Review: Fundamentals of Financial Planning Exam Questions with Verified Answers| Latest
Update Graded A+
Jimmy, a 49-year-old corporate executive, has been saving for his son's college tuition in a 529
for the last 18 years. He had high hopes his son would go to medical school. His son Marco is
now 18 and has chosen not to attend college as his father had hoped. He has accepted a
registered apprenticeship as an underwater welder. The equipment he needs for the
apprenticeship is expensive. What is Jimmy's best option for the balance of the 529 plan?
A.Take a qualified distribution for the equipment Marco will need.
B.Take a non-qualified distribution for the equipment Marco will need, resulting in a 10%
penalty and income taxes on the gains.
C.Close out the 529 plan.
D.Change the beneficiary to his brother's son going to medical school. The correct answer is
A.
SECURE Act 2019 added qualified distributions for expenses for fees, books, supplies, and
equipment required for the participation of a designated beneficiary in an apprenticeship
program registered and certified with the Secretary of Labor under section 1 of the National
Apprenticeship Act (29 U.S.C. 50).
B does state what would happen for a non-qualified distribution, but Jimmy will not have to
take that option.
C is not a great option, there is no need to close it out.
D is an available option, but Jimmy can utilize the money to help Marco.
Robert, a CFP® professional, performed a needs analysis concerning Jack's life insurance
situation last year and sold him a universal life policy under a limited scope engagement. This
year, Jack wants Robert to evaluate his investment allocation, risk tolerance and recommend
some mutual funds. All of the following information is required to be provided to Jack according
to the Code of Ethics and Standards of Conduct EXCEPT?
A.Terms of the engagement including the scope of the engagement with any limitations, the
period services will be provided and responsibilities of the Client.
B.Disclosure of Economic Benefit for Referral or Engagement of Additional Persons.
C.How the CFP® professional and their firm are compensated for providing products and
services.
,D.A written agreement covering the specific obligations and responsibilities of each party.
The correct answer is D.
Robert's obligations of disclosure to Jack require (Obligations to clients 10) disclosing answers B
and C. As the engagement will require a discussion of client goals and working to meet those
goals this is a financial planning engagement. As such any limitations, end date and a scope of
engagement must be provided.
An appropriate Emergency Fund Ratio is:
A.Three to six months of non-discretionary expenses depending on the number of wage earners
in the family.
B.Three to six months of gross income, depending on the number of wage earners in the family.
C.Three to six months of discretionary income, depending on the number of wage earners in
the family.
None of the choices. The correct answer is A.
What is the net present value of the cash flows from a piece of equipment that is purchased for
$10,000 and over a 4 year period generates the following cash flows:
Year 1: $2,000
Year 2: $2,500
Year 3: $3,500
Year 4: $4,000
Assume the equipment can be sold at the end of the 4th year for $1,000 and assume the
required rate of return is 7%.
A.<724>
B.724
C.<674>
D.674 The correct answer is B.
CFo = <10,000>
CFj = 2,000
CFj = 2,500
, CFj = 3,500
CFj = 4,000+1,000=5,000
i=7
NPV = 724
Arrange the following financial planning steps into the proper sequence in which these
functions are performed by a CFP® professional:
Understanding The Client's Personal and Financial Circumstances
Presenting the Financial Planning Recommendation(s)
Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action
Developing the Financial Planning Recommendation(s)
Identifying and Selecting Goals
A.I, III, V, IV and then II.
B.V, I, III, II and then IV.
C.I, V, IV, III and then II.
D.I, V, III, IV and then II. The correct answer is D.
The proper sequence of practice standard steps is to - Understanding The Client's Personal and
Financial Circumstances, Identifying and Selecting Goals, Analyzing the Client's Current Course
of Action and Potential Alternative Course(s) of Action, Developing the Financial Planning
Recommendation(s), Presenting the Financial Planning Recommendation(s), Implementing the
Financial Planning Recommendation(s), Monitoring Progress and Updating
Ross is employed as a loan officer at a local bank. Ross recently sat down and visited with his
financial planner Julie, a CFP® professional. Ross was in need of cash and borrowed $9,500 from
Julie. Based on duties owed to a client (15- Refrain from Borrowing or Lending Money and
Commingling Financial Assets) is Julie in violation of this rule?
A.Julie is not in violation of the rule because Ross is in the business of lending money
B.Julie is in violation of the rule because a CFP® certificant must never lend money to a client.
C.Julie is not in violation since she loaned Ross less than $10,000.
D.Julie is in violation of the rule. The correct answer is D.
Update Graded A+
Jimmy, a 49-year-old corporate executive, has been saving for his son's college tuition in a 529
for the last 18 years. He had high hopes his son would go to medical school. His son Marco is
now 18 and has chosen not to attend college as his father had hoped. He has accepted a
registered apprenticeship as an underwater welder. The equipment he needs for the
apprenticeship is expensive. What is Jimmy's best option for the balance of the 529 plan?
A.Take a qualified distribution for the equipment Marco will need.
B.Take a non-qualified distribution for the equipment Marco will need, resulting in a 10%
penalty and income taxes on the gains.
C.Close out the 529 plan.
D.Change the beneficiary to his brother's son going to medical school. The correct answer is
A.
SECURE Act 2019 added qualified distributions for expenses for fees, books, supplies, and
equipment required for the participation of a designated beneficiary in an apprenticeship
program registered and certified with the Secretary of Labor under section 1 of the National
Apprenticeship Act (29 U.S.C. 50).
B does state what would happen for a non-qualified distribution, but Jimmy will not have to
take that option.
C is not a great option, there is no need to close it out.
D is an available option, but Jimmy can utilize the money to help Marco.
Robert, a CFP® professional, performed a needs analysis concerning Jack's life insurance
situation last year and sold him a universal life policy under a limited scope engagement. This
year, Jack wants Robert to evaluate his investment allocation, risk tolerance and recommend
some mutual funds. All of the following information is required to be provided to Jack according
to the Code of Ethics and Standards of Conduct EXCEPT?
A.Terms of the engagement including the scope of the engagement with any limitations, the
period services will be provided and responsibilities of the Client.
B.Disclosure of Economic Benefit for Referral or Engagement of Additional Persons.
C.How the CFP® professional and their firm are compensated for providing products and
services.
,D.A written agreement covering the specific obligations and responsibilities of each party.
The correct answer is D.
Robert's obligations of disclosure to Jack require (Obligations to clients 10) disclosing answers B
and C. As the engagement will require a discussion of client goals and working to meet those
goals this is a financial planning engagement. As such any limitations, end date and a scope of
engagement must be provided.
An appropriate Emergency Fund Ratio is:
A.Three to six months of non-discretionary expenses depending on the number of wage earners
in the family.
B.Three to six months of gross income, depending on the number of wage earners in the family.
C.Three to six months of discretionary income, depending on the number of wage earners in
the family.
None of the choices. The correct answer is A.
What is the net present value of the cash flows from a piece of equipment that is purchased for
$10,000 and over a 4 year period generates the following cash flows:
Year 1: $2,000
Year 2: $2,500
Year 3: $3,500
Year 4: $4,000
Assume the equipment can be sold at the end of the 4th year for $1,000 and assume the
required rate of return is 7%.
A.<724>
B.724
C.<674>
D.674 The correct answer is B.
CFo = <10,000>
CFj = 2,000
CFj = 2,500
, CFj = 3,500
CFj = 4,000+1,000=5,000
i=7
NPV = 724
Arrange the following financial planning steps into the proper sequence in which these
functions are performed by a CFP® professional:
Understanding The Client's Personal and Financial Circumstances
Presenting the Financial Planning Recommendation(s)
Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action
Developing the Financial Planning Recommendation(s)
Identifying and Selecting Goals
A.I, III, V, IV and then II.
B.V, I, III, II and then IV.
C.I, V, IV, III and then II.
D.I, V, III, IV and then II. The correct answer is D.
The proper sequence of practice standard steps is to - Understanding The Client's Personal and
Financial Circumstances, Identifying and Selecting Goals, Analyzing the Client's Current Course
of Action and Potential Alternative Course(s) of Action, Developing the Financial Planning
Recommendation(s), Presenting the Financial Planning Recommendation(s), Implementing the
Financial Planning Recommendation(s), Monitoring Progress and Updating
Ross is employed as a loan officer at a local bank. Ross recently sat down and visited with his
financial planner Julie, a CFP® professional. Ross was in need of cash and borrowed $9,500 from
Julie. Based on duties owed to a client (15- Refrain from Borrowing or Lending Money and
Commingling Financial Assets) is Julie in violation of this rule?
A.Julie is not in violation of the rule because Ross is in the business of lending money
B.Julie is in violation of the rule because a CFP® certificant must never lend money to a client.
C.Julie is not in violation since she loaned Ross less than $10,000.
D.Julie is in violation of the rule. The correct answer is D.
