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Which of the following statements is/are true concerning use
of ratios in evaluating financial solvency?
. . . (1) The savings
ratio is useful in the evaluation of the balance sheet.
. . . (2) A cash
surplus would typically produce a positive savings ratio.
. . . (3) A family
could have a positive savings ratio at the same time its debt service ratio is
also increasing
. . . (4) The
liquidity ratio is an indicator of a family’s ability to pay current debts if
there is an interruption in income.
. . . (5) One would
be improving his financial situation when both savings and debt service ratios
are increasing.

Select one:

a. (1), (2) and (5)
b. (1), (2) and (3)
c. (2), (4) and (5)
d. (2), (3) and (4)
e. (2) only
Question 2
The following are true statements concerning the process of
financial planning for the CFP® practitioner:
. . . (1) The
Certified Financial Planning Practitioner has social, legal and ethical
responsibilities to his/her planning clients.
. . . (2) The
Certified Financial Planning Practitioner is considered to have a fiduciary
relationship with his/her clients.
. . . (3) Only
planners practicing the comprehensive view of planning meet the definition of
“financial planner”.
. . . (4) The
planning process is finite, therefore a specific beginning point (the
engagement) and an end (the delivery of the plan document) must be established
in every planning relationship.
. . . (5) The
planner, in some cases, may be able to save the client money by performing
comprehensive tasks that had previously been assigned to other professionals,
such as the client’s banker, accountant and attorney.

Select one:

a. All of the above
b. (1) and (3) only
c. (1) and (2) only
d. (1), (3) and (5)
e. (1), (2) and (4)

Question 3

Question text

The following would generally be required to
“register” as investment advisor(s), based on the Investment Advisors
Act of 1940:
. . . (1) An
insurance agent who performs limited planning activities in conjunction with
the sale of life insurance and who is compensated by commission on products
sold from these planning activities.
. . . (2) A
“Private Advisor” who maintains an office, and manages money on a
fee-basis for only 25 clients; accepting new clients only if an existing client
terminates the relationship, thereby creating a “vacancy”.
. . . (3) An
accounting firm that establishes a separate division to provide financial
planning services to their clients and who charges separately for these
planning services.
. . . (4) A member of
the clergy who provides financial planning and investment seminars for his
parishioners free of charge.
. . . (5) A retired
stock broker who sells private non-registered church bonds to residents of his
state, and who is compensated by a fee, equal to a percentage of the bonds
sold.

Select one:

a. None of the above

b. (1), (2) and (5)

c. (1), (3) and (5)

d. All of the above

e. (2) and (3) only

Question 4

Which of the following is NOT one of the seven principles of
the CFP® Code of Ethics and Professional Responsibility?

Select one:

a. Fairness
b. Confidentiality
c. Integrity
d. Education
e. Objectivity

Question 5

The term most closely associated with quality of life is:

Select one:

a. Consumption
b. Money
c. Wealth
d. Standard of Living
e. Education

Question 6
The Rule of 78 is

Select one:

a. A method of calculating pay-off balance on some consumer
loans which penalizes the borrower for early pre-payment
b. A precise method of calculating how long it takes an
investment to double
c. A method of calculating compounded interest on
installment loans
d. A banking ratio used to qualify mortgage loan applicants

Question 7

Which of the following are true statements, based upon your
readings regarding the CFP® Code of Ethics and Rules of Conduct?

Select one:

a. The terminology ‘fee only’may only
be used by practitioners who charge an hourly fee for their services.
b. Prior suspension of a professional license for any reason
will render a candidate unacceptable as a CFP® certificant.
c. The terminologies ‘registrant’and
‘certificant’are synonymous and may be used
interchangeably when referring to an individual who has met all criteria for
utilizing the CFP® credentials.
d. One of the grounds for disciplinary action is an act or
omission that violates criminal laws, once the registrant has been convicted of
said crime.
e. The majority of disciplinary actions addressed by the
CFP® Board are the result of consumer-reported complaints.
f. None of the above

Question 8
The ratio that is calculated by dividing your total monthly
loan payments by your monthly gross income is called the:
Select one:

a. Debt Service Ratio
b. Liquidity Ratio
c. Solvency Ratio
d. Income Ratio

Question 9

Which of the following are examples of open credit accounts?
. . . (1) Bank credit
cards
. . . (2) Bank debit
cards
. . . (3) Retail
store credit cards
. . . (4) Secured
credit cards
. . . (5) Rebate
credit cards

Select one:
a. (1), (2) and (3)
b. (1) and (3) only
c. (1), (3), (4) and (5)
d. All of the above
e. (2), (4) and (5)

Question 10

The following would represent qualitative data obtained by a
planner during a data-gathering session:
. . . (1) The primary
and contingent beneficiaries of the client’s life insurance policies
. . . (2) The amount
and type of life insurance included in the client’s employee benefits package
. . . (3) The age at which
the client hopes to retire
. . . (4) The
client’s established gifting strategy to his grandchildren’s college fund over
the next 10 years
. . . (5) The fact
that the client’s wife is expecting a significant inheritance within 10 years,
which they feel will decrease their need to contribute currently to a
retirement plan

Select one:

a. (3), (4) and (5)
b. (1), (3) and (5)
c. (3) and (5)
d. (1), (2) and (4)
e. (2), (3) and (4)

Question 11
The following is/are true statement(s) based on the CFP®
Code of Ethics and Professional Responsibility and its Standards of Conduct:
. . . (1) The
planner’s responsibility for “diligence” refers to his/her
responsibility to perform an extensive analysis of any investment option
recommended for the client.
. . . (2) The
Principle of “professionalism” would dictate loyalty between planners
and their peers, to include a planner’s discretionary silence if he/she is
aware of a breech of ethics or securities laws by a fellow CFP® practitioner.
. . . (3) The CFP®
certifcant’s responsibilities apply only to him/herself, since his/her staff
members are held to a different (and lesser) standard of conduct due to the
fact they are not considered “fiduciaries”.
. . . (4) Co-mingling
of client funds with those of the practitioner is only permitted when full and
complete disclosure has been provided both to the client and to the CFP® Board.

Select one:

a. (1) and (2) only
b. (1) and (4) only
c. None of the above
d. (3) only
e. (2), (3) and (4)

Question 12

For federal income tax purposes, “average tax
rate” is computed as follows:

Select one:

a. Adjusted gross income divided by tax liability
b. Taxable income divided by tax withheld
c. Net tax liability divided by taxable income
d. Gross income divided by net tax liability

Question 13

Question text
Janet is a new client. She is considering buying a house and
provided the following information during your data gathering process:
. . . Annual gross
income: $100,000
. . . Annual
Principal and Interest Payments on the anticipated mortgage: $14,000
. . . Annual
anticipated Premiums for Homeowners and Flood Insurance: $1,000
. . . Annual Property
taxes: $5,000
. . . Annual Living
Expenses: $40,000
. . . Annual Credit
Card Payments on existing debt: $12,000
. . . Annual
Contribution to Retirement Account: $5,000
. . . Annual Student
Loan Payments for next 10 years: $5,000
. . . Annual Car
Payments for next 2 years: $6,000

Using the standard
housing qualification ratios which we have discussed, which of the following
comments would you say are true regarding Janet’s ability to qualify
financially for this purchase?
Select one:
a. The second ratio is within normal/acceptable range, but
the first ratio is not.

b. The first ratio is within normal/acceptable range, but
the second ratio is not.

c. Both the first and second ratios are outside the
normal/acceptable range.

d. Both the first and second ratios are within the
normal/acceptable range.

Question 14
The promised rate of interest paid on a savings account or
charged on a loan is the:
Select one:
a. Direct interest

b. Effective interest
c. Nominal interest
d. Discounted interest

Question 15
The following is/are true statement(s) regarding the interaction
of factors in the economy:
. . . (1) Short-term
rates are more noticeably impacted by changes in the fed funds rate than are
long-term debt instruments, such as mortgage rates.
. . . (2) The
discount rate is the lending rate between member Federal Reserve banks
(primarily for overnight transactions).
. . . (3) Open Market
Operations is the most important and most frequently used tool of the Fed
because it can be quickly and easily initiated.
. . . (4)
Disinflation occurs when the overall level of prices continues to rise, but the
economy’s growth rate is slowing.
. . . (5) The
Consumer Price Index reflects changes in wages, as well as certain goods and
services such as food, energy, and housing.

Select one:
a. (1), (4) and (5)
b. (1), (3) and (4)
c. (2), (3) and (4)
d. All of the above
e. (2), (3) and (5)

Question 16
Of the following, which would be common and permissible
methods for a client, who wants to invest most of his net worth of $100,000, to
compensate a financial adviser for his/her advice concerning the purchase of
mutual funds:
. . . (1) Hourly fee
basis
. . . (2) A
percentage of the assets to be managed
. . . (3) A
percentage of the growth of assets over a period of time
. . . (4) Commission
Select one:

a. (1) and (4)
b. (1), (2) and (4)
c. (2) and (4)
d. (1), (2), (3) and (4)

Question 17

Which of the following statements is TRUE regarding the
relationship axis between Present Value and Future Value?

Select one:

a. The greater the interest rate, the steeper the slope of
the curve.
b. All other things being equal, the greater the number of
periods, the lesser the length of the curve.
c. As interest rates are increased, the difference between
the present value and the future value decreases proportionately.
d. The two major factors affecting the shape of the curve
are the number of periods over which the compounding or discounting occurs and
the amount of money to be invested.

e. In compounding, FV moves in the opposite direction from
‘n’ and ‘i’.

Question 18
The following statement(s) is/are true regarding the
regulation of the securities and investment advisory business:
. . . (1) The
Investment Advisors Act of 1940 represents the primary federal regulation
applicable to the financial planning industry.
. . . (2) The
Investment Advisors Supervision Co-Ordination Act established the Securities
and Exchange Commission as the agency that would administer and enforce federal
securities laws.
. . . (3) The
financial monitoring provisions of the US Patriot Act only apply to planners
employed by financial institutions such as banks and credit unions.
. . . (4) Under the
Gramm-Leach-Bliley Act, planners who collect non-public information about
clients must provide an annual privacy notice to each existing customer.
. . . (5) The
Consumer Credit Protection Act prohibits lenders from discriminating on the
basis of race, color, religion, age, sex, or marital status.
Select one:

a. (2) and (5) only
b. (1) and (4) only
c. (1), (3), (4) and (5)
d. (3), (4) and (5)
e. All of the above

Question 19

Which of the following is/are NOT true statement(s)?
. . . (1) The
investment period (time) is more impactful than the rate of interest you can
earn on your investments.
. . . (2) The
government impacts consumers and businesses by regulation and taxation.
. . . (3) GDP refers
to the total earnings of American workers during a year.
. . . (4) The CPI is
the amount of goods and services each dollar buys at a given point in time.
. . . (5) Consumer
choices ultimately determine the kinds of goods and services businesses will
provide.

Select one:

a. 1 and 3
b. 1, 4 and 5
c. 4 only
d. 3 and 4
e. 2, 3 and 4

Question 20
Penalties for CFP® practitioners violating the CFP® Code of
Ethics include:
. . . (1) Letter of
admonition published and available to general public
. . . (2) Temporary
suspensions lasting up to ten years
. . . (3) Permanent
revocation of right to use CFP® marks
. . . (4) Fines of up
to $10,000
. . . (5) Referral of
violator to proper authorities for possible criminal charges
Select one:
a. All of the above

b. (1), (2) and (4)
c. (2), (3) and (4)
d. (1) and (3) only
e. (2) and (3) only

Question 21
Sally and Rob have been in their current home for about 5
years. The value of their home is
$175,000 and their current mortgage balance is $134,463. They have seen homes in their area appreciate
in value by approximately 5% per year, and they like their neighborhood and
plan to stay in their home for at least another 10 years. However, their current interest rate is 9%,
so they have been shopping for a new mortgage to refinance their home while
rates are low. The best rate they have
been quoted for a new loan is 6% for a 20 year loan with approximately $3700 in
closing costs. They want to finance
these closing costs in their new mortgage.
What would Sally and Rob’s new monthly mortgage payment (principal and
interest) be?

Select one:
a. $1,060
b. $990
c. $879
d. $1,029

Question 22
Which of the following is NOT a true statement concerning
Time Value of Money Concepts?
Select one:
a. In compound interest, it is the amount of growth that
accelerates, rather than the rate of growth.

b. If a deposit is made at the end of a compounding period,
the account balance will be greater than if the deposit were made at the
beginning of the compounding period.

c. The greater the frequency with which compounding or
discounting occurs, the greater is the effect on the growth of a future value
or the decline of a present value.

d. Future value increases as the interest rate or number of
periods increases and falls if either of them is reduced.

Question 23
Which of the following would result in a decrease in current
Net Worth on a client’s Balance Sheet? (You may disregard any potential future
impact of depreciation/appreciation.)
. . . (1) Client paid
for family vacation with funds from Money Market account
. . . (2) Client
purchases new kitchen appliances with a credit card
. . . (3) Client owns
shares in an indexed mutual fund, and the index declines
. . . (4) Client
purchases new auto by paying 50% down from savings account and financing the
remaining 50% on home equity line
. . . (5) Client
sells shares of stock to pay off credit card balance

Select one:

a. (1), (3) and (4)

b. (1) and (3)

c. (2) and (3)

d. (1), (2) and (3)

e. (4) and (5)

Question 24
Which of the following statements concerning the anti-fraud
provisions of the Investment Advisors Act of 1940 is correct?
Select one:
a. They do not characterize the investment adviser as a
fiduciary.
b. They only apply in situations in which a security
transaction has taken place.
c. They apply to all investment advisers even though an
adviser may qualify under one of the exemption provisions.
d. They only apply if the investment adviser is a CFP.

Question 25
Which of the following is/are correct regarding the process
of establishing the planner-client relationship?
. . . (1) The planner
should not discuss compensation until the scope of the engagement is finalized.
. . . (2) It is not
necessary to establish the scope of the engagement prior to data gathering,
since some additional planning goals may be revealed in this process.
. . . (3) The process
of defining the engagement is limited to the planner’s responsibilities.
. . . (4) Goals are
better left to be identified once the scope of the engagement is finalized.
. . . (5)
Establishing the duration of services to be provided is an integral part of the
engagement process.
Select one:
a. (1), (2) and (3)
b. All of the above
c. (1), (3) and (4)
d. (5) only
e. (2) and (4)

Question 26
The following are methods by which the
Fed interacts with our economy:
. . . (1) Purchases
and sales of US Government securities
. . . (2) Influencing
the rate of interest charged to consumers
. . . (3) Lowering or
raising of discount rate charged to member banks
. . . (4)
Periodically making adjustments to the CPI
. . . (5)
Establishing the exchange rate of the US dollar, relative to specific foreign
currencies

Select one:

a. (1), (4) and (5)
b. (1), (3) and (4)
c. All of the above
d. (2) and (3)
e. (1), (2) and (3)

Question 27
Which of the following accurately represent applicable
general concepts impacting our economic planning environment?
. . . (1) GDP refers
to the total earnings of American workers during a given year.
. . . (2) How long
you invest is not nearly as important as the rate of interest earned on
investments.
. . . (3) Cities with
higher costs of living also experience higher rates of inflation.
. . . (4) Producer
Price Index is the most commonly used indicator of inflation in the economy.
. . . (5) Fiscal
policy controls the amount of money in circulation and is used to stimulate or
contract economic growth.

Select one:

a. (2), (4) and (5)
b. (1) only
c. (1), (2) and (4)
d. None of the above
e. (3), (4) and (5)

Question 28
Malcolm buys a valuable painting for $20,000. He purchases
it using $15,000 from his savings account and a $5,000 loan. How does the
transaction affect Malcolm’s current financial statement? (You may disregard
any potential future impact of depreciation/appreciation.)
. . . (1) His assets
decrease, and his liabilities increase
. . . (2) Both his
assets and liabilities increase
. . . (3) His net
worth increases.
. . . (4) His net
worth decreases
. . . (5) His net
worth stays the same.
Select one:

a. (1) and (3)
b. (2) and (4)
c. (1) and (5)
d. (1) and (4)
e. (2) and (5)

Question 29
Kathy’s gross annual income is $58,900 and her monthly
recurring debts are $325. She can put a
down payment of no more than $35,000, but does not want to pay PMI. Based on the standard home affordability
ratios, approximately what is the maximum price home that Kathy should be
looking at? (Assume that the taxes and
insurance will be $1800 annually and that she will be able to obtain a 30 year
loan with a 10% interest rate)

Select one:

a. $174,000
b. $225,000
c. $156,000
d. $139,500

Question 30
Which of the following statements is/are true regarding the
preparation of a balance sheet?
. . . (1) Furniture
purchased on credit should be included on the asset side of the balance sheet.
. . . (2) A monthly
auto loan payment would be listed as a liability on the balance sheet.
. . . (3) All assets
should be reflected on the balance sheet at their original cost.
. . . (4) Money
loaned to a relative is a liability on the balance sheet.
. . . (5) Only the
current month’s payment on a mortgage loan would be listed on the balance sheet
as a liability.

Select one:
a. (1) only
b. (2) and (3)
c. (4) and (5)
d. None of the above
e. (1), (3) and (5)

Question 31
Which of the following statements regarding financial
statements are correct?
. . . (1) A balance
sheet shows your financial condition as of a specific selected date.
. . . (2) The income
and expense statement provides a measure of financial performance over a period
of time.
. . . (3) A budget is
a detailed statement of what income and expenses occurred over a particular
past period.
. . . (4) The net
worth statement is most similar to the balance sheet.
. . . (5) A net cash
flow deficit on the budget statement impacts the balance sheet.

Select one:
a. (2), (3) and (5)
b. (1), (2) and (3)
c. (2) and (4)
d. (1), (2) and (4)
e. All of the above

Question 32

Which of the following are TRUE statements regarding the
financial planning process?
. . . (1) Current
consumption is inversely related to saving for future consumption.
. . . (2) A good
financial plan completed when one is in his/her 30’s will typically last a life
time.
. . . (3) Two persons
with equal average propensities to consume will have the same standard of
living.
. . . (4) There is an
emotional factor attached to money that can impact the planning process.
. . . (5) Defining
goals is the final step in the personal financial planning process.

Select one:

a. 3 and 5
b. 1, 3 and 4
c. 1 and 4
d. 1, 2, and 3
e. 1 and 2

Question 33
Which of the following is NOT a true statement regarding the
financial planning process?
Select one:
a. The planner’s responsibility includes motivating the
client to take action on identified goals and priorities.
b. The planner should not challenge priorities established
by the client.
c. External factors such as economic conditions that may
impact the client’s goals and objectives must also be addressed in the planning
process.
d. Specific assumptions regarding inflation and rate of
return must be discussed and agreed upon by the planner and the client.
e. Products and services appropriate for implementation may
be identified by the planner in his/her analysis.

Question 34
Which of the following statements is/are true regarding the
economic concept of consumption?
. . . (1) Current
consumption is inversely related to saving.
. . . (2) Two persons
with equal average propensity to consume will not necessarily have equal
standards of living because of differences in income.
. . . (3) Utility
refers to the amount of satisfaction a person gets from buying a certain item,
and is generally more important than actual cost of a consumed item.
. . . (4) From a
financial planning perspective, the main determinant of quality of life is
believed to be standard of living, in which wealth plays an important part.
. . . (5) Future
consumption is deferred current consumption.
Select one:

a. (3) only
b. All of the above
c. (1) and (4)
d. (1), (2) and (5)
e. (3) and (4)
Question 35
Martha’s net worth is currently $200,000. Last year her net worth was $175,000. During the year she had net cash outflows of
$42,000, which included her mortgage expenses.
Her total cash inflows were $45,000.
Her investments grew in value by $15,000 during the year. The value of all other assets remained the
same. What amount of debt principal did
she pay off during the year?

Select one:

a. None
b. $7,000
c. $10,000

d. $3,000

Question 36
Which of the following statements concerning compounding or
discounting is/are correct:
. . . (1) Compounding
is a process by which a present value grows to a larger future value.
. . . (2) As
“N” or “I” in a time-value-of-money problem is increased,
the discounted or present value of a future sum is reduced.
. . . (3) The term
“discounting” is essentially a synonym for the term
“compounding”.
. . . (4) In the
compounding process, the future value grows by an increasing amount each
period.
. . . (5) If
compounding occurs semiannually, the future value of a sum of money will be
lower than if compounding occurs annually.

Select one:
a. (3) and (5)
b. (2), (4) and (5)
c. (1), (2) and (4)
d. (1), (3), and (5)
e. (1) and (4)

Question 37
The following activities in the economy could be evidenced
during the “Recovery Phase” of an economic cycle:
. . . (1) Lower
production costs due in part to falling unit labor costs
. . . (2) Improvement
in consumer sentiment
. . . (3) Temporary
shortages of goods due to strong demand
. . . (4) Inventory
liquidation to meet high demand
. . . (5) Business
expenditures on inventory and capital increase
Select one:

a. (1), (3) and (4)
b. (4) and (5)
c. None of the above
d. (2) and (3)
e. (2) and (5)

Question 38

Bruce Morton’s firm, Morton Asset Management, is registered with the SEC as an investment
adviser. His associate, Bill Collins, sells only life insurance. Which of the following is permissible usage?
Select one:
a. Bruce
Morton, Registered Investment Adviser
b. None of
the above
c. Both B
and C
d. Bruce
Morton, RIA
e. Bill Collins, Investment Counselor

Question 39
If Marilyn saves $2,000 at the beginning of each year for
her grandson’s college fund, and it earns an annual average return of 10%,
approximately how much money will she have at the end of the 10th year?

Select one:

a. $23,000
b. $31,600
c. $42,500

d. $35,000

Question 40

Which of the following would not be an appropriate entry in
the “Assets” Section of your financial statement?

Select one:

a. A duplex located in another state from which you derive
rental income
b. 50 shares of stock of a local business which is not
traded on any of the national exchanges.
c. Your leased Toyota Four-Runner
d. Your 5 year old bass boat which was a gift from your
father-in-law
e. Your primary residence which has $48,000 mortgage against
it

Question 41

Larry Nelson has sold life insurance to many clients over
the past eight years, receiving commissions on the sales. He has decided to broaden the scope of his
practice to include investment and tax planning advice, but will limit the
investment products he sells to fixed and variable annuities and variable life
insurance. He plans to include the
phrase “Tax and Investment Planning” on his business cards and
anticipates charging a separate fee for his financial advice. Larry is
registered with the SEC as an investment adviser. Does he have to also register with the FINRA?

Select one:
a. Yes, because he plans to charge fees for advice
b. No, because he sells only insurance products
c. Yes, because he holds himself out to the public as a
financial adviser
d. Yes, because he plans to sell variable annuities and
variable life insurance
e. No, because he is already registered with the SEC which
supervises FINRA

Question 42
Your clients, Mr. and Mrs. Walsh, have furnished the
following information for 2010:
Salaries: $75,000
Interest Income from
CDs: $4,000
Mutual fund dividends
(all re-invested): $2,000
Rental Income: $3,800
Savings and
Investment Contributions: $4,200
Non-Discretionary
Expenditures: $28,900
Discretionary
Expenditures: $24,100
Based on this
information, calculate the total inflow/outflow for the year for Mr. and Mrs.
Walsh that would be reflected on their Cash Flow Statement.

Select one:

a. $82,800 / $59.200
b. $82,800 / $57,200
c. $84,400 / $57,200
d. $84,800 / $59,200

Question 43
Your client, Marlon, is currently earning a salary of
$20,000. He has asked you how much he
will need to be earning in 10 years to keep up with inflation, assuming an
average annual inflation rate of 5%
Select one:

a. $31,604
b. $30,196
c. $32,577
d. $27,512

Question 44
How much would Luke have to save at the beginning of each
month to have a million dollars by the time he retires in 20 years if his money
can earn an average annual return of 9%?
(You may assume that he is starting from scratch.)
Select one:
a. $1,486
b. $1,087
c. $2,014
d. $3,652

Question 45

According to the CFP® Code of Ethics, everything must be
disclosed in writing except:
Select one:

a. Date and duration of plan
b. Names of each party involved
c. Full responsibilities and obligations of each party
d. Terms of terminating the agreement

Question 46
If a client uses his CD to pay off the outstanding balance
on his credit card, what is the immediate impact to his current net worth?

Select one:

a. It will decrease
b. It will increase
c. It will stay the same

Question 47
How will the preceding transaction (in question #19) affect
the client’s current debt service ratio?

Select one:

a. It will decrease
b. It will stay the same
c. It will increase

Question 48

The Clark family disclosed the following information on
their data gathering form:
(You may assume that there are no other assets or
liabilities to be considered.)

Income
Gross Monthly Income
$ 4,000
Monthly Take Home Pay
$ 3,000
Assets
Checking Account $
1,000
Passbook Savings $
500
Money Market $ 1,000
Retirement Account

(Vested Balance)

$ 20,000
(Market Value)

$ 30,000

Residence

(Market Value)

$100,000

(Basis)

$ 80,000
Personal Property

.
$ 10,000

Boat

.

$ 10,000
Liabilities
Current Liabilities:
. . . . Private School Tuition Balance
$ 150
. . . . Homeowner’s Insurance Premium

.

$ 314
. . . . Major Credit Card

@ $50/month

$ 400

. . . . Auto Repair Bill

.

$ 150

. . . . Boat Loan

@ $110/month

$ 1,000

Long Term Liabilities:

.

.

. . . . Primary Residence Mortgage

@ $432/month

$ 75,000

What is the amount of the Clark’s net worth?

Select one:

a. $65,486

b. $75,486

c. $175,486

d. $63,986

Question 49

Using the information from the Clark’s data gathering form
in question #33, the Clark’s liquidity ratio shows that they could maintain
their current debt structure in the event of an emergency for about _____
months.

Select one:

a. 8
b. 23
c. 18
d. less than 5

Question 50

Question text
(Continuing to use the information from the Clark’s data
gathering form in question #33…) The Clarks want to purchase an auto. They
are considering refinancing their home. They plan to borrow $90,000, with which
they will liquidate all existing liabilities reflected in the case study (both
current and long term); and they will purchase an $11,000 auto. They have
negotiated a 7% loan for 30 years with $1,986 in closing costs. Which of the
following statement are true regarding the results of the financial
repositioning for the Clarks?
. . . (1) Based on
the standard debt-service ratio qualification standards, the Clark’s income
would qualify them for this loan.
. . . (2) The
anticipated loan to value ratio would require the payment of private mortgage
insurance.
. . . (3) Following
the completion of these transactions, the Clark’s net worth would decrease (not
considering depreciation).
. . . (4) Following
these transactions, the Clark’s solvency ratio would be improved.

Select one:

a. (2), (3) and (4)
b. (1) and (2)
c. (1), (2) and (4)
d. All of the above
e. (1), (2) and (3)

Which of the following statements is/are true concerning use
of ratios in evaluating financial solvency?
. . . (1) The savings
ratio is useful in the evaluation of the balance sheet.
. . . (2) A cash
surplus would typically produce a positive savings ratio.
. . . (3) A family
could have a positive savings ratio at the same time its debt service ratio is
also increasing
. . . (4) The
liquidity ratio is an indicator of a family’s ability to pay current debts if
there is an interruption in income.
. . . (5) One would
be improving his financial situation when both savings and debt service ratios
are increasing.

Select one:

a. (1), (2) and (5)
b. (1), (2) and (3)
c. (2), (4) and (5)
d. (2), (3) and (4)
e. (2) only
Question 2
The following are true statements concerning the process of
financial planning for the CFP® practitioner:
. . . (1) The
Certified Financial Planning Practitioner has social, legal and ethical
responsibilities to his/her planning clients.
. . . (2) The
Certified Financial Planning Practitioner is considered to have a fiduciary
relationship with his/her clients.
. . . (3) Only
planners practicing the comprehensive view of planning meet the definition of
“financial planner”.
. . . (4) The
planning process is finite, therefore a specific beginning point (the
engagement) and an end (the delivery of the plan document) must be established
in every planning relationship.
. . . (5) The
planner, in some cases, may be able to save the client money by performing
comprehensive tasks that had previously been assigned to other professionals,
such as the client’s banker, accountant and attorney.

Select one:

a. All of the above
b. (1) and (3) only
c. (1) and (2) only
d. (1), (3) and (5)
e. (1), (2) and (4)

Question 3

Question text

The following would generally be required to
“register” as investment advisor(s), based on the Investment Advisors
Act of 1940:
. . . (1) An
insurance agent who performs limited planning activities in conjunction with
the sale of life insurance and who is compensated by commission on products
sold from these planning activities.
. . . (2) A
“Private Advisor” who maintains an office, and manages money on a
fee-basis for only 25 clients; accepting new clients only if an existing client
terminates the relationship, thereby creating a “vacancy”.
. . . (3) An
accounting firm that establishes a separate division to provide financial
planning services to their clients and who charges separately for these
planning services.
. . . (4) A member of
the clergy who provides financial planning and investment seminars for his
parishioners free of charge.
. . . (5) A retired
stock broker who sells private non-registered church bonds to residents of his
state, and who is compensated by a fee, equal to a percentage of the bonds
sold.

Select one:

a. None of the above

b. (1), (2) and (5)

c. (1), (3) and (5)

d. All of the above

e. (2) and (3) only

Question 4

Which of the following is NOT one of the seven principles of
the CFP® Code of Ethics and Professional Responsibility?

Select one:

a. Fairness
b. Confidentiality
c. Integrity
d. Education
e. Objectivity

Question 5

The term most closely associated with quality of life is:

Select one:

a. Consumption
b. Money
c. Wealth
d. Standard of Living
e. Education

Question 6
The Rule of 78 is

Select one:

a. A method of calculating pay-off balance on some consumer
loans which penalizes the borrower for early pre-payment
b. A precise method of calculating how long it takes an
investment to double
c. A method of calculating compounded interest on
installment loans
d. A banking ratio used to qualify mortgage loan applicants

Question 7

Which of the following are true statements, based upon your
readings regarding the CFP® Code of Ethics and Rules of Conduct?

Select one:

a. The terminology ‘fee only’may only
be used by practitioners who charge an hourly fee for their services.
b. Prior suspension of a professional license for any reason
will render a candidate unacceptable as a CFP® certificant.
c. The terminologies ‘registrant’and
‘certificant’are synonymous and may be used
interchangeably when referring to an individual who has met all criteria for
utilizing the CFP® credentials.
d. One of the grounds for disciplinary action is an act or
omission that violates criminal laws, once the registrant has been convicted of
said crime.
e. The majority of disciplinary actions addressed by the
CFP® Board are the result of consumer-reported complaints.
f. None of the above

Question 8
The ratio that is calculated by dividing your total monthly
loan payments by your monthly gross income is called the:
Select one:

a. Debt Service Ratio
b. Liquidity Ratio
c. Solvency Ratio
d. Income Ratio

Question 9

Which of the following are examples of open credit accounts?
. . . (1) Bank credit
cards
. . . (2) Bank debit
cards
. . . (3) Retail
store credit cards
. . . (4) Secured
credit cards
. . . (5) Rebate
credit cards

Select one:
a. (1), (2) and (3)
b. (1) and (3) only
c. (1), (3), (4) and (5)
d. All of the above
e. (2), (4) and (5)

Question 10

The following would represent qualitative data obtained by a
planner during a data-gathering session:
. . . (1) The primary
and contingent beneficiaries of the client’s life insurance policies
. . . (2) The amount
and type of life insurance included in the client’s employee benefits package
. . . (3) The age at which
the client hopes to retire
. . . (4) The
client’s established gifting strategy to his grandchildren’s college fund over
the next 10 years
. . . (5) The fact
that the client’s wife is expecting a significant inheritance within 10 years,
which they feel will decrease their need to contribute currently to a
retirement plan

Select one:

a. (3), (4) and (5)
b. (1), (3) and (5)
c. (3) and (5)
d. (1), (2) and (4)
e. (2), (3) and (4)

Question 11
The following is/are true statement(s) based on the CFP®
Code of Ethics and Professional Responsibility and its Standards of Conduct:
. . . (1) The
planner’s responsibility for “diligence” refers to his/her
responsibility to perform an extensive analysis of any investment option
recommended for the client.
. . . (2) The
Principle of “professionalism” would dictate loyalty between planners
and their peers, to include a planner’s discretionary silence if he/she is
aware of a breech of ethics or securities laws by a fellow CFP® practitioner.
. . . (3) The CFP®
certifcant’s responsibilities apply only to him/herself, since his/her staff
members are held to a different (and lesser) standard of conduct due to the
fact they are not considered “fiduciaries”.
. . . (4) Co-mingling
of client funds with those of the practitioner is only permitted when full and
complete disclosure has been provided both to the client and to the CFP® Board.

Select one:

a. (1) and (2) only
b. (1) and (4) only
c. None of the above
d. (3) only
e. (2), (3) and (4)

Question 12

For federal income tax purposes, “average tax
rate” is computed as follows:

Select one:

a. Adjusted gross income divided by tax liability
b. Taxable income divided by tax withheld
c. Net tax liability divided by taxable income
d. Gross income divided by net tax liability

Question 13

Question text
Janet is a new client. She is considering buying a house and
provided the following information during your data gathering process:
. . . Annual gross
income: $100,000
. . . Annual
Principal and Interest Payments on the anticipated mortgage: $14,000
. . . Annual
anticipated Premiums for Homeowners and Flood Insurance: $1,000
. . . Annual Property
taxes: $5,000
. . . Annual Living
Expenses: $40,000
. . . Annual Credit
Card Payments on existing debt: $12,000
. . . Annual
Contribution to Retirement Account: $5,000
. . . Annual Student
Loan Payments for next 10 years: $5,000
. . . Annual Car
Payments for next 2 years: $6,000

Using the standard
housing qualification ratios which we have discussed, which of the following
comments would you say are true regarding Janet’s ability to qualify
financially for this purchase?
Select one:
a. The second ratio is within normal/acceptable range, but
the first ratio is not.

b. The first ratio is within normal/acceptable range, but
the second ratio is not.

c. Both the first and second ratios are outside the
normal/acceptable range.

d. Both the first and second ratios are within the
normal/acceptable range.

Question 14
The promised rate of interest paid on a savings account or
charged on a loan is the:
Select one:
a. Direct interest

b. Effective interest
c. Nominal interest
d. Discounted interest

Question 15
The following is/are true statement(s) regarding the interaction
of factors in the economy:
. . . (1) Short-term
rates are more noticeably impacted by changes in the fed funds rate than are
long-term debt instruments, such as mortgage rates.
. . . (2) The
discount rate is the lending rate between member Federal Reserve banks
(primarily for overnight transactions).
. . . (3) Open Market
Operations is the most important and most frequently used tool of the Fed
because it can be quickly and easily initiated.
. . . (4)
Disinflation occurs when the overall level of prices continues to rise, but the
economy’s growth rate is slowing.
. . . (5) The
Consumer Price Index reflects changes in wages, as well as certain goods and
services such as food, energy, and housing.

Select one:
a. (1), (4) and (5)
b. (1), (3) and (4)
c. (2), (3) and (4)
d. All of the above
e. (2), (3) and (5)

Question 16
Of the following, which would be common and permissible
methods for a client, who wants to invest most of his net worth of $100,000, to
compensate a financial adviser for his/her advice concerning the purchase of
mutual funds:
. . . (1) Hourly fee
basis
. . . (2) A
percentage of the assets to be managed
. . . (3) A
percentage of the growth of assets over a period of time
. . . (4) Commission
Select one:

a. (1) and (4)
b. (1), (2) and (4)
c. (2) and (4)
d. (1), (2), (3) and (4)

Question 17

Which of the following statements is TRUE regarding the
relationship axis between Present Value and Future Value?

Select one:

a. The greater the interest rate, the steeper the slope of
the curve.
b. All other things being equal, the greater the number of
periods, the lesser the length of the curve.
c. As interest rates are increased, the difference between
the present value and the future value decreases proportionately.
d. The two major factors affecting the shape of the curve
are the number of periods over which the compounding or discounting occurs and
the amount of money to be invested.

e. In compounding, FV moves in the opposite direction from
‘n’ and ‘i’.

Question 18
The following statement(s) is/are true regarding the
regulation of the securities and investment advisory business:
. . . (1) The
Investment Advisors Act of 1940 represents the primary federal regulation
applicable to the financial planning industry.
. . . (2) The
Investment Advisors Supervision Co-Ordination Act established the Securities
and Exchange Commission as the agency that would administer and enforce federal
securities laws.
. . . (3) The
financial monitoring provisions of the US Patriot Act only apply to planners
employed by financial institutions such as banks and credit unions.
. . . (4) Under the
Gramm-Leach-Bliley Act, planners who collect non-public information about
clients must provide an annual privacy notice to each existing customer.
. . . (5) The
Consumer Credit Protection Act prohibits lenders from discriminating on the
basis of race, color, religion, age, sex, or marital status.
Select one:

a. (2) and (5) only
b. (1) and (4) only
c. (1), (3), (4) and (5)
d. (3), (4) and (5)
e. All of the above

Question 19

Which of the following is/are NOT true statement(s)?
. . . (1) The
investment period (time) is more impactful than the rate of interest you can
earn on your investments.
. . . (2) The
government impacts consumers and businesses by regulation and taxation.
. . . (3) GDP refers
to the total earnings of American workers during a year.
. . . (4) The CPI is
the amount of goods and services each dollar buys at a given point in time.
. . . (5) Consumer
choices ultimately determine the kinds of goods and services businesses will
provide.

Select one:

a. 1 and 3
b. 1, 4 and 5
c. 4 only
d. 3 and 4
e. 2, 3 and 4

Question 20
Penalties for CFP® practitioners violating the CFP® Code of
Ethics include:
. . . (1) Letter of
admonition published and available to general public
. . . (2) Temporary
suspensions lasting up to ten years
. . . (3) Permanent
revocation of right to use CFP® marks
. . . (4) Fines of up
to $10,000
. . . (5) Referral of
violator to proper authorities for possible criminal charges
Select one:
a. All of the above

b. (1), (2) and (4)
c. (2), (3) and (4)
d. (1) and (3) only
e. (2) and (3) only

Question 21
Sally and Rob have been in their current home for about 5
years. The value of their home is
$175,000 and their current mortgage balance is $134,463. They have seen homes in their area appreciate
in value by approximately 5% per year, and they like their neighborhood and
plan to stay in their home for at least another 10 years. However, their current interest rate is 9%,
so they have been shopping for a new mortgage to refinance their home while
rates are low. The best rate they have
been quoted for a new loan is 6% for a 20 year loan with approximately $3700 in
closing costs. They want to finance
these closing costs in their new mortgage.
What would Sally and Rob’s new monthly mortgage payment (principal and
interest) be?

Select one:
a. $1,060
b. $990
c. $879
d. $1,029

Question 22
Which of the following is NOT a true statement concerning
Time Value of Money Concepts?
Select one:
a. In compound interest, it is the amount of growth that
accelerates, rather than the rate of growth.

b. If a deposit is made at the end of a compounding period,
the account balance will be greater than if the deposit were made at the
beginning of the compounding period.

c. The greater the frequency with which compounding or
discounting occurs, the greater is the effect on the growth of a future value
or the decline of a present value.

d. Future value increases as the interest rate or number of
periods increases and falls if either of them is reduced.

Question 23
Which of the following would result in a decrease in current
Net Worth on a client’s Balance Sheet? (You may disregard any potential future
impact of depreciation/appreciation.)
. . . (1) Client paid
for family vacation with funds from Money Market account
. . . (2) Client
purchases new kitchen appliances with a credit card
. . . (3) Client owns
shares in an indexed mutual fund, and the index declines
. . . (4) Client
purchases new auto by paying 50% down from savings account and financing the
remaining 50% on home equity line
. . . (5) Client
sells shares of stock to pay off credit card balance

Select one:

a. (1), (3) and (4)

b. (1) and (3)

c. (2) and (3)

d. (1), (2) and (3)

e. (4) and (5)

Question 24
Which of the following statements concerning the anti-fraud
provisions of the Investment Advisors Act of 1940 is correct?
Select one:
a. They do not characterize the investment adviser as a
fiduciary.
b. They only apply in situations in which a security
transaction has taken place.
c. They apply to all investment advisers even though an
adviser may qualify under one of the exemption provisions.
d. They only apply if the investment adviser is a CFP.

Question 25
Which of the following is/are correct regarding the process
of establishing the planner-client relationship?
. . . (1) The planner
should not discuss compensation until the scope of the engagement is finalized.
. . . (2) It is not
necessary to establish the scope of the engagement prior to data gathering,
since some additional planning goals may be revealed in this process.
. . . (3) The process
of defining the engagement is limited to the planner’s responsibilities.
. . . (4) Goals are
better left to be identified once the scope of the engagement is finalized.
. . . (5)
Establishing the duration of services to be provided is an integral part of the
engagement process.
Select one:
a. (1), (2) and (3)
b. All of the above
c. (1), (3) and (4)
d. (5) only
e. (2) and (4)

Question 26
The following are methods by which the
Fed interacts with our economy:
. . . (1) Purchases
and sales of US Government securities
. . . (2) Influencing
the rate of interest charged to consumers
. . . (3) Lowering or
raising of discount rate charged to member banks
. . . (4)
Periodically making adjustments to the CPI
. . . (5)
Establishing the exchange rate of the US dollar, relative to specific foreign
currencies

Select one:

a. (1), (4) and (5)
b. (1), (3) and (4)
c. All of the above
d. (2) and (3)
e. (1), (2) and (3)

Question 27
Which of the following accurately represent applicable
general concepts impacting our economic planning environment?
. . . (1) GDP refers
to the total earnings of American workers during a given year.
. . . (2) How long
you invest is not nearly as important as the rate of interest earned on
investments.
. . . (3) Cities with
higher costs of living also experience higher rates of inflation.
. . . (4) Producer
Price Index is the most commonly used indicator of inflation in the economy.
. . . (5) Fiscal
policy controls the amount of money in circulation and is used to stimulate or
contract economic growth.

Select one:

a. (2), (4) and (5)
b. (1) only
c. (1), (2) and (4)
d. None of the above
e. (3), (4) and (5)

Question 28
Malcolm buys a valuable painting for $20,000. He purchases
it using $15,000 from his savings account and a $5,000 loan. How does the
transaction affect Malcolm’s current financial statement? (You may disregard
any potential future impact of depreciation/appreciation.)
. . . (1) His assets
decrease, and his liabilities increase
. . . (2) Both his
assets and liabilities increase
. . . (3) His net
worth increases.
. . . (4) His net
worth decreases
. . . (5) His net
worth stays the same.
Select one:

a. (1) and (3)
b. (2) and (4)
c. (1) and (5)
d. (1) and (4)
e. (2) and (5)

Question 29
Kathy’s gross annual income is $58,900 and her monthly
recurring debts are $325. She can put a
down payment of no more than $35,000, but does not want to pay PMI. Based on the standard home affordability
ratios, approximately what is the maximum price home that Kathy should be
looking at? (Assume that the taxes and
insurance will be $1800 annually and that she will be able to obtain a 30 year
loan with a 10% interest rate)

Select one:

a. $174,000
b. $225,000
c. $156,000
d. $139,500

Question 30
Which of the following statements is/are true regarding the
preparation of a balance sheet?
. . . (1) Furniture
purchased on credit should be included on the asset side of the balance sheet.
. . . (2) A monthly
auto loan payment would be listed as a liability on the balance sheet.
. . . (3) All assets
should be reflected on the balance sheet at their original cost.
. . . (4) Money
loaned to a relative is a liability on the balance sheet.
. . . (5) Only the
current month’s payment on a mortgage loan would be listed on the balance sheet
as a liability.

Select one:
a. (1) only
b. (2) and (3)
c. (4) and (5)
d. None of the above
e. (1), (3) and (5)

Question 31
Which of the following statements regarding financial
statements are correct?
. . . (1) A balance
sheet shows your financial condition as of a specific selected date.
. . . (2) The income
and expense statement provides a measure of financial performance over a period
of time.
. . . (3) A budget is
a detailed statement of what income and expenses occurred over a particular
past period.
. . . (4) The net
worth statement is most similar to the balance sheet.
. . . (5) A net cash
flow deficit on the budget statement impacts the balance sheet.

Select one:
a. (2), (3) and (5)
b. (1), (2) and (3)
c. (2) and (4)
d. (1), (2) and (4)
e. All of the above

Question 32

Which of the following are TRUE statements regarding the
financial planning process?
. . . (1) Current
consumption is inversely related to saving for future consumption.
. . . (2) A good
financial plan completed when one is in his/her 30’s will typically last a life
time.
. . . (3) Two persons
with equal average propensities to consume will have the same standard of
living.
. . . (4) There is an
emotional factor attached to money that can impact the planning process.
. . . (5) Defining
goals is the final step in the personal financial planning process.

Select one:

a. 3 and 5
b. 1, 3 and 4
c. 1 and 4
d. 1, 2, and 3
e. 1 and 2

Question 33
Which of the following is NOT a true statement regarding the
financial planning process?
Select one:
a. The planner’s responsibility includes motivating the
client to take action on identified goals and priorities.
b. The planner should not challenge priorities established
by the client.
c. External factors such as economic conditions that may
impact the client’s goals and objectives must also be addressed in the planning
process.
d. Specific assumptions regarding inflation and rate of
return must be discussed and agreed upon by the planner and the client.
e. Products and services appropriate for implementation may
be identified by the planner in his/her analysis.

Question 34
Which of the following statements is/are true regarding the
economic concept of consumption?
. . . (1) Current
consumption is inversely related to saving.
. . . (2) Two persons
with equal average propensity to consume will not necessarily have equal
standards of living because of differences in income.
. . . (3) Utility
refers to the amount of satisfaction a person gets from buying a certain item,
and is generally more important than actual cost of a consumed item.
. . . (4) From a
financial planning perspective, the main determinant of quality of life is
believed to be standard of living, in which wealth plays an important part.
. . . (5) Future
consumption is deferred current consumption.
Select one:

a. (3) only
b. All of the above
c. (1) and (4)
d. (1), (2) and (5)
e. (3) and (4)
Question 35
Martha’s net worth is currently $200,000. Last year her net worth was $175,000. During the year she had net cash outflows of
$42,000, which included her mortgage expenses.
Her total cash inflows were $45,000.
Her investments grew in value by $15,000 during the year. The value of all other assets remained the
same. What amount of debt principal did
she pay off during the year?

Select one:

a. None
b. $7,000
c. $10,000

d. $3,000

Question 36
Which of the following statements concerning compounding or
discounting is/are correct:
. . . (1) Compounding
is a process by which a present value grows to a larger future value.
. . . (2) As
“N” or “I” in a time-value-of-money problem is increased,
the discounted or present value of a future sum is reduced.
. . . (3) The term
“discounting” is essentially a synonym for the term
“compounding”.
. . . (4) In the
compounding process, the future value grows by an increasing amount each
period.
. . . (5) If
compounding occurs semiannually, the future value of a sum of money will be
lower than if compounding occurs annually.

Select one:
a. (3) and (5)
b. (2), (4) and (5)
c. (1), (2) and (4)
d. (1), (3), and (5)
e. (1) and (4)

Question 37
The following activities in the economy could be evidenced
during the “Recovery Phase” of an economic cycle:
. . . (1) Lower
production costs due in part to falling unit labor costs
. . . (2) Improvement
in consumer sentiment
. . . (3) Temporary
shortages of goods due to strong demand
. . . (4) Inventory
liquidation to meet high demand
. . . (5) Business
expenditures on inventory and capital increase
Select one:

a. (1), (3) and (4)
b. (4) and (5)
c. None of the above
d. (2) and (3)
e. (2) and (5)

Question 38

Bruce Morton’s firm, Morton Asset Management, is registered with the SEC as an investment
adviser. His associate, Bill Collins, sells only life insurance. Which of the following is permissible usage?
Select one:
a. Bruce
Morton, Registered Investment Adviser
b. None of
the above
c. Both B
and C
d. Bruce
Morton, RIA
e. Bill Collins, Investment Counselor

Question 39
If Marilyn saves $2,000 at the beginning of each year for
her grandson’s college fund, and it earns an annual average return of 10%,
approximately how much money will she have at the end of the 10th year?

Select one:

a. $23,000
b. $31,600
c. $42,500

d. $35,000

Question 40

Which of the following would not be an appropriate entry in
the “Assets” Section of your financial statement?

Select one:

a. A duplex located in another state from which you derive
rental income
b. 50 shares of stock of a local business which is not
traded on any of the national exchanges.
c. Your leased Toyota Four-Runner
d. Your 5 year old bass boat which was a gift from your
father-in-law
e. Your primary residence which has $48,000 mortgage against
it

Question 41

Larry Nelson has sold life insurance to many clients over
the past eight years, receiving commissions on the sales. He has decided to broaden the scope of his
practice to include investment and tax planning advice, but will limit the
investment products he sells to fixed and variable annuities and variable life
insurance. He plans to include the
phrase “Tax and Investment Planning” on his business cards and
anticipates charging a separate fee for his financial advice. Larry is
registered with the SEC as an investment adviser. Does he have to also register with the FINRA?

Select one:
a. Yes, because he plans to charge fees for advice
b. No, because he sells only insurance products
c. Yes, because he holds himself out to the public as a
financial adviser
d. Yes, because he plans to sell variable annuities and
variable life insurance
e. No, because he is already registered with the SEC which
supervises FINRA

Question 42
Your clients, Mr. and Mrs. Walsh, have furnished the
following information for 2010:
Salaries: $75,000
Interest Income from
CDs: $4,000
Mutual fund dividends
(all re-invested): $2,000
Rental Income: $3,800
Savings and
Investment Contributions: $4,200
Non-Discretionary
Expenditures: $28,900
Discretionary
Expenditures: $24,100
Based on this
information, calculate the total inflow/outflow for the year for Mr. and Mrs.
Walsh that would be reflected on their Cash Flow Statement.

Select one:

a. $82,800 / $59.200
b. $82,800 / $57,200
c. $84,400 / $57,200
d. $84,800 / $59,200

Question 43
Your client, Marlon, is currently earning a salary of
$20,000. He has asked you how much he
will need to be earning in 10 years to keep up with inflation, assuming an
average annual inflation rate of 5%
Select one:

a. $31,604
b. $30,196
c. $32,577
d. $27,512

Question 44
How much would Luke have to save at the beginning of each
month to have a million dollars by the time he retires in 20 years if his money
can earn an average annual return of 9%?
(You may assume that he is starting from scratch.)
Select one:
a. $1,486
b. $1,087
c. $2,014
d. $3,652

Question 45

According to the CFP® Code of Ethics, everything must be
disclosed in writing except:
Select one:

a. Date and duration of plan
b. Names of each party involved
c. Full responsibilities and obligations of each party
d. Terms of terminating the agreement

Question 46
If a client uses his CD to pay off the outstanding balance
on his credit card, what is the immediate impact to his current net worth?

Select one:

a. It will decrease
b. It will increase
c. It will stay the same

Question 47
How will the preceding transaction (in question #19) affect
the client’s current debt service ratio?

Select one:

a. It will decrease
b. It will stay the same
c. It will increase

Question 48

The Clark family disclosed the following information on
their data gathering form:
(You may assume that there are no other assets or
liabilities to be considered.)

Income
Gross Monthly Income
$ 4,000
Monthly Take Home Pay
$ 3,000
Assets
Checking Account $
1,000
Passbook Savings $
500
Money Market $ 1,000
Retirement Account

(Vested Balance)

$ 20,000
(Market Value)

$ 30,000

Residence

(Market Value)

$100,000

(Basis)

$ 80,000
Personal Property

.
$ 10,000

Boat

.

$ 10,000
Liabilities
Current Liabilities:
. . . . Private School Tuition Balance
$ 150
. . . . Homeowner’s Insurance Premium

.

$ 314
. . . . Major Credit Card

@ $50/month

$ 400

. . . . Auto Repair Bill

.

$ 150

. . . . Boat Loan

@ $110/month

$ 1,000

Long Term Liabilities:

.

.

. . . . Primary Residence Mortgage

@ $432/month

$ 75,000

What is the amount of the Clark’s net worth?

Select one:

a. $65,486

b. $75,486

c. $175,486

d. $63,986

Question 49

Using the information from the Clark’s data gathering form
in question #33, the Clark’s liquidity ratio shows that they could maintain
their current debt structure in the event of an emergency for about _____
months.

Select one:

a. 8
b. 23
c. 18
d. less than 5

Question 50

Question text
(Continuing to use the information from the Clark’s data
gathering form in question #33…) The Clarks want to purchase an auto. They
are considering refinancing their home. They plan to borrow $90,000, with which
they will liquidate all existing liabilities reflected in the case study (both
current and long term); and they will purchase an $11,000 auto. They have
negotiated a 7% loan for 30 years with $1,986 in closing costs. Which of the
following statement are true regarding the results of the financial
repositioning for the Clarks?
. . . (1) Based on
the standard debt-service ratio qualification standards, the Clark’s income
would qualify them for this loan.
. . . (2) The
anticipated loan to value ratio would require the payment of private mortgage
insurance.
. . . (3) Following
the completion of these transactions, the Clark’s net worth would decrease (not
considering depreciation).
. . . (4) Following
these transactions, the Clark’s solvency ratio would be improved.

Select one:

a. (2), (3) and (4)
b. (1) and (2)
c. (1), (2) and (4)
d. All of the above
e. (1), (2) and (3)

Which of the following statements is/are true concerning use
of ratios in evaluating financial solvency?
. . . (1) The savings
ratio is useful in the evaluation of the balance sheet.
. . . (2) A cash
surplus would typically produce a positive savings ratio.
. . . (3) A family
could have a positive savings ratio at the same time its debt service ratio is
also increasing
. . . (4) The
liquidity ratio is an indicator of a family’s ability to pay current debts if
there is an interruption in income.
. . . (5) One would
be improving his financial situation when both savings and debt service ratios
are increasing.

Select one:

a. (1), (2) and (5)
b. (1), (2) and (3)
c. (2), (4) and (5)
d. (2), (3) and (4)
e. (2) only
Question 2
The following are true statements concerning the process of
financial planning for the CFP® practitioner:
. . . (1) The
Certified Financial Planning Practitioner has social, legal and ethical
responsibilities to his/her planning clients.
. . . (2) The
Certified Financial Planning Practitioner is considered to have a fiduciary
relationship with his/her clients.
. . . (3) Only
planners practicing the comprehensive view of planning meet the definition of
“financial planner”.
. . . (4) The
planning process is finite, therefore a specific beginning point (the
engagement) and an end (the delivery of the plan document) must be established
in every planning relationship.
. . . (5) The
planner, in some cases, may be able to save the client money by performing
comprehensive tasks that had previously been assigned to other professionals,
such as the client’s banker, accountant and attorney.

Select one:

a. All of the above
b. (1) and (3) only
c. (1) and (2) only
d. (1), (3) and (5)
e. (1), (2) and (4)

Question 3

Question text

The following would generally be required to
“register” as investment advisor(s), based on the Investment Advisors
Act of 1940:
. . . (1) An
insurance agent who performs limited planning activities in conjunction with
the sale of life insurance and who is compensated by commission on products
sold from these planning activities.
. . . (2) A
“Private Advisor” who maintains an office, and manages money on a
fee-basis for only 25 clients; accepting new clients only if an existing client
terminates the relationship, thereby creating a “vacancy”.
. . . (3) An
accounting firm that establishes a separate division to provide financial
planning services to their clients and who charges separately for these
planning services.
. . . (4) A member of
the clergy who provides financial planning and investment seminars for his
parishioners free of charge.
. . . (5) A retired
stock broker who sells private non-registered church bonds to residents of his
state, and who is compensated by a fee, equal to a percentage of the bonds
sold.

Select one:

a. None of the above

b. (1), (2) and (5)

c. (1), (3) and (5)

d. All of the above

e. (2) and (3) only

Question 4

Which of the following is NOT one of the seven principles of
the CFP® Code of Ethics and Professional Responsibility?

Select one:

a. Fairness
b. Confidentiality
c. Integrity
d. Education
e. Objectivity

Question 5

The term most closely associated with quality of life is:

Select one:

a. Consumption
b. Money
c. Wealth
d. Standard of Living
e. Education

Question 6
The Rule of 78 is

Select one:

a. A method of calculating pay-off balance on some consumer
loans which penalizes the borrower for early pre-payment
b. A precise method of calculating how long it takes an
investment to double
c. A method of calculating compounded interest on
installment loans
d. A banking ratio used to qualify mortgage loan applicants

Question 7

Which of the following are true statements, based upon your
readings regarding the CFP® Code of Ethics and Rules of Conduct?

Select one:

a. The terminology ‘fee only’may only
be used by practitioners who charge an hourly fee for their services.
b. Prior suspension of a professional license for any reason
will render a candidate unacceptable as a CFP® certificant.
c. The terminologies ‘registrant’and
‘certificant’are synonymous and may be used
interchangeably when referring to an individual who has met all criteria for
utilizing the CFP® credentials.
d. One of the grounds for disciplinary action is an act or
omission that violates criminal laws, once the registrant has been convicted of
said crime.
e. The majority of disciplinary actions addressed by the
CFP® Board are the result of consumer-reported complaints.
f. None of the above

Question 8
The ratio that is calculated by dividing your total monthly
loan payments by your monthly gross income is called the:
Select one:

a. Debt Service Ratio
b. Liquidity Ratio
c. Solvency Ratio
d. Income Ratio

Question 9

Which of the following are examples of open credit accounts?
. . . (1) Bank credit
cards
. . . (2) Bank debit
cards
. . . (3) Retail
store credit cards
. . . (4) Secured
credit cards
. . . (5) Rebate
credit cards

Select one:
a. (1), (2) and (3)
b. (1) and (3) only
c. (1), (3), (4) and (5)
d. All of the above
e. (2), (4) and (5)

Question 10

The following would represent qualitative data obtained by a
planner during a data-gathering session:
. . . (1) The primary
and contingent beneficiaries of the client’s life insurance policies
. . . (2) The amount
and type of life insurance included in the client’s employee benefits package
. . . (3) The age at which
the client hopes to retire
. . . (4) The
client’s established gifting strategy to his grandchildren’s college fund over
the next 10 years
. . . (5) The fact
that the client’s wife is expecting a significant inheritance within 10 years,
which they feel will decrease their need to contribute currently to a
retirement plan

Select one:

a. (3), (4) and (5)
b. (1), (3) and (5)
c. (3) and (5)
d. (1), (2) and (4)
e. (2), (3) and (4)

Question 11
The following is/are true statement(s) based on the CFP®
Code of Ethics and Professional Responsibility and its Standards of Conduct:
. . . (1) The
planner’s responsibility for “diligence” refers to his/her
responsibility to perform an extensive analysis of any investment option
recommended for the client.
. . . (2) The
Principle of “professionalism” would dictate loyalty between planners
and their peers, to include a planner’s discretionary silence if he/she is
aware of a breech of ethics or securities laws by a fellow CFP® practitioner.
. . . (3) The CFP®
certifcant’s responsibilities apply only to him/herself, since his/her staff
members are held to a different (and lesser) standard of conduct due to the
fact they are not considered “fiduciaries”.
. . . (4) Co-mingling
of client funds with those of the practitioner is only permitted when full and
complete disclosure has been provided both to the client and to the CFP® Board.

Select one:

a. (1) and (2) only
b. (1) and (4) only
c. None of the above
d. (3) only
e. (2), (3) and (4)

Question 12

For federal income tax purposes, “average tax
rate” is computed as follows:

Select one:

a. Adjusted gross income divided by tax liability
b. Taxable income divided by tax withheld
c. Net tax liability divided by taxable income
d. Gross income divided by net tax liability

Question 13

Question text
Janet is a new client. She is considering buying a house and
provided the following information during your data gathering process:
. . . Annual gross
income: $100,000
. . . Annual
Principal and Interest Payments on the anticipated mortgage: $14,000
. . . Annual
anticipated Premiums for Homeowners and Flood Insurance: $1,000
. . . Annual Property
taxes: $5,000
. . . Annual Living
Expenses: $40,000
. . . Annual Credit
Card Payments on existing debt: $12,000
. . . Annual
Contribution to Retirement Account: $5,000
. . . Annual Student
Loan Payments for next 10 years: $5,000
. . . Annual Car
Payments for next 2 years: $6,000

Using the standard
housing qualification ratios which we have discussed, which of the following
comments would you say are true regarding Janet’s ability to qualify
financially for this purchase?
Select one:
a. The second ratio is within normal/acceptable range, but
the first ratio is not.

b. The first ratio is within normal/acceptable range, but
the second ratio is not.

c. Both the first and second ratios are outside the
normal/acceptable range.

d. Both the first and second ratios are within the
normal/acceptable range.

Question 14
The promised rate of interest paid on a savings account or
charged on a loan is the:
Select one:
a. Direct interest

b. Effective interest
c. Nominal interest
d. Discounted interest

Question 15
The following is/are true statement(s) regarding the interaction
of factors in the economy:
. . . (1) Short-term
rates are more noticeably impacted by changes in the fed funds rate than are
long-term debt instruments, such as mortgage rates.
. . . (2) The
discount rate is the lending rate between member Federal Reserve banks
(primarily for overnight transactions).
. . . (3) Open Market
Operations is the most important and most frequently used tool of the Fed
because it can be quickly and easily initiated.
. . . (4)
Disinflation occurs when the overall level of prices continues to rise, but the
economy’s growth rate is slowing.
. . . (5) The
Consumer Price Index reflects changes in wages, as well as certain goods and
services such as food, energy, and housing.

Select one:
a. (1), (4) and (5)
b. (1), (3) and (4)
c. (2), (3) and (4)
d. All of the above
e. (2), (3) and (5)

Question 16
Of the following, which would be common and permissible
methods for a client, who wants to invest most of his net worth of $100,000, to
compensate a financial adviser for his/her advice concerning the purchase of
mutual funds:
. . . (1) Hourly fee
basis
. . . (2) A
percentage of the assets to be managed
. . . (3) A
percentage of the growth of assets over a period of time
. . . (4) Commission
Select one:

a. (1) and (4)
b. (1), (2) and (4)
c. (2) and (4)
d. (1), (2), (3) and (4)

Question 17

Which of the following statements is TRUE regarding the
relationship axis between Present Value and Future Value?

Select one:

a. The greater the interest rate, the steeper the slope of
the curve.
b. All other things being equal, the greater the number of
periods, the lesser the length of the curve.
c. As interest rates are increased, the difference between
the present value and the future value decreases proportionately.
d. The two major factors affecting the shape of the curve
are the number of periods over which the compounding or discounting occurs and
the amount of money to be invested.

e. In compounding, FV moves in the opposite direction from
‘n’ and ‘i’.

Question 18
The following statement(s) is/are true regarding the
regulation of the securities and investment advisory business:
. . . (1) The
Investment Advisors Act of 1940 represents the primary federal regulation
applicable to the financial planning industry.
. . . (2) The
Investment Advisors Supervision Co-Ordination Act established the Securities
and Exchange Commission as the agency that would administer and enforce federal
securities laws.
. . . (3) The
financial monitoring provisions of the US Patriot Act only apply to planners
employed by financial institutions such as banks and credit unions.
. . . (4) Under the
Gramm-Leach-Bliley Act, planners who collect non-public information about
clients must provide an annual privacy notice to each existing customer.
. . . (5) The
Consumer Credit Protection Act prohibits lenders from discriminating on the
basis of race, color, religion, age, sex, or marital status.
Select one:

a. (2) and (5) only
b. (1) and (4) only
c. (1), (3), (4) and (5)
d. (3), (4) and (5)
e. All of the above

Question 19

Which of the following is/are NOT true statement(s)?
. . . (1) The
investment period (time) is more impactful than the rate of interest you can
earn on your investments.
. . . (2) The
government impacts consumers and businesses by regulation and taxation.
. . . (3) GDP refers
to the total earnings of American workers during a year.
. . . (4) The CPI is
the amount of goods and services each dollar buys at a given point in time.
. . . (5) Consumer
choices ultimately determine the kinds of goods and services businesses will
provide.

Select one:

a. 1 and 3
b. 1, 4 and 5
c. 4 only
d. 3 and 4
e. 2, 3 and 4

Question 20
Penalties for CFP® practitioners violating the CFP® Code of
Ethics include:
. . . (1) Letter of
admonition published and available to general public
. . . (2) Temporary
suspensions lasting up to ten years
. . . (3) Permanent
revocation of right to use CFP® marks
. . . (4) Fines of up
to $10,000
. . . (5) Referral of
violator to proper authorities for possible criminal charges
Select one:
a. All of the above

b. (1), (2) and (4)
c. (2), (3) and (4)
d. (1) and (3) only
e. (2) and (3) only

Question 21
Sally and Rob have been in their current home for about 5
years. The value of their home is
$175,000 and their current mortgage balance is $134,463. They have seen homes in their area appreciate
in value by approximately 5% per year, and they like their neighborhood and
plan to stay in their home for at least another 10 years. However, their current interest rate is 9%,
so they have been shopping for a new mortgage to refinance their home while
rates are low. The best rate they have
been quoted for a new loan is 6% for a 20 year loan with approximately $3700 in
closing costs. They want to finance
these closing costs in their new mortgage.
What would Sally and Rob’s new monthly mortgage payment (principal and
interest) be?

Select one:
a. $1,060
b. $990
c. $879
d. $1,029

Question 22
Which of the following is NOT a true statement concerning
Time Value of Money Concepts?
Select one:
a. In compound interest, it is the amount of growth that
accelerates, rather than the rate of growth.

b. If a deposit is made at the end of a compounding period,
the account balance will be greater than if the deposit were made at the
beginning of the compounding period.

c. The greater the frequency with which compounding or
discounting occurs, the greater is the effect on the growth of a future value
or the decline of a present value.

d. Future value increases as the interest rate or number of
periods increases and falls if either of them is reduced.

Question 23
Which of the following would result in a decrease in current
Net Worth on a client’s Balance Sheet? (You may disregard any potential future
impact of depreciation/appreciation.)
. . . (1) Client paid
for family vacation with funds from Money Market account
. . . (2) Client
purchases new kitchen appliances with a credit card
. . . (3) Client owns
shares in an indexed mutual fund, and the index declines
. . . (4) Client
purchases new auto by paying 50% down from savings account and financing the
remaining 50% on home equity line
. . . (5) Client
sells shares of stock to pay off credit card balance

Select one:

a. (1), (3) and (4)

b. (1) and (3)

c. (2) and (3)

d. (1), (2) and (3)

e. (4) and (5)

Question 24
Which of the following statements concerning the anti-fraud
provisions of the Investment Advisors Act of 1940 is correct?
Select one:
a. They do not characterize the investment adviser as a
fiduciary.
b. They only apply in situations in which a security
transaction has taken place.
c. They apply to all investment advisers even though an
adviser may qualify under one of the exemption provisions.
d. They only apply if the investment adviser is a CFP.

Question 25
Which of the following is/are correct regarding the process
of establishing the planner-client relationship?
. . . (1) The planner
should not discuss compensation until the scope of the engagement is finalized.
. . . (2) It is not
necessary to establish the scope of the engagement prior to data gathering,
since some additional planning goals may be revealed in this process.
. . . (3) The process
of defining the engagement is limited to the planner’s responsibilities.
. . . (4) Goals are
better left to be identified once the scope of the engagement is finalized.
. . . (5)
Establishing the duration of services to be provided is an integral part of the
engagement process.
Select one:
a. (1), (2) and (3)
b. All of the above
c. (1), (3) and (4)
d. (5) only
e. (2) and (4)

Question 26
The following are methods by which the
Fed interacts with our economy:
. . . (1) Purchases
and sales of US Government securities
. . . (2) Influencing
the rate of interest charged to consumers
. . . (3) Lowering or
raising of discount rate charged to member banks
. . . (4)
Periodically making adjustments to the CPI
. . . (5)
Establishing the exchange rate of the US dollar, relative to specific foreign
currencies

Select one:

a. (1), (4) and (5)
b. (1), (3) and (4)
c. All of the above
d. (2) and (3)
e. (1), (2) and (3)

Question 27
Which of the following accurately represent applicable
general concepts impacting our economic planning environment?
. . . (1) GDP refers
to the total earnings of American workers during a given year.
. . . (2) How long
you invest is not nearly as important as the rate of interest earned on
investments.
. . . (3) Cities with
higher costs of living also experience higher rates of inflation.
. . . (4) Producer
Price Index is the most commonly used indicator of inflation in the economy.
. . . (5) Fiscal
policy controls the amount of money in circulation and is used to stimulate or
contract economic growth.

Select one:

a. (2), (4) and (5)
b. (1) only
c. (1), (2) and (4)
d. None of the above
e. (3), (4) and (5)

Question 28
Malcolm buys a valuable painting for $20,000. He purchases
it using $15,000 from his savings account and a $5,000 loan. How does the
transaction affect Malcolm’s current financial statement? (You may disregard
any potential future impact of depreciation/appreciation.)
. . . (1) His assets
decrease, and his liabilities increase
. . . (2) Both his
assets and liabilities increase
. . . (3) His net
worth increases.
. . . (4) His net
worth decreases
. . . (5) His net
worth stays the same.
Select one:

a. (1) and (3)
b. (2) and (4)
c. (1) and (5)
d. (1) and (4)
e. (2) and (5)

Question 29
Kathy’s gross annual income is $58,900 and her monthly
recurring debts are $325. She can put a
down payment of no more than $35,000, but does not want to pay PMI. Based on the standard home affordability
ratios, approximately what is the maximum price home that Kathy should be
looking at? (Assume that the taxes and
insurance will be $1800 annually and that she will be able to obtain a 30 year
loan with a 10% interest rate)

Select one:

a. $174,000
b. $225,000
c. $156,000
d. $139,500

Question 30
Which of the following statements is/are true regarding the
preparation of a balance sheet?
. . . (1) Furniture
purchased on credit should be included on the asset side of the balance sheet.
. . . (2) A monthly
auto loan payment would be listed as a liability on the balance sheet.
. . . (3) All assets
should be reflected on the balance sheet at their original cost.
. . . (4) Money
loaned to a relative is a liability on the balance sheet.
. . . (5) Only the
current month’s payment on a mortgage loan would be listed on the balance sheet
as a liability.

Select one:
a. (1) only
b. (2) and (3)
c. (4) and (5)
d. None of the above
e. (1), (3) and (5)

Question 31
Which of the following statements regarding financial
statements are correct?
. . . (1) A balance
sheet shows your financial condition as of a specific selected date.
. . . (2) The income
and expense statement provides a measure of financial performance over a period
of time.
. . . (3) A budget is
a detailed statement of what income and expenses occurred over a particular
past period.
. . . (4) The net
worth statement is most similar to the balance sheet.
. . . (5) A net cash
flow deficit on the budget statement impacts the balance sheet.

Select one:
a. (2), (3) and (5)
b. (1), (2) and (3)
c. (2) and (4)
d. (1), (2) and (4)
e. All of the above

Question 32

Which of the following are TRUE statements regarding the
financial planning process?
. . . (1) Current
consumption is inversely related to saving for future consumption.
. . . (2) A good
financial plan completed when one is in his/her 30’s will typically last a life
time.
. . . (3) Two persons
with equal average propensities to consume will have the same standard of
living.
. . . (4) There is an
emotional factor attached to money that can impact the planning process.
. . . (5) Defining
goals is the final step in the personal financial planning process.

Select one:

a. 3 and 5
b. 1, 3 and 4
c. 1 and 4
d. 1, 2, and 3
e. 1 and 2

Question 33
Which of the following is NOT a true statement regarding the
financial planning process?
Select one:
a. The planner’s responsibility includes motivating the
client to take action on identified goals and priorities.
b. The planner should not challenge priorities established
by the client.
c. External factors such as economic conditions that may
impact the client’s goals and objectives must also be addressed in the planning
process.
d. Specific assumptions regarding inflation and rate of
return must be discussed and agreed upon by the planner and the client.
e. Products and services appropriate for implementation may
be identified by the planner in his/her analysis.

Question 34
Which of the following statements is/are true regarding the
economic concept of consumption?
. . . (1) Current
consumption is inversely related to saving.
. . . (2) Two persons
with equal average propensity to consume will not necessarily have equal
standards of living because of differences in income.
. . . (3) Utility
refers to the amount of satisfaction a person gets from buying a certain item,
and is generally more important than actual cost of a consumed item.
. . . (4) From a
financial planning perspective, the main determinant of quality of life is
believed to be standard of living, in which wealth plays an important part.
. . . (5) Future
consumption is deferred current consumption.
Select one:

a. (3) only
b. All of the above
c. (1) and (4)
d. (1), (2) and (5)
e. (3) and (4)
Question 35
Martha’s net worth is currently $200,000. Last year her net worth was $175,000. During the year she had net cash outflows of
$42,000, which included her mortgage expenses.
Her total cash inflows were $45,000.
Her investments grew in value by $15,000 during the year. The value of all other assets remained the
same. What amount of debt principal did
she pay off during the year?

Select one:

a. None
b. $7,000
c. $10,000

d. $3,000

Question 36
Which of the following statements concerning compounding or
discounting is/are correct:
. . . (1) Compounding
is a process by which a present value grows to a larger future value.
. . . (2) As
“N” or “I” in a time-value-of-money problem is increased,
the discounted or present value of a future sum is reduced.
. . . (3) The term
“discounting” is essentially a synonym for the term
“compounding”.
. . . (4) In the
compounding process, the future value grows by an increasing amount each
period.
. . . (5) If
compounding occurs semiannually, the future value of a sum of money will be
lower than if compounding occurs annually.

Select one:
a. (3) and (5)
b. (2), (4) and (5)
c. (1), (2) and (4)
d. (1), (3), and (5)
e. (1) and (4)

Question 37
The following activities in the economy could be evidenced
during the “Recovery Phase” of an economic cycle:
. . . (1) Lower
production costs due in part to falling unit labor costs
. . . (2) Improvement
in consumer sentiment
. . . (3) Temporary
shortages of goods due to strong demand
. . . (4) Inventory
liquidation to meet high demand
. . . (5) Business
expenditures on inventory and capital increase
Select one:

a. (1), (3) and (4)
b. (4) and (5)
c. None of the above
d. (2) and (3)
e. (2) and (5)

Question 38

Bruce Morton’s firm, Morton Asset Management, is registered with the SEC as an investment
adviser. His associate, Bill Collins, sells only life insurance. Which of the following is permissible usage?
Select one:
a. Bruce
Morton, Registered Investment Adviser
b. None of
the above
c. Both B
and C
d. Bruce
Morton, RIA
e. Bill Collins, Investment Counselor

Question 39
If Marilyn saves $2,000 at the beginning of each year for
her grandson’s college fund, and it earns an annual average return of 10%,
approximately how much money will she have at the end of the 10th year?

Select one:

a. $23,000
b. $31,600
c. $42,500

d. $35,000

Question 40

Which of the following would not be an appropriate entry in
the “Assets” Section of your financial statement?

Select one:

a. A duplex located in another state from which you derive
rental income
b. 50 shares of stock of a local business which is not
traded on any of the national exchanges.
c. Your leased Toyota Four-Runner
d. Your 5 year old bass boat which was a gift from your
father-in-law
e. Your primary residence which has $48,000 mortgage against
it

Question 41

Larry Nelson has sold life insurance to many clients over
the past eight years, receiving commissions on the sales. He has decided to broaden the scope of his
practice to include investment and tax planning advice, but will limit the
investment products he sells to fixed and variable annuities and variable life
insurance. He plans to include the
phrase “Tax and Investment Planning” on his business cards and
anticipates charging a separate fee for his financial advice. Larry is
registered with the SEC as an investment adviser. Does he have to also register with the FINRA?

Select one:
a. Yes, because he plans to charge fees for advice
b. No, because he sells only insurance products
c. Yes, because he holds himself out to the public as a
financial adviser
d. Yes, because he plans to sell variable annuities and
variable life insurance
e. No, because he is already registered with the SEC which
supervises FINRA

Question 42
Your clients, Mr. and Mrs. Walsh, have furnished the
following information for 2010:
Salaries: $75,000
Interest Income from
CDs: $4,000
Mutual fund dividends
(all re-invested): $2,000
Rental Income: $3,800
Savings and
Investment Contributions: $4,200
Non-Discretionary
Expenditures: $28,900
Discretionary
Expenditures: $24,100
Based on this
information, calculate the total inflow/outflow for the year for Mr. and Mrs.
Walsh that would be reflected on their Cash Flow Statement.

Select one:

a. $82,800 / $59.200
b. $82,800 / $57,200
c. $84,400 / $57,200
d. $84,800 / $59,200

Question 43
Your client, Marlon, is currently earning a salary of
$20,000. He has asked you how much he
will need to be earning in 10 years to keep up with inflation, assuming an
average annual inflation rate of 5%
Select one:

a. $31,604
b. $30,196
c. $32,577
d. $27,512

Question 44
How much would Luke have to save at the beginning of each
month to have a million dollars by the time he retires in 20 years if his money
can earn an average annual return of 9%?
(You may assume that he is starting from scratch.)
Select one:
a. $1,486
b. $1,087
c. $2,014
d. $3,652

Question 45

According to the CFP® Code of Ethics, everything must be
disclosed in writing except:
Select one:

a. Date and duration of plan
b. Names of each party involved
c. Full responsibilities and obligations of each party
d. Terms of terminating the agreement

Question 46
If a client uses his CD to pay off the outstanding balance
on his credit card, what is the immediate impact to his current net worth?

Select one:

a. It will decrease
b. It will increase
c. It will stay the same

Question 47
How will the preceding transaction (in question #19) affect
the client’s current debt service ratio?

Select one:

a. It will decrease
b. It will stay the same
c. It will increase

Question 48

The Clark family disclosed the following information on
their data gathering form:
(You may assume that there are no other assets or
liabilities to be considered.)

Income
Gross Monthly Income
$ 4,000
Monthly Take Home Pay
$ 3,000
Assets
Checking Account $
1,000
Passbook Savings $
500
Money Market $ 1,000
Retirement Account

(Vested Balance)

$ 20,000
(Market Value)

$ 30,000

Residence

(Market Value)

$100,000

(Basis)

$ 80,000
Personal Property

.
$ 10,000

Boat

.

$ 10,000
Liabilities
Current Liabilities:
. . . . Private School Tuition Balance
$ 150
. . . . Homeowner’s Insurance Premium

.

$ 314
. . . . Major Credit Card

@ $50/month

$ 400

. . . . Auto Repair Bill

.

$ 150

. . . . Boat Loan

@ $110/month

$ 1,000

Long Term Liabilities:

.

.

. . . . Primary Residence Mortgage

@ $432/month

$ 75,000

What is the amount of the Clark’s net worth?

Select one:

a. $65,486

b. $75,486

c. $175,486

d. $63,986

Question 49

Using the information from the Clark’s data gathering form
in question #33, the Clark’s liquidity ratio shows that they could maintain
their current debt structure in the event of an emergency for about _____
months.

Select one:

a. 8
b. 23
c. 18
d. less than 5

Question 50

Question text
(Continuing to use the information from the Clark’s data
gathering form in question #33…) The Clarks want to purchase an auto. They
are considering refinancing their home. They plan to borrow $90,000, with which
they will liquidate all existing liabilities reflected in the case study (both
current and long term); and they will purchase an $11,000 auto. They have
negotiated a 7% loan for 30 years with $1,986 in closing costs. Which of the
following statement are true regarding the results of the financial
repositioning for the Clarks?
. . . (1) Based on
the standard debt-service ratio qualification standards, the Clark’s income
would qualify them for this loan.
. . . (2) The
anticipated loan to value ratio would require the payment of private mortgage
insurance.
. . . (3) Following
the completion of these transactions, the Clark’s net worth would decrease (not
considering depreciation).
. . . (4) Following
these transactions, the Clark’s solvency ratio would be improved.

Select one:

a. (2), (3) and (4)
b. (1) and (2)
c. (1), (2) and (4)
d. All of the above
e. (1), (2) and (3)

Which of the following statements is/are true concerning use
of ratios in evaluating financial solvency?
. . . (1) The savings
ratio is useful in the evaluation of the balance sheet.
. . . (2) A cash
surplus would typically produce a positive savings ratio.
. . . (3) A family
could have a positive savings ratio at the same time its debt service ratio is
also increasing
. . . (4) The
liquidity ratio is an indicator of a family’s ability to pay current debts if
there is an interruption in income.
. . . (5) One would
be improving his financial situation when both savings and debt service ratios
are increasing.















Select one:

a. (1), (2) and (5)
b. (1), (2) and (3)
c. (2), (4) and (5)
d. (2), (3) and (4)
e. (2) only
Question 2
The following are true statements concerning the process of
financial planning for the CFP® practitioner:
. . . (1) The
Certified Financial Planning Practitioner has social, legal and ethical
responsibilities to his/her planning clients.
. . . (2) The
Certified Financial Planning Practitioner is considered to have a fiduciary
relationship with his/her clients.
. . . (3) Only
planners practicing the comprehensive view of planning meet the definition of
“financial planner”.
. . . (4) The
planning process is finite, therefore a specific beginning point (the
engagement) and an end (the delivery of the plan document) must be established
in every planning relationship.
. . . (5) The
planner, in some cases, may be able to save the client money by performing
comprehensive tasks that had previously been assigned to other professionals,
such as the client’s banker, accountant and attorney.

























Select one:

a. All of the above
b. (1) and (3) only
c. (1) and (2) only
d. (1), (3) and (5)
e. (1), (2) and (4)





Question 3

Question text

The following would generally be required to
“register” as investment advisor(s), based on the Investment Advisors
Act of 1940:
. . . (1) An
insurance agent who performs limited planning activities in conjunction with
the sale of life insurance and who is compensated by commission on products
sold from these planning activities.
. . . (2) A
“Private Advisor” who maintains an office, and manages money on a
fee-basis for only 25 clients; accepting new clients only if an existing client
terminates the relationship, thereby creating a “vacancy”.
. . . (3) An
accounting firm that establishes a separate division to provide financial
planning services to their clients and who charges separately for these
planning services.
. . . (4) A member of
the clergy who provides financial planning and investment seminars for his
parishioners free of charge.
. . . (5) A retired
stock broker who sells private non-registered church bonds to residents of his
state, and who is compensated by a fee, equal to a percentage of the bonds
sold.






















Select one:

a. None of the above

b. (1), (2) and (5)

c. (1), (3) and (5)

d. All of the above

e. (2) and (3) only

Question 4

Which of the following is NOT one of the seven principles of
the CFP® Code of Ethics and Professional Responsibility?


Select one:

a. Fairness
b. Confidentiality
c. Integrity
d. Education
e. Objectivity





Question 5

The term most closely associated with quality of life is:

Select one:

a. Consumption
b. Money
c. Wealth
d. Standard of Living
e. Education





Question 6
The Rule of 78 is


Select one:

a. A method of calculating pay-off balance on some consumer
loans which penalizes the borrower for early pre-payment
b. A precise method of calculating how long it takes an
investment to double
c. A method of calculating compounded interest on
installment loans
d. A banking ratio used to qualify mortgage loan applicants







Question 7

Which of the following are true statements, based upon your
readings regarding the CFP® Code of Ethics and Rules of Conduct?


Select one:

a. The terminology ‘fee only’may only
be used by practitioners who charge an hourly fee for their services.
b. Prior suspension of a professional license for any reason
will render a candidate unacceptable as a CFP® certificant.
c. The terminologies ‘registrant’and
‘certificant’are synonymous and may be used
interchangeably when referring to an individual who has met all criteria for
utilizing the CFP® credentials.
d. One of the grounds for disciplinary action is an act or
omission that violates criminal laws, once the registrant has been convicted of
said crime.
e. The majority of disciplinary actions addressed by the
CFP® Board are the result of consumer-reported complaints.
f. None of the above

‘fee only’



‘registrant’
‘certificant’







Question 8
The ratio that is calculated by dividing your total monthly
loan payments by your monthly gross income is called the:
Select one:




a. Debt Service Ratio
b. Liquidity Ratio
c. Solvency Ratio
d. Income Ratio




Question 9

Which of the following are examples of open credit accounts?
. . . (1) Bank credit
cards
. . . (2) Bank debit
cards
. . . (3) Retail
store credit cards
. . . (4) Secured
credit cards
. . . (5) Rebate
credit cards











Select one:
a. (1), (2) and (3)
b. (1) and (3) only
c. (1), (3), (4) and (5)
d. All of the above
e. (2), (4) and (5)






Question 10

The following would represent qualitative data obtained by a
planner during a data-gathering session:
. . . (1) The primary
and contingent beneficiaries of the client’s life insurance policies
. . . (2) The amount
and type of life insurance included in the client’s employee benefits package
. . . (3) The age at which
the client hopes to retire
. . . (4) The
client’s established gifting strategy to his grandchildren’s college fund over
the next 10 years
. . . (5) The fact
that the client’s wife is expecting a significant inheritance within 10 years,
which they feel will decrease their need to contribute currently to a
retirement plan















Select one:

a. (3), (4) and (5)
b. (1), (3) and (5)
c. (3) and (5)
d. (1), (2) and (4)
e. (2), (3) and (4)





Question 11
The following is/are true statement(s) based on the CFP®
Code of Ethics and Professional Responsibility and its Standards of Conduct:
. . . (1) The
planner’s responsibility for “diligence” refers to his/her
responsibility to perform an extensive analysis of any investment option
recommended for the client.
. . . (2) The
Principle of “professionalism” would dictate loyalty between planners
and their peers, to include a planner’s discretionary silence if he/she is
aware of a breech of ethics or securities laws by a fellow CFP® practitioner.
. . . (3) The CFP®
certifcant’s responsibilities apply only to him/herself, since his/her staff
members are held to a different (and lesser) standard of conduct due to the
fact they are not considered “fiduciaries”.
. . . (4) Co-mingling
of client funds with those of the practitioner is only permitted when full and
complete disclosure has been provided both to the client and to the CFP® Board.


















Select one:

a. (1) and (2) only
b. (1) and (4) only
c. None of the above
d. (3) only
e. (2), (3) and (4)





Question 12

For federal income tax purposes, “average tax
rate” is computed as follows:


Select one:

a. Adjusted gross income divided by tax liability
b. Taxable income divided by tax withheld
c. Net tax liability divided by taxable income
d. Gross income divided by net tax liability




Question 13

Question text
Janet is a new client. She is considering buying a house and
provided the following information during your data gathering process:
. . . Annual gross
income: $100,000
. . . Annual
Principal and Interest Payments on the anticipated mortgage: $14,000
. . . Annual
anticipated Premiums for Homeowners and Flood Insurance: $1,000
. . . Annual Property
taxes: $5,000
. . . Annual Living
Expenses: $40,000
. . . Annual Credit
Card Payments on existing debt: $12,000
. . . Annual
Contribution to Retirement Account: $5,000
. . . Annual Student
Loan Payments for next 10 years: $5,000
. . . Annual Car
Payments for next 2 years: $6,000





















Using the standard
housing qualification ratios which we have discussed, which of the following
comments would you say are true regarding Janet’s ability to qualify
financially for this purchase?
Select one:
a. The second ratio is within normal/acceptable range, but
the first ratio is not.







b. The first ratio is within normal/acceptable range, but
the second ratio is not.


c. Both the first and second ratios are outside the
normal/acceptable range.


d. Both the first and second ratios are within the
normal/acceptable range.


Question 14
The promised rate of interest paid on a savings account or
charged on a loan is the:
Select one:
a. Direct interest





b. Effective interest
c. Nominal interest
d. Discounted interest



Question 15
The following is/are true statement(s) regarding the interaction
of factors in the economy:
. . . (1) Short-term
rates are more noticeably impacted by changes in the fed funds rate than are
long-term debt instruments, such as mortgage rates.
. . . (2) The
discount rate is the lending rate between member Federal Reserve banks
(primarily for overnight transactions).
. . . (3) Open Market
Operations is the most important and most frequently used tool of the Fed
because it can be quickly and easily initiated.
. . . (4)
Disinflation occurs when the overall level of prices continues to rise, but the
economy’s growth rate is slowing.
. . . (5) The
Consumer Price Index reflects changes in wages, as well as certain goods and
services such as food, energy, and housing.


















Select one:
a. (1), (4) and (5)
b. (1), (3) and (4)
c. (2), (3) and (4)
d. All of the above
e. (2), (3) and (5)






Question 16
Of the following, which would be common and permissible
methods for a client, who wants to invest most of his net worth of $100,000, to
compensate a financial adviser for his/her advice concerning the purchase of
mutual funds:
. . . (1) Hourly fee
basis
. . . (2) A
percentage of the assets to be managed
. . . (3) A
percentage of the growth of assets over a period of time
. . . (4) Commission
Select one:













a. (1) and (4)
b. (1), (2) and (4)
c. (2) and (4)
d. (1), (2), (3) and (4)




Question 17

Which of the following statements is TRUE regarding the
relationship axis between Present Value and Future Value?


Select one:

a. The greater the interest rate, the steeper the slope of
the curve.
b. All other things being equal, the greater the number of
periods, the lesser the length of the curve.
c. As interest rates are increased, the difference between
the present value and the future value decreases proportionately.
d. The two major factors affecting the shape of the curve
are the number of periods over which the compounding or discounting occurs and
the amount of money to be invested.









e. In compounding, FV moves in the opposite direction from
‘n’ and ‘i’.


Question 18
The following statement(s) is/are true regarding the
regulation of the securities and investment advisory business:
. . . (1) The
Investment Advisors Act of 1940 represents the primary federal regulation
applicable to the financial planning industry.
. . . (2) The
Investment Advisors Supervision Co-Ordination Act established the Securities
and Exchange Commission as the agency that would administer and enforce federal
securities laws.
. . . (3) The
financial monitoring provisions of the US Patriot Act only apply to planners
employed by financial institutions such as banks and credit unions.
. . . (4) Under the
Gramm-Leach-Bliley Act, planners who collect non-public information about
clients must provide an annual privacy notice to each existing customer.
. . . (5) The
Consumer Credit Protection Act prohibits lenders from discriminating on the
basis of race, color, religion, age, sex, or marital status.
Select one:




















a. (2) and (5) only
b. (1) and (4) only
c. (1), (3), (4) and (5)
d. (3), (4) and (5)
e. All of the above





Question 19

Which of the following is/are NOT true statement(s)?
. . . (1) The
investment period (time) is more impactful than the rate of interest you can
earn on your investments.
. . . (2) The
government impacts consumers and businesses by regulation and taxation.
. . . (3) GDP refers
to the total earnings of American workers during a year.
. . . (4) The CPI is
the amount of goods and services each dollar buys at a given point in time.
. . . (5) Consumer
choices ultimately determine the kinds of goods and services businesses will
provide.













Select one:

a. 1 and 3
b. 1, 4 and 5
c. 4 only
d. 3 and 4
e. 2, 3 and 4





Question 20
Penalties for CFP® practitioners violating the CFP® Code of
Ethics include:
. . . (1) Letter of
admonition published and available to general public
. . . (2) Temporary
suspensions lasting up to ten years
. . . (3) Permanent
revocation of right to use CFP® marks
. . . (4) Fines of up
to $10,000
. . . (5) Referral of
violator to proper authorities for possible criminal charges
Select one:
a. All of the above















b. (1), (2) and (4)
c. (2), (3) and (4)
d. (1) and (3) only
e. (2) and (3) only




Question 21
Sally and Rob have been in their current home for about 5
years. The value of their home is
$175,000 and their current mortgage balance is $134,463. They have seen homes in their area appreciate
in value by approximately 5% per year, and they like their neighborhood and
plan to stay in their home for at least another 10 years. However, their current interest rate is 9%,
so they have been shopping for a new mortgage to refinance their home while
rates are low. The best rate they have
been quoted for a new loan is 6% for a 20 year loan with approximately $3700 in
closing costs. They want to finance
these closing costs in their new mortgage.
What would Sally and Rob’s new monthly mortgage payment (principal and
interest) be?













Select one:
a. $1,060
b. $990
c. $879
d. $1,029





Question 22
Which of the following is NOT a true statement concerning
Time Value of Money Concepts?
Select one:
a. In compound interest, it is the amount of growth that
accelerates, rather than the rate of growth.






b. If a deposit is made at the end of a compounding period,
the account balance will be greater than if the deposit were made at the
beginning of the compounding period.



c. The greater the frequency with which compounding or
discounting occurs, the greater is the effect on the growth of a future value
or the decline of a present value.



d. Future value increases as the interest rate or number of
periods increases and falls if either of them is reduced.


Question 23
Which of the following would result in a decrease in current
Net Worth on a client’s Balance Sheet? (You may disregard any potential future
impact of depreciation/appreciation.)
. . . (1) Client paid
for family vacation with funds from Money Market account
. . . (2) Client
purchases new kitchen appliances with a credit card
. . . (3) Client owns
shares in an indexed mutual fund, and the index declines
. . . (4) Client
purchases new auto by paying 50% down from savings account and financing the
remaining 50% on home equity line
. . . (5) Client
sells shares of stock to pay off credit card balance















Select one:

a. (1), (3) and (4)

b. (1) and (3)

c. (2) and (3)

d. (1), (2) and (3)

e. (4) and (5)

Question 24
Which of the following statements concerning the anti-fraud
provisions of the Investment Advisors Act of 1940 is correct?
Select one:
a. They do not characterize the investment adviser as a
fiduciary.
b. They only apply in situations in which a security
transaction has taken place.
c. They apply to all investment advisers even though an
adviser may qualify under one of the exemption provisions.
d. They only apply if the investment adviser is a CFP.











Question 25
Which of the following is/are correct regarding the process
of establishing the planner-client relationship?
. . . (1) The planner
should not discuss compensation until the scope of the engagement is finalized.
. . . (2) It is not
necessary to establish the scope of the engagement prior to data gathering,
since some additional planning goals may be revealed in this process.
. . . (3) The process
of defining the engagement is limited to the planner’s responsibilities.
. . . (4) Goals are
better left to be identified once the scope of the engagement is finalized.
. . . (5)
Establishing the duration of services to be provided is an integral part of the
engagement process.
Select one:
a. (1), (2) and (3)
b. All of the above
c. (1), (3) and (4)
d. (5) only
e. (2) and (4)





















Question 26
The following are methods by which the
Fed interacts with our economy:
. . . (1) Purchases
and sales of US Government securities
. . . (2) Influencing
the rate of interest charged to consumers
. . . (3) Lowering or
raising of discount rate charged to member banks
. . . (4)
Periodically making adjustments to the CPI
. . . (5)
Establishing the exchange rate of the US dollar, relative to specific foreign
currencies














Select one:

a. (1), (4) and (5)
b. (1), (3) and (4)
c. All of the above
d. (2) and (3)
e. (1), (2) and (3)





Question 27
Which of the following accurately represent applicable
general concepts impacting our economic planning environment?
. . . (1) GDP refers
to the total earnings of American workers during a given year.
. . . (2) How long
you invest is not nearly as important as the rate of interest earned on
investments.
. . . (3) Cities with
higher costs of living also experience higher rates of inflation.
. . . (4) Producer
Price Index is the most commonly used indicator of inflation in the economy.
. . . (5) Fiscal
policy controls the amount of money in circulation and is used to stimulate or
contract economic growth.















Select one:

a. (2), (4) and (5)
b. (1) only
c. (1), (2) and (4)
d. None of the above
e. (3), (4) and (5)





Question 28
Malcolm buys a valuable painting for $20,000. He purchases
it using $15,000 from his savings account and a $5,000 loan. How does the
transaction affect Malcolm’s current financial statement? (You may disregard
any potential future impact of depreciation/appreciation.)
. . . (1) His assets
decrease, and his liabilities increase
. . . (2) Both his
assets and liabilities increase
. . . (3) His net
worth increases.
. . . (4) His net
worth decreases
. . . (5) His net
worth stays the same.
Select one:
















a. (1) and (3)
b. (2) and (4)
c. (1) and (5)
d. (1) and (4)
e. (2) and (5)





Question 29
Kathy’s gross annual income is $58,900 and her monthly
recurring debts are $325. She can put a
down payment of no more than $35,000, but does not want to pay PMI. Based on the standard home affordability
ratios, approximately what is the maximum price home that Kathy should be
looking at? (Assume that the taxes and
insurance will be $1800 annually and that she will be able to obtain a 30 year
loan with a 10% interest rate)








Select one:

a. $174,000
b. $225,000
c. $156,000
d. $139,500




Question 30
Which of the following statements is/are true regarding the
preparation of a balance sheet?
. . . (1) Furniture
purchased on credit should be included on the asset side of the balance sheet.
. . . (2) A monthly
auto loan payment would be listed as a liability on the balance sheet.
. . . (3) All assets
should be reflected on the balance sheet at their original cost.
. . . (4) Money
loaned to a relative is a liability on the balance sheet.
. . . (5) Only the
current month’s payment on a mortgage loan would be listed on the balance sheet
as a liability.














Select one:
a. (1) only
b. (2) and (3)
c. (4) and (5)
d. None of the above
e. (1), (3) and (5)






Question 31
Which of the following statements regarding financial
statements are correct?
. . . (1) A balance
sheet shows your financial condition as of a specific selected date.
. . . (2) The income
and expense statement provides a measure of financial performance over a period
of time.
. . . (3) A budget is
a detailed statement of what income and expenses occurred over a particular
past period.
. . . (4) The net
worth statement is most similar to the balance sheet.
. . . (5) A net cash
flow deficit on the budget statement impacts the balance sheet.















Select one:
a. (2), (3) and (5)
b. (1), (2) and (3)
c. (2) and (4)
d. (1), (2) and (4)
e. All of the above






Question 32

Which of the following are TRUE statements regarding the
financial planning process?
. . . (1) Current
consumption is inversely related to saving for future consumption.
. . . (2) A good
financial plan completed when one is in his/her 30’s will typically last a life
time.
. . . (3) Two persons
with equal average propensities to consume will have the same standard of
living.
. . . (4) There is an
emotional factor attached to money that can impact the planning process.
. . . (5) Defining
goals is the final step in the personal financial planning process.














Select one:

a. 3 and 5
b. 1, 3 and 4
c. 1 and 4
d. 1, 2, and 3
e. 1 and 2





Question 33
Which of the following is NOT a true statement regarding the
financial planning process?
Select one:
a. The planner’s responsibility includes motivating the
client to take action on identified goals and priorities.
b. The planner should not challenge priorities established
by the client.
c. External factors such as economic conditions that may
impact the client’s goals and objectives must also be addressed in the planning
process.
d. Specific assumptions regarding inflation and rate of
return must be discussed and agreed upon by the planner and the client.
e. Products and services appropriate for implementation may
be identified by the planner in his/her analysis.















Question 34
Which of the following statements is/are true regarding the
economic concept of consumption?
. . . (1) Current
consumption is inversely related to saving.
. . . (2) Two persons
with equal average propensity to consume will not necessarily have equal
standards of living because of differences in income.
. . . (3) Utility
refers to the amount of satisfaction a person gets from buying a certain item,
and is generally more important than actual cost of a consumed item.
. . . (4) From a
financial planning perspective, the main determinant of quality of life is
believed to be standard of living, in which wealth plays an important part.
. . . (5) Future
consumption is deferred current consumption.
Select one:

















a. (3) only
b. All of the above
c. (1) and (4)
d. (1), (2) and (5)
e. (3) and (4)
Question 35
Martha’s net worth is currently $200,000. Last year her net worth was $175,000. During the year she had net cash outflows of
$42,000, which included her mortgage expenses.
Her total cash inflows were $45,000.
Her investments grew in value by $15,000 during the year. The value of all other assets remained the
same. What amount of debt principal did
she pay off during the year?












Select one:

a. None
b. $7,000
c. $10,000



d. $3,000

Question 36
Which of the following statements concerning compounding or
discounting is/are correct:
. . . (1) Compounding
is a process by which a present value grows to a larger future value.
. . . (2) As
“N” or “I” in a time-value-of-money problem is increased,
the discounted or present value of a future sum is reduced.
. . . (3) The term
“discounting” is essentially a synonym for the term
“compounding”.
. . . (4) In the
compounding process, the future value grows by an increasing amount each
period.
. . . (5) If
compounding occurs semiannually, the future value of a sum of money will be
lower than if compounding occurs annually.

















Select one:
a. (3) and (5)
b. (2), (4) and (5)
c. (1), (2) and (4)
d. (1), (3), and (5)
e. (1) and (4)






Question 37
The following activities in the economy could be evidenced
during the “Recovery Phase” of an economic cycle:
. . . (1) Lower
production costs due in part to falling unit labor costs
. . . (2) Improvement
in consumer sentiment
. . . (3) Temporary
shortages of goods due to strong demand
. . . (4) Inventory
liquidation to meet high demand
. . . (5) Business
expenditures on inventory and capital increase
Select one:














a. (1), (3) and (4)
b. (4) and (5)
c. None of the above
d. (2) and (3)
e. (2) and (5)





Question 38

Bruce Morton’s firm, Morton Asset Management, is registered with the SEC as an investment
adviser. His associate, Bill Collins, sells only life insurance. Which of the following is permissible usage?
Select one:
a. Bruce
Morton, Registered Investment Adviser
b. None of
the above
c. Both B
and C
d. Bruce
Morton, RIA
e. Bill Collins, Investment Counselor












Question 39
If Marilyn saves $2,000 at the beginning of each year for
her grandson’s college fund, and it earns an annual average return of 10%,
approximately how much money will she have at the end of the 10th year?




Select one:

a. $23,000
b. $31,600
c. $42,500



d. $35,000

Question 40

Which of the following would not be an appropriate entry in
the “Assets” Section of your financial statement?


Select one:

a. A duplex located in another state from which you derive
rental income
b. 50 shares of stock of a local business which is not
traded on any of the national exchanges.
c. Your leased Toyota Four-Runner
d. Your 5 year old bass boat which was a gift from your
father-in-law
e. Your primary residence which has $48,000 mortgage against
it









Question 41

Larry Nelson has sold life insurance to many clients over
the past eight years, receiving commissions on the sales. He has decided to broaden the scope of his
practice to include investment and tax planning advice, but will limit the
investment products he sells to fixed and variable annuities and variable life
insurance. He plans to include the
phrase “Tax and Investment Planning” on his business cards and
anticipates charging a separate fee for his financial advice. Larry is
registered with the SEC as an investment adviser. Does he have to also register with the FINRA?








Select one:
a. Yes, because he plans to charge fees for advice
b. No, because he sells only insurance products
c. Yes, because he holds himself out to the public as a
financial adviser
d. Yes, because he plans to sell variable annuities and
variable life insurance
e. No, because he is already registered with the SEC which
supervises FINRA









Question 42
Your clients, Mr. and Mrs. Walsh, have furnished the
following information for 2010:
Salaries: $75,000
Interest Income from
CDs: $4,000
Mutual fund dividends
(all re-invested): $2,000
Rental Income: $3,800
Savings and
Investment Contributions: $4,200
Non-Discretionary
Expenditures: $28,900
Discretionary
Expenditures: $24,100
Based on this
information, calculate the total inflow/outflow for the year for Mr. and Mrs.
Walsh that would be reflected on their Cash Flow Statement.


















Select one:

a. $82,800 / $59.200
b. $82,800 / $57,200
c. $84,400 / $57,200
d. $84,800 / $59,200




Question 43
Your client, Marlon, is currently earning a salary of
$20,000. He has asked you how much he
will need to be earning in 10 years to keep up with inflation, assuming an
average annual inflation rate of 5%
Select one:






a. $31,604
b. $30,196
c. $32,577
d. $27,512




Question 44
How much would Luke have to save at the beginning of each
month to have a million dollars by the time he retires in 20 years if his money
can earn an average annual return of 9%?
(You may assume that he is starting from scratch.)
Select one:
a. $1,486
b. $1,087
c. $2,014
d. $3,652










Question 45

According to the CFP® Code of Ethics, everything must be
disclosed in writing except:
Select one:



a. Date and duration of plan
b. Names of each party involved
c. Full responsibilities and obligations of each party
d. Terms of terminating the agreement




Question 46
If a client uses his CD to pay off the outstanding balance
on his credit card, what is the immediate impact to his current net worth?



Select one:

a. It will decrease
b. It will increase
c. It will stay the same



Question 47
How will the preceding transaction (in question #19) affect
the client’s current debt service ratio?



Select one:

a. It will decrease
b. It will stay the same
c. It will increase



Question 48

The Clark family disclosed the following information on
their data gathering form:
(You may assume that there are no other assets or
liabilities to be considered.)




Income
Gross Monthly Income
$ 4,000
Monthly Take Home Pay
$ 3,000
Assets
Checking Account $
1,000
Passbook Savings $
500
Money Market $ 1,000
Retirement Account












(Vested Balance)

$ 20,000
(Market Value)


$ 30,000

Residence

(Market Value)

$100,000

(Basis)

$ 80,000
Personal Property


.
$ 10,000


Boat

.

$ 10,000
Liabilities
Current Liabilities:
. . . . Private School Tuition Balance
$ 150
. . . . Homeowner’s Insurance Premium






.

$ 314
. . . . Major Credit Card


@ $50/month

$ 400

. . . . Auto Repair Bill

.

$ 150

. . . . Boat Loan

@ $110/month

$ 1,000

Long Term Liabilities:

.

.

. . . . Primary Residence Mortgage

@ $432/month

$ 75,000

What is the amount of the Clark’s net worth?

Select one:

a. $65,486

b. $75,486

c. $175,486

d. $63,986

Question 49

Using the information from the Clark’s data gathering form
in question #33, the Clark’s liquidity ratio shows that they could maintain
their current debt structure in the event of an emergency for about _____
months.




Select one:

a. 8
b. 23
c. 18
d. less than 5




Question 50

Question text
(Continuing to use the information from the Clark’s data
gathering form in question #33…) The Clarks want to purchase an auto. They
are considering refinancing their home. They plan to borrow $90,000, with which
they will liquidate all existing liabilities reflected in the case study (both
current and long term); and they will purchase an $11,000 auto. They have
negotiated a 7% loan for 30 years with $1,986 in closing costs. Which of the
following statement are true regarding the results of the financial
repositioning for the Clarks?
. . . (1) Based on
the standard debt-service ratio qualification standards, the Clark’s income
would qualify them for this loan.
. . . (2) The
anticipated loan to value ratio would require the payment of private mortgage
insurance.
. . . (3) Following
the completion of these transactions, the Clark’s net worth would decrease (not
considering depreciation).
. . . (4) Following
these transactions, the Clark’s solvency ratio would be improved.




















Select one:

a. (2), (3) and (4)
b. (1) and (2)
c. (1), (2) and (4)
d. All of the above
e. (1), (2) and (3)





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