advisor to review a proposed tax shelter in which the client
would like to invest. The MOST appropriate course of action for the trust advisor is to:
A. Refer the client to their CPA
B. Offer a letter of opinion along with a disclaimer
C. Respond on a recorded telephone line
D. Research the issue and give the client a covered opinion - ANSWER-Solution: The
correct answer is A.
Q. A client created a private foundation. The foundation has signed a 3-year lease for
office space in one of the client's properties at a significantly reduced rate. With regard
to self-dealing, this arrangement is:
A. An example of self-dealing
B. Not self-dealing because the foundation benefits
C. Not self-dealing because the lease is for fewer than 5 years
D. Not self-dealing because the lease deals with commercial property - ANSWER-
Solution: The correct answer is A.
Q. A client created a revocable trust during life and named the bank as successor
trustee. Upon the client's death, the trust split into "A" (marital) and "B" (residual) trusts.
The "A" trust provides the surviving spouse with a testamentary general power of
appointment over the assets. Which of the following is correct regarding the power of
appointment?
A. It must be specifically referenced and exercised by the surviving spouse in their last
will
B. The successor trustee can request that the power be waived by the executor of the
deceased client's estate
C. The probate court will entertain testimony from the surviving spouse's children
regarding intent and then distribute the assets accordingly
D. Upon the surviving spouse's death, their personal representative can exercise the
power by submitting a notarized document to the probate court as long as it occurs
within 30 days post mortem - ANSWER-Solution: The correct answer is A.
