CFP exam UPDATED ACTUAL Questions and CORRECT Answers
1. principles The Code is organized around principles. How to remember HINT: IOC/FCPD
Integrity (#1)
objectivity (#2)
competence (#3)
Fairness (#4)
Confidentiality (#5)
Professionalism (#6)
Diligence (#7)
2. Personal Finan- Cash/ Equivalents
cial Statements Investments ( collectibles for inv purposes)
Use assets - at FMV
Liabilities
*NOTE - Life Insurance cash value is not part of investment assets or emergency
fund on exam*
3. Encumbrance Liability
4. Statement of fi- includes balance sheet, cash flow
nancial position
5. emergency fund 3-6 months of real estate taxes, fixed and variable expenses
3- single second source of income / married both work and similar wages /
married only one works but second source of income
6 months- single wage earner/ married only one spouse works
lifestyle and risk tolerance take precedence - can be lower but try to stay liquid
investments
Emergency fund
, The emergency fund is invested in the following.
- checking accounts (excluding funds to be utilized for necessary expenses)
- government money market accounts
- savings accounts
- CDs if close to maturity < 90 days
- laddered CDs < 6 months
* If the checking account exceeds the normal monthly expenses, subtract one
month of expenses. If the normal monthly expenses exceed the funds in the
checking account, you should ignore the negative number. For example, if normal
monthly expenses are $5,000 and the clients only have $4,000 in their checking
account, then the checking account balance isn't usable. However, don't subtract
$1,000.
6. Debt Mgt PITI (housing expense or rent) less than 28% of gross income
PITI - prinicpal interest taxes insurance
PITI / gross income = %
*use all income for PITI ratio*
Total monthly debt < 36% of gross income (maybe tested)
Consumer debt < 20% of net income (probably not tested)
PITI is the most important calculation.
Total monthly debt includes housing expense, Auto loans, and credit card debt,
etc. That is rarely or never asked.
NOTE: Do not subtract 401(k) contributions when calculating gross income.
,7. Savings at least 5-8% of income ideal
Savings is the excess of cash inflows over cash outflows after taxes.
8. Bank regulator - comptroller of currency, fed, fdic (federal chartered)
state chartered - fdic, state, fed
9. Savings and Loan Typically, the S&Ls acquire funds through time deposits. Funds are then used to
make mortgage loans.
(S&L) or Thrifts
Like banks, S&Ls may be federally or state chartered and are now regulated by a
branch of the FDIC and the Federal Home Bank Board.
The Federal Deposit Insurance Reform Act of 2005 merges the Savings Association
Insurance Fund (SAIF) and the Bank Insurance Fund (BIF) into the new Deposit
Insurance Fund. Coverage depends on the titling (ownership) of the account.
Coverage is accumulative per titling .
Single accounts - $250,000 coverage per titling, not per account
10. Current ratio Current ratio = current assets : current liabilities
ca : Cash equivalents, marketable securities, accounts receivable, and inventory
cl : Accounts payable, credit card debt, and taxes payable -
Always use credit card debt even if the credit cards are paid ott monthly.
Only use taxes payable when the material indicates the taxes are due or the
material actually says the taxes are payable. In regards to mortgages it is only
used when the data tells you the "current amount" of the mortgage due.
11. securities act new issues detailed prospectus - full and fair disclosure of risks
1933
, 12. act of 1934 secondary market - created SEC
13. investment act of sec regulates unit investment trusts, manage investment companies and variable
life and annuities
1940
14. securities in- SIPC to supervise securities firms that get into financial diflculties - insures
vestors protec- investors from failure of the firm
tion act of 1970
15. trust companies regulated by state law
16. fiscal policy federal tax and spending- the objective is a stable domestic economy
full employment - sustained growth in economy
17. discount rate fed charges member banks to borrow reserves
18. open market op- fed trading desk- credit availability repurchase and reverse repurchase with gvt
erations securities dealers
repo---give dealer funds for temporary pledge of gvt securities (loosens credit)
reverse repo- fed sells securities- tightens credit
19. fed margin reg t
20. fed funds rate bank to bank loans
not set by fed
21. Job Task Domains Job Task Domains
1. Establishing and defining the client planner relationship
2. Gathering information necessary to fulfill the engagement
3. Analyzing and evaluating the client current financial status
4. Developing the recommendations
5. Communicating the recommendations
1. principles The Code is organized around principles. How to remember HINT: IOC/FCPD
Integrity (#1)
objectivity (#2)
competence (#3)
Fairness (#4)
Confidentiality (#5)
Professionalism (#6)
Diligence (#7)
2. Personal Finan- Cash/ Equivalents
cial Statements Investments ( collectibles for inv purposes)
Use assets - at FMV
Liabilities
*NOTE - Life Insurance cash value is not part of investment assets or emergency
fund on exam*
3. Encumbrance Liability
4. Statement of fi- includes balance sheet, cash flow
nancial position
5. emergency fund 3-6 months of real estate taxes, fixed and variable expenses
3- single second source of income / married both work and similar wages /
married only one works but second source of income
6 months- single wage earner/ married only one spouse works
lifestyle and risk tolerance take precedence - can be lower but try to stay liquid
investments
Emergency fund
, The emergency fund is invested in the following.
- checking accounts (excluding funds to be utilized for necessary expenses)
- government money market accounts
- savings accounts
- CDs if close to maturity < 90 days
- laddered CDs < 6 months
* If the checking account exceeds the normal monthly expenses, subtract one
month of expenses. If the normal monthly expenses exceed the funds in the
checking account, you should ignore the negative number. For example, if normal
monthly expenses are $5,000 and the clients only have $4,000 in their checking
account, then the checking account balance isn't usable. However, don't subtract
$1,000.
6. Debt Mgt PITI (housing expense or rent) less than 28% of gross income
PITI - prinicpal interest taxes insurance
PITI / gross income = %
*use all income for PITI ratio*
Total monthly debt < 36% of gross income (maybe tested)
Consumer debt < 20% of net income (probably not tested)
PITI is the most important calculation.
Total monthly debt includes housing expense, Auto loans, and credit card debt,
etc. That is rarely or never asked.
NOTE: Do not subtract 401(k) contributions when calculating gross income.
,7. Savings at least 5-8% of income ideal
Savings is the excess of cash inflows over cash outflows after taxes.
8. Bank regulator - comptroller of currency, fed, fdic (federal chartered)
state chartered - fdic, state, fed
9. Savings and Loan Typically, the S&Ls acquire funds through time deposits. Funds are then used to
make mortgage loans.
(S&L) or Thrifts
Like banks, S&Ls may be federally or state chartered and are now regulated by a
branch of the FDIC and the Federal Home Bank Board.
The Federal Deposit Insurance Reform Act of 2005 merges the Savings Association
Insurance Fund (SAIF) and the Bank Insurance Fund (BIF) into the new Deposit
Insurance Fund. Coverage depends on the titling (ownership) of the account.
Coverage is accumulative per titling .
Single accounts - $250,000 coverage per titling, not per account
10. Current ratio Current ratio = current assets : current liabilities
ca : Cash equivalents, marketable securities, accounts receivable, and inventory
cl : Accounts payable, credit card debt, and taxes payable -
Always use credit card debt even if the credit cards are paid ott monthly.
Only use taxes payable when the material indicates the taxes are due or the
material actually says the taxes are payable. In regards to mortgages it is only
used when the data tells you the "current amount" of the mortgage due.
11. securities act new issues detailed prospectus - full and fair disclosure of risks
1933
, 12. act of 1934 secondary market - created SEC
13. investment act of sec regulates unit investment trusts, manage investment companies and variable
life and annuities
1940
14. securities in- SIPC to supervise securities firms that get into financial diflculties - insures
vestors protec- investors from failure of the firm
tion act of 1970
15. trust companies regulated by state law
16. fiscal policy federal tax and spending- the objective is a stable domestic economy
full employment - sustained growth in economy
17. discount rate fed charges member banks to borrow reserves
18. open market op- fed trading desk- credit availability repurchase and reverse repurchase with gvt
erations securities dealers
repo---give dealer funds for temporary pledge of gvt securities (loosens credit)
reverse repo- fed sells securities- tightens credit
19. fed margin reg t
20. fed funds rate bank to bank loans
not set by fed
21. Job Task Domains Job Task Domains
1. Establishing and defining the client planner relationship
2. Gathering information necessary to fulfill the engagement
3. Analyzing and evaluating the client current financial status
4. Developing the recommendations
5. Communicating the recommendations
