HS300 Exam Questions 2

Question 1

Question 1

All of the following are part of identifying and selecting goals EXCEPT
Incorrect Response

A) Prioritizing goals.

B) Discussing whether a goal is realistic and attainable.

C) Understanding a client’s wants and needs.

D) Monitoring goal progress.

Answer 1

The correct answer is (D).

Monitoring goal progress is part of the “monitoring recommendations” step in the financial planning process.
All other statements are part of identifying and selecting goals.

Question 2

Question 2

When would a financial planner analyze alternative courses of action as part of the analysis step of the financial planning process?
Incorrect Response

A) The planner should only do this when a client does not appear on track to meet a particular goal.

B) The planner should only do this when the planner is uncertain about a particular assumption.

C) The planner should only do this when a client specifically asks for alternative recommendations.

D) Analyzing alternative courses of action is part of every financial plan.

Answer 2

The correct answer is (D).

Planners must always analyze not only the client’s current course of action, but also potential alternative courses of action.

Question 3

Question 3

All of the following statements about presenting recommendations are correct EXCEPT:

A) A lengthy comprehensive written plan is widely regarded as the best presentation modality.

B) Planners should adjust their presentations to their clients’ learning styles.

C) The use of visual aids is generally encouraged, particularly for complex subjects.

D) If clients appear to misunderstand a presentation, the planner should adjust their approach.

Answer 3

The correct answer is (A).

While comprehensive written plans can be useful, most planners today recognize that they are not the optimal presentation modality for most clients. Rather, when presenting recommendations, a planner should adjust their presentation to the client’s learning style and body language. Furthermore, because most people are visual learners, visual aids are strongly encouraged.

Question 4

Question 4

Updating responsibilities, checking goal progress, and gathering up-to-date client information are part of which step in the financial planning process?

A) Understanding the Client’s Personal and Financial Circumstances

B) Identifying and Selecting Goals

C) Developing the Financial Planning Recommendation(s)

D) Monitoring Progress and Updating

Answer 4

The correct answer is (D).

During the “monitoring progress and updating” step, planners will update client and planner responsibilities, check on goal progress, and gather up-to-date client information.

Question 5

Question 5

All of the following occur when a planner is establishing and defining the client relationship with a prospective client EXCEPT:

A) The planner discusses their background and investment philosophy.

B) The planner discloses any conflicts of interest.

C) The planner provides relevant and required disclosures.

D) The planner analyzes client data.

Answer 5

The correct answer is (D).

When establishing and defining the client relationship, the planner has not yet collected detailed client information and therefore cannot analyze client data. All of the other activities are part of establishing and defining the client relationship.

Question 6

Question 6

When is the scope of a financial planning engagement typically defined?

A) Typically, the scope is defined when establishing and defining the client relationship.

B) Typically, the scope is defined when implementing recommendations.

C) Typically, the scope is defined after client data has been gathered.

D) The scope is continually defined and redefined throughout the engagement.

Answer 6

The correct answer is (A).

Typically, the scope is defined before client data is gathered, when the client relationship is established and defined.

Question 7

Question 7

Annie is a Certified Financial Planner™. In which of the following instances would she be held to the fiduciary standard?

I. When she provides general financial planning information during a radio interview
II. When acting as a broker and executing a stock trade

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 7

The correct answer is (D).

Certified Financial Planners™ are only held to the fiduciary standard when providing financial planning or advice to clients.

Question 8

Question 8

All of the following are generally true of clients working with financial planners EXCEPT:

A) They tend to have more confidence that they can accomplish their financial goals.

B) They can go on autopilot while the planner handles everything for them.

C) They are better able to establish and prioritize goals.

D) They are more aware of their financial risks and the steps to manage those risks.

Answer 8

The correct answer is (B).

Generally, clients become more focused on their financial lives when working with a planner, not less. It is rare for clients in financial planning engagements to completely hand off their financial lives to a financial planner. Rather, planners tend to work with clients and instill in clients a greater sense of awareness, accountability, and confidence.

Question 9

Question 9

Which of the following statements about the employment outlook for financial planners is correct?

A) The number of financial planners is expected to decrease in the next few years.

B) The mass retirement of Baby Boomers is expected to substantially influence the profession.

C) The vast majority of financial planners are dissatisfied with their current occupation.

D) The majority of financial planners are self-employed

Answer 9

The correct answer is (B).

Almost all Baby Boomers will retire in the next decade, and many of these people will seek out financial advice.
Statement (A) is incorrect because those retiring Baby Boomers are expected to increase the number of planner jobs by 15 percent. Statement (C) is incorrect because over 90 percent of financial planners report being satisfied with their jobs.
Statement (D) is incorrect because only about one out of five financial planners are self-employed.

Question 10

Question 10

All of the following factors are strongly predictive of successful financial planning careers EXCEPT

A) Having exceptional mental math abilities.

B) Having a college degree.

C) Holding a certification such as the CFP®.

D) Having sales skills.

Answer 10

The correct answer is (A).

The top factors that predict successful financial planning careers are having a college degree, holding a relevant certification, and having strong sales skills. While mental math skills can be impressive at the right cocktail party, they have not been shown to predict successful financial planning careers.

Question 11

Question 11

Bill is paid the same no matter how wealthy a particular client is. Which of the following forms of compensation is Bill LEAST likely to use?

A) An hourly rate or fee

B) A flat subscription or retainer fee

C) Commissions on the sale of financial products

D) A percentage of the assets managed

Answer 11

The correct answer is (D).

Bill is unlikely to be compensated based on a percentage of assets under management (AUM). Under this compensation model, his fee would be higher for wealthier clients. Under the other forms of compensation, it is possible that Bill could charge the same fee to each client regardless of their wealth.

Question 12

Question 12

All of the following statements about certification in financial planning are correct EXCEPT:

A) Most certifications are issued by the federal government and state governments.

B) Planners with certifications are generally viewed as more trustworthy.

C) Several independent financial services organizations offer certifications.

D) Certifications help to hold financial planners to higher ethical standards.

Answer 12

The correct answer is (A).

Statement (A) is incorrect because all financial planning certifications are issued by self-regulatory non-governmental organizations. Several independent financial services organizations, including the CFP board and The American College of Financial Services, offer certifications.

All of the other statements are correct.

Question 13

Question 13

A financial planner consistently finds that her clients do not actually implement her recommendations. What might she do to improve this aspect of her practice?

A) Purchase new and improved financial planning software.

B) Incorporate into her practice principles from counseling psychology.

C) Identify more niche and exotic investment opportunities.

D) She could implement all of the above.

Answer 13

The correct answer is (B).

Planners who study counseling psychology are likely to improve the implementation of recommendations. The other options might improve her overall practice but are unlikely to directly lead to quicker or more thorough implementation of recommendations.

Question 14

Question 14

All of the following are associated with the cognitive-behavioral school of counseling EXCEPT:

A) It is important to understand the underlying environmental and social causes of behavior.

B) Human behavior follows the same general principles as animal behavior.

C) There is a focus on one’s inherent value as a person.

D) Planners can help change client behavior by assigning them “homework.”

Answer 14

The correct answer is (C).

Statement (C) better describes the humanistic approach to counseling.

Question 15

Question 15

Melvin has struggled to build rapport with his client. Which of the following behaviors is most likely to improve this situation?

A) Taking a genuine interest in the client’s hobbies and activities

B) Switching from in-person to video or phone client meetings

C) Leaving all discussions of private life outside of the planner-client relationship

D) Wearing more formal business attire

Answer 15

The correct answer is (A).

Planner-client communication and rapport is enhanced when the planner shows empathy and takes a genuine interest in the client’s family and hobbies.

Question 16

Question 16

Which of the following statements is (are) correct regarding the role of formality within the financial planner-client relationship?

I. Formality can include addressing clients by their proper title, respecting the client’s time, and being punctual.
II. Formality can be relaxed later in the relationship as the planner and client become more well acquainted.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 16

The correct answer is (C).

dBoth statements are correct

Question 17

Question 17

Which of the following statements about nonverbal cues and body language is correct?

A) Crossing one’s arms during conversation tends to enhance communication.

B) Maintaining eye contact is often seen as threatening.
d
C) Nonverbal cues can sometimes convey more information than the spoken word.

D) Planners who take notes while a client is speaking are generally seen as being distracted

Answer 17

The correct answer is (C).

Nonverbal cues, particularly in body language and vocal tones, can sometimes convey more information than the spoken word.
Statement (A) is incorrect because crossing one’s arms is often construed as defensive or standoffish.
Statements (B) and (C) are incorrect because maintaining eye contact and taking notes tends to convey attention and generally enhance communication.

Question 18

Question 18

Which of the following is considered best practice for asking open-ended “why” questions when gathering client data?

A) Avoid awkward silences by moving on if clients take too long to answer.

B) Generally, stick with close-ended questions and ask “why” questions sparingly.

C) Ask questions that are very broad.

D) Be careful not to press clients too much if they appear defensive.

Answer 18

The correct answer is (D).

When asking “why” questions, a planner must be mindful of the client’s body language and responses. It generally is best to move on if a client becomes defensive when asked to justify a past behavior and when they are unable to recall information.
Statement (A) is incorrect because planners should give clients time to answer “why” questions even if there is a silence.
Statement (B) is incorrect because “why” questions are a core part of the data-gathering process and should be used regularly.
Statement (C) is incorrect because planners should ask question that are not too broad.

Question 19

Question 19

All of the following are unanswered questions from traditional financial theories (such as modern portfolio theory), EXCEPT:

A) Why do investors have so many biases?

B) Why are markets sometimes inefficient?

C) Why do some people prefer riskier assets?

D) Why do market anomalies persist?

Answer 19

The correct answer is (C).

Statement (C) is incorrect because traditional finance shows that riskier assets are preferred by investors who expect higher returns.
All the other statements are questions traditional finance is unable to answer.

Question 20

Question 20

Which of the following investor behaviors can be explained by behavioral finance theories but not by traditional finance theories?
Incorrect Response
A) An investor intentionally selects a very volatile portfolio.

B) A stock is priced substantially higher than one would expect based on its risk.

C) An investor invests to build long-term wealth because they want a happy retirement.

D) A portfolio of passive index funds outperforms an actively managed portfolio.

Answer 20

The correct answer is (B).

Traditional finance suggests that the exclusive driver of investment returns is an investment’s risk level. On the other hand, behavioral finance could explain why a stock seems to be priced higher than its risk would warrant. The other statements are consistent with both traditional finance and behavioral finance.

Question 21

Question 21

A large firm announces that it has hired a design company to change its corporate logo. The new logo will be shown publicly for the first time the following day. Shareholders react by bidding up the shares by 10 percent over the relevant benchmark. No other information about this firm is released. The shareholder reaction can best be described as

A) anchoring.

B) representativeness.

C) confirmation bias.

D) mental accounting.

Answer 21

The correct answer is (B).

Representativeness is a simple heuristic decision-making tool in which investors make quick decisions without regard to probability distributions or searching for the true factors that should influence the decision. When investors bid up the price of a company’s shares just because it changes its logo, the shareholders are hoping the new logo will increase the firm’s profitability. Since no other information is released around this time, the price reaction is likely attributed to representativeness.

Question 22

Question 22

In the late 1990s, the stock prices of internet companies rose dramatically. Individual investors and professional money managers saw many people become very rich by investing in these companies. They became excited by the rising prices and bought in, even though many of these companies never turned a profit. The popularity of these stocks (and the ultimate crash in 2001) seems like a practical example of which behavioral mistake?

A) The disposition effect.

B) Mental accounting.

C) Assuming market efficiency.

D) Herding.

Answer 22

The correct answer is (D).

Buying high-risk investments is the opposite of loss aversion. Although one could argue for some minor mental accounting issues if the investments were part of the high-risk portion of a portfolio, most people were simply following the crowd.
Answer (C) is not a behavioral finance mistake.

Question 23

Question 23

Which of the following clients appears to have a high risk capacity but a low risk tolerance?

A) Sophia has an emergency fund with 12 months of living expenses and a large retirement portfolio made up mostly of bonds and money
market securities.

B) Ross has a low net worth and uses an app to day trade in cryptocurrencies.

C) Michael has a sizable 401(k) invested almost entirely in growth stocks.

D) Timi’s only asset is a savings account worth $5,000.

Answer 23

The correct answer is (A).

Sophia appears to have a high risk capacity, given her substantial asset base. On the other hand, her preference for cash and bonds suggests she has a low risk tolerance. Ross appears to have a low risk capacity but a high risk tolerance. Michael’s risk capacity and risk tolerance both appear to be high, while Timi’s risk capacity and risk tolerance both appear to be low.

Question 24

Question 24

Prospect theory makes all the following observations EXCEPT:

A) Generally, people are loss averse.

B) Large losses make a person feel even worse than one would expect based on how bad small losses make a person feel.

C) Framing can affect whether a particular outcome is considered a gain or a loss.

D) Losses generally make a person feel worse than an equivalent gain makes the same person feel good.

Answer 24

The correct answer is (B).

Large losses do not make one feel as bad as one would expect given how bad a small loss makes one feel. For example, a $100 loss may make a person feel less than 10 times as bad as a $10 loss makes that person feel.

Question 25

Question 25

Which of the following behaviors is consistent with prospect theory’s concept of narrow framing?

A) A client focuses so much attention on his finances that he ignores his other responsibilities.

B) A client feels the pain of losing money more acutely than he feels the pleasure of gaining money.

C) A client seeks out evidence that confirms the beliefs he already has.

D) A client considers gains and losses in each of his accounts separately rather than thinking holistically about his financial situation.

Answer 25

The correct answer is (D).

Narrow framing is the tendency to view each decline in wealth as independent rather than viewing the portfolio in its entirety.

Question 26

Question 26

According to behavioral finance theories, all the following people are likely to be influenced by irrational thinking and biases EXCEPT

A) A client who is not very confident about managing their finances.

B) A “do it yourselfer” client who is very confident about managing their finances.

C) An experienced financial planner who manages their clients’ finances.

D) There are no exceptions. All of these people are likely to be influenced by irrational thinking and biases.

Answer 26

The correct answer is (D).

Research reveals that even experts are susceptible to irrational thinking and biases. Unfortunately, experts may think they are immune from such thinking, which can exacerbate the negative consequences of the bias!

Question 27

Question 27

A financial planner analyzes a client’s financial situation and then presents the client with a summary of what the client is doing good at, how the client could improve, some possibilities for improving the client’s financial situation, and some possibilities that could harm the client’s financial situation. What kind of analysis has this financial planner performed?

A) A financial security ratio analysis

B) A SWOT analysis

C) A four-panel analysis

D) A performance ratio analysis

Answer 27

The correct answer is (B).

A SWOT analysis assesses a client’s strengths, weaknesses, opportunities, and threats. It is most associated with the strategic approach.

Question 28

Question 28

Which of the following items appears on a cash-flow statement?

A) Home equity

B) Credit card limits

C) Deposits to retirement accounts

D) Debt balances

Answer 28

The correct answer is (C).

Deposits to retirement accounts, along with all income, savings, and expenses, appear on a cash-flow statement. The other items appear on a balance sheet.

Question 29

Question 29

A client provides you with the following financial information:

Item Amount
Salary $90,000
Retirement Savings $20,000
“Rainy Day” Savings for Weekend Trips $5,000
Housing Expenses $30,000
Transportation $20,000
Food and Other Expenses $15,000
Based on this information, what is their net discretionary cash flow?

A) $0

B) $20,000

C) $25,000

D) There is insufficient information to make this calculation.

Answer 29

The correct answer is (A).

Net discretionary cash flow is Income – Savings – Expenses.
Their net discretionary income is $0, or $90,000 − ($20,000 + $5,000) − ($30,000 + $20,000 + $15,000).

Question 30

Question 30

A “rule of thumb” that provides guidance for where a client’s financial profile should be is called a

A) Pie chart.

B) Benchmark.

C) Ratio.

D) Financial plan.

Answer 30

The correct answer is (B).

Benchmarks are “rules of thumb” that can help guide client communication and recommendations

Question 31

Question 31

Doris is 82 years old and has recently been widowed. Most of her income comes from Social Security payments and the survivorship benefits from an annuity she had purchased with her late husband. She has a few hundred thousand dollars in various stocks and bonds that she gifts periodically to her grandchildren and favorite charities. Which phase of the life cycle is Doris most likely in?

A) The asset-accumulation phase

B) The conservation phase

C) The distribution phase

D) The end-of-life phase

Answer 31

The correct answer is (C).

The distribution phase is characterized by living in retirement and distributing one’s wealth to beneficiaries.

Question 32

Question 32

All of the following statements about the three-panel approach are correct EXCEPT:

A) Panel 1 includes the highest-priority goals, and Panel 3 includes the lowest-priority goals.

B) Buying life insurance is considered a higher-priority goal than building an emergency fund.

C) Saving for retirement and funding an education goal are both part of Panel 3.

D) Meeting financial security goals is part of Panel 2.

Answer 32

The correct answer is (D).

Financial security goals, another name for retirement goals, are part of Panel 3

Question 33

Question 33

All the following are results of maintaining a positive net cash flow EXCEPT:

A) It gives clients the flexibility to fund additional financial objectives.

B) It permits clients to increase their savings rates.

C) It shows that clients have increased expenses to match their income.

D) It allows clients to maintain or increase their discretionary expenses.

Answer 33

The correct answer is (C).

Clients maintain a positive net cash flow by keeping expenses lower than income.
If cash flow is not positive, a client must increase their income or reduce their expenses.

Question 34

Question 34

A 25-year-old has just decided to start saving for retirement. They are not sure what their retirement savings rate should be. Which of the following benchmarks is most appropriate for this person?

A) 3%

B) 12%

C) 25%

D) 50%

Answer 34

The correct answer is (B).

A 25-year-old client whose only goal is to save for retirement should save at least 12% of their income.

Question 35

Question 35

A client provides you with the following financial information:

Item Amount
Salary $60,000
Retirement Savings $10,000
“Rainy day” Savings for Weekend Trips $5,000
Housing Expenses $20,000
Transportation, Food, and Other Needs $15,000
Vacations, Entertainment, and Other Wants $5,000
Based on this information, what is their net discretionary cash flow?

A) $5,000

B) $15,000

C) $20,000

D) $30,000

Answer 35

The correct answer is (A).

Net discretionary cash flow is Income – Savings – Expenses.
Their net discretionary income is $5,000, or $60,000 − ($10,000 + $5,000) − ($20,000 + $15,000 + $5,000).

Question 36

Question 36

Which of the following is most likely to be considered a variable expense on a cash-flow statement?

A) Gasoline

B) Rent

C) Education savings fund contributions

D) Gifts

Answer 36

The correct answer is (D).

Gift spending is the most likely to be variable and, in a pinch, could be reduced to zero. The other expenses, including savings, are relatively fixed.

Question 37

Question 37

All of the following types of income should be included in a budget EXCEPT

A) Earned income.

B) Stable income from an investment.

C) Expected inheritances.

D) Social Security income.

Answer 37

The correct answer is (C).

Only stable and reasonably expected income should be on a cash-flow statement. While many clients expected to receive an inheritance at some point, inheritances generally are not stable sources of income, nor are they totally predictable.

Question 38

Question 38

Lee earns $50,000 by working as a part-time lawyer in Baton Rouge. The company provides a matching contribution to Lee’s 401(k) plan of 50% of Lee’s contribution up to a maximum matching contribution of 4% of Lee’s compensation. Her 401(k) plan account had $60,000 in it at the beginning of the year. She contributed $15,000 to the plan this year, and the employer made the matching contribution before year-end. The ending balance of the account is $100,000. What is Lee’s savings rate this year?

A) 30%

B) 31.67%

C) 34%

D) 38%

Answer 38

The correct answer is (C).

The savings rate equals the sum of her contribution to her 401(k) plan and the employer match, divided by her compensation.
Note, the employer match is limited to 4% of Lee’s salary, or $2,000.

($15,000 + $2,000) ÷ $50,000 = 0.34, or 34%

Question 39

Question 39

Scott’s salary is $90,000 per year. He contributes 12% of his salary to his 401(k) plan. His employer makes a matching contribution of 5% of Scott’s salary. Scott also contributes $2,500 per year to an IRA. His annual savings rate is

A) 12.00%

B) 14.78%

C) 17.00%

D) 19.78%

Answer 39

The correct answer is (D).

Savings rate = (savings + employer match) ÷ gross pay

($10,800 + $4,500 + $2,500) ÷ $90,000 = 19.78%

Question 40

Question 40

You would expect to find all the following items on a balance sheet EXCEPT

A) The amount of cash in a savings account.

B) A car loan.

C) The estimated value of a client’s furniture.

D) Monthly utility payments.

Answer 40

The correct answer is (D).

Balance sheets include information on assets and liabilities. A monthly mortgage payment might be found on a cash-flow statement.

Question 41

Question 41

Which of the following statements about the different types of assets found on a balance sheet is correct?

A) Personal-use assets are used to maintain a client’s lifestyle.

B) Cash assets include any assets a client expects to convert to cash within the next 5 years.

C) Business assets generally are classified as personal-use assets.

D) Bonds within a retirement portfolio generally are classified as cash assets.

Answer 41

The correct answer is (A).

Personal-use assets maintain a client’s lifestyle.
Statement (B) is incorrect because cash assets only include assets expected to be liquidated within the next year.
Statements (C) and (D) are incorrect because business assets and bonds generally are classified as investment assets.

Question 42

Question 42

Jose and Maria are a young couple who met while earning their graduate degrees. They are concerned about having sufficient cash liquidity if one of them is fired from their jobs. Which of the following strategies is most appropriate for covering this risk?

A) Disability insurance

B) An emergency fund

C) A large 401(k) balance

D) Long-term care insurance

Answer 42

The correct answer is (B).

Emergency funds help cover short-term risks, such as the lost income from a job layoff

Question 43

Question 43

Ezra’s current gross pay is $90,000. Her investment portfolio is currently $765,000, and she has a savings account with $45,000 in cash. If she also has $180,000 in student loans, what is her investment-assets-to-gross-pay ratio?

A) 6.5:1

B) 7.0:1

C) 8.5:1

D) 9.0:1

Answer 43

The correct answer is (D).

The investment-assets-to-gross-pay ratio is equal to a client’s investment assets plus their cash and cash equivalents divided by their gross pay. Therefore, Ezra’s ratio is 9:1, or ($765,000 + $45,000) ÷ $90,000 = 9. Loans are not factored into this ratio.

Question 44

Question 44

Roger is 67 years old and hopes to retire next year. His current gross pay is $100,000, and he hopes to maintain that income in retirement. His investment portfolio is currently $2,000,000 and is expected to grow at 10% per year. He also has a savings account with $100,000 in cash, expected to grow at 0% per year. Based on this information, what is his investment-assets-to-gross-pay ratio?

A) 20:1

B) 21:1

C) 22:1

D) 23:1

Answer 44

The correct answer is (B).

The investment-assets-to-gross-pay ratio is equal to a client’s investment assets plus their cash and cash equivalents divided by their gross pay. Roger’s ratio is therefore 21:1, or ($2,000,000 + $100,000) ÷ $100,000 = 21.

Question 45

Question 45

All the following statements about performance ratios are correct EXCEPT:

A) The benchmark for the return-on-assets ratio is lower than for the return-on-investments ratio.

B) High debt levels tend to inflate the return-on-assets ratio.

C) The return-on-investments ratio benchmark is higher for goals with short time horizons.

D) Performance ratios help address whether clients are attaining sufficient returns.

Answer 45

The correct answer is (C).

The return-on-investments ratio benchmark is higher for goals with long time horizons

Question 46

Question 46

A financial planner calculates the proportion of a client’s net worth that is held in investment assets. This calculation is one example of a

A) Horizontal analysis.

B) Vertical analysis.

C) Performance ratio analysis.

D) Liquidity ratio analysis.

Answer 46

The correct answer is (B).

Vertical analysis compares line items on a balance sheet.

Question 47

Question 47

A financial planner analyzing a client’s data is trying to determine the probability that the client’s goals will be met. To this end, they input the client’s income, expenses, savings rate, and investment returns into financial planning software and model thousands of potential futures over the next 40 years. What is the common name of this type of statistical analysis?

A) Monte Carlo analysis

B) Sensitivity analysis

C) Futures analysis

D) Time value of money analysis

Answer 47

The correct answer is (A).

Monte Carlo analysis is an advanced statistical technique that models thousands of potential futures based on a client’s investment returns, savings rates, expenses, and so on. The output of this analysis is an estimate of the probability that a client’s financial goals will be met.

Question 48

Question 48

Which of the following analyses is most suitable to directly assess the financial impact of a series of negative investment returns in the years immediately following retirement?

A) Monte Carlo analysis

B) Sensitivity analysis

C) A retirement savings needs analysis

D) Time value of money analysis

Answer 48

The correct answer is (B).

A sensitivity analysis allows a financial planner to change key assumptions, such as the timing of negative investment returns, and assess the impact of these changes on the client’s financial plan.

Question 49

Question 49

David earns $85,000 by working as an administrative assistant in a public company based in South Hampton. The company provides a matching contribution of 50% of his contribution to the 401(k) plan, up to a maximum matching contribution of 4% of his compensation. His 401(k) account had $20,000 in it at the beginning of the year. He contributed $5,000 to the plan this year, and the employer made the matching contribution before year-end. The ending balance of the account is $28,000. What is his return on investment (ROI) this year for the 401(k) account?

A) 2.50%

B) 5.00%

C) 10.00%

D) 20.00%

Answer 49

The correct answer is (A).

ROI = [Ending Assets − (Beginning Assets + Savings)] ÷ Beginning Assets
The ROI equals the net increase in the account attributable to earnings divided by the beginning balance.
Step 1: Calculate the sum of David’s contribution and his employer’s match:
$5,000 + ($5,000 × .5) = $7,500
Step 2: Add his beginning assets to his savings:
$20,000 + $7,500 = $27,500
Step 3: Subtract that sum from his ending assets:
$28,000 − $27,500 = $500
Step 4: Divide that difference by the beginning assets:
$500 ÷ $20,000 = .025
His ROI is 2.5%.

Question 50

Question 50

Based on the information in this table, calculate Erica and Jordan’s Housing Ratio 1 in numbers.

Expenses and Account Balances
Annual 401(k) Plan Contribution $16,500
Annual Salary $100,000
Current Liabilities $18,000
Monthly Housing Costs (P&I and T&I) $3,000
Cash and Cash Equivalents $24,000
Monthly Nondiscretionary Cash Flows $6,000
Monthly Debt Payments Other than Housing $500
The employer makes dollar-for-dollar matching contributions of up to 3% of the salary to the 401(k) plan.

A) 13%

B) 36%

C) 42%

D) 50%

Answer 50

The correct answer is (B).

Housing Ratio 1 = basic housing costs ÷ gross income. Basic housing costs include PITI (principal, interest, taxes, and insurance).
$3,000 × 12 = $36,000
$36,000 ÷ $100,000 = 36%

Question 51

Question 51

Using the data in this table, what is Jen’s return on assets (ROA) for last year?

Financial Data
Total Assets at Year-End $600,000
Total Assets at Beginning of the Year $600,000
Savings Put Aside During the Year $27,000
Employer Match to 401(k) Plan $5,000

A) -5.33%

B) -4.50%

C) 0.00%

D) 100.00%

Answer 51

The correct answer is (A).

ROA = [ending value of assets − (beginning value of assets + savings)] ÷ beginning value of assets

ROA = [$600,000 − ($600,000 + $27,000 + $5,000)] ÷ $600,000 = -5.33%

Question 52

Question 52

Based on the information in this table, calculate Erin’s current ratio in numbers.

Expenses and Account Balances
Annual 401(k) Plan Contribution $16,500
Annual Salary $100,000
Current Liabilities $18,000
Monthly Housing Costs (P&I and T&I) $2,167
Cash and Cash Equivalents $24,000
Monthly Nondiscretionary Cash Flows $6,000
Monthly Debt Payments Other than Housing $500
The employer makes dollar-for-dollar matching contributions of up to 3% of salary to the 401(k) plan.

A) 0.75:1

B) 1:1

C) 1.33:1

D) 2:1

Answer 52

The correct answer is (C).

Current ratio = (cash + cash equivalents) ÷ current liabilities
$24,000 ÷ $18,000 = 1.33:1

Question 53

Question 53

Mac is saving so that he can retire in 25 years. At the beginning of each year, he plans to save $10,000 toward this goal. Each year, he plans to increase his retirement savings by 2%. When estimating his total retirement portfolio in 25 years, which time value of money technique is most appropriate?

A) Uneven cash flows

B) An ordinary annuity

C) An annuity due

D) Serial payments

Answer 53

The correct answer is (D).

Serial payments increase or decrease at a constant rate.
Statement (A) is incorrect because uneven cash flows are variable each year.
Statements (B) and (C) are incorrect because annuity payments are constant each year.

Question 54

Question 54

Shadi has just received a check for $41,250. This is a return from an investment that he made 12 years ago. He was told that the return was the equivalent of 8% per year. How much was his original investment?

A) $15,845

B) $15,870

C) $16,381

D) $16,660

Answer 54

The correct answer is (C).

Use the following figures to solve for PV:
FV = 41,250
PMT = 0
i = 8
N = 12
This will result in a PV of ‹16,380.9425›. Shadi’s original investment was $16,381

Question 55

Question 55

Gregory purchased a stock 15 years ago for $1,500. He sold the stock today for $2,500. Given this information, what is the average annual compound rate of return that he realized on this stock?

A) 3.35%

B) 3.41%

C) 3.46%

D) 4.44%

Answer 55

The correct answer is (C).

Use the following figures to solve for the average annual compound rate of return:
PV = ‹$1,500›
FV = $2,500
PMT = 0
N = 15
This will result in an average annual compound rate of return of 3.46%.

Question 56

Question 56

An investment experienced a 10% nominal return this year. What is its real rate of return if inflation was 4%?

A) 2.50%

B) 5.77%

C) 6.00%

D) 11.54%

Answer 56

The correct answer is (B).

The real rate of return is (1 + 0.10) ÷ (1 + 0.04) − 1 = 0.0577, or 5.77%.

Question 57

Question 57

Your client invested $3,000 in a certificate of deposit that pays a 3% annual interest rate, compounded quarterly. How much will the note be worth at the end of 3 years, assuming that all interest is reinvested at the 3% rate?

A) $3,270

B) $3,278

C) $3,281

D) $4,277

Answer 57

The correct answer is (C).

Use the following figures to solve for FV:
P/YR = 4
PV = ‹$3,000›
PMT = 0
i = 3
N = 3 × 4 = 12
This will result in an FV of $3,281.4207, or about $3,281

Question 58

Question 58

Your favorite clients are retiring today and want to receive $55,000 per year in today’s dollars at the beginning of each year for the next 35 years. If they earn 6% per year and inflation will be 3% each year, about how large does their investment portfolio need to be today to meet this goal?

A) $633,000

B) $845,000

C) $1,197,000

D) $1,232,000

Answer 58

The correct answer is (D).

Make sure that your calculator is in BEGIN MODE and then use the following figures to solve for PV:
FV = 0
PMT = $55,000
I/YR = [(1.06 ÷ 1.03) − 1] × 100 = 2.9126
N = 35
This will result in a PV of ‹$1,231,886.1296›, which is $1,232,000 when rounded to the nearest thousand.

Question 59

Question 59

Carl saved enough money to place $325,000 in an investment generating 8%, compounded monthly. He wants to collect a monthly income of $3,000 at the beginning of each month for as long as the money lasts. For how many months will he receive this income?

A) 81

B) 108

C) 190

D) 193

Answer 59

The correct answer is (C).

Make sure that the calculator is in BEGIN Mode and then solve for N. 
P/YR = 12 
PV = ‹325,500›   
FV = 0   
PMT = 3,000   
i = 8 

This will result in a period of 190.2105, or about 190, months.

Question 60

Question 60

Parker buys a piece of equipment for $9,000. He pays $5,000 for upgrades in year 1, and the equipment generates $2,000 in cash flow for that year. In year 2, the equipment generates $8,000. In year 3, it generates $4,000. In that same year, he sells it for $6,000 and pays a $500 commission. Parker’s required rate of return is 8%. What is the net present value (NPV)?

A) ‹$5,500›

B) $5,500

C) ‹$2,622›

D) $2,622

Answer 60

The correct answer is (D).

Use the following figures to solve for NPV: 
CF0 = ‹$9,000› 
CF1 = ‹$5,000› + $2,000 = ‹$3,000› 
CF2 = $8,000 
CF3 = $4,000 + $6,000 − $500 = $9,500 
i = 8 
This will result in an NPV of $2,622.

Question 61

Question 61

Lorena is looking to buy a condo in 5 years for $300,000 in today’s dollars. If she can earn a 6% return on her investments, what contribution should she make at the end of each month?

A) $4,278

B) $4,300

C) $5,000

D) $5,800

Answer 61

The correct answer is (B).

Use the following figures to solve for PMT: 
P/YR = 12 
PV = 0 
FV = $300,000 
i = 6
N = 5 × 12 = 60 
PMT = $4,299.8405, or about $4,300.

Question 62

Question 62

Arthur owns one share of Bubbly Drink stock. He purchased the share 3 years ago for $26. The stock is currently trading for $25 per share. The stock has paid the following dividends over the past 3 years:

Year 1: $1.00
Year 2: $2.00
Year 3: $3.00

What is the compounded rate of return (IRR) that he has earned on his investment?
A) 4.9%

B) 6.3%

C) 6.4%

D) 10.3%

Answer 62

The correct answer is (B).

Use the following figures to solve for IRR:
CF0 = ‹$26› 
CF1 =$1 
CF2 = $2 
CF3 = $25 + $3 = $28

This will result in an IRR of 6.3308%, or about 6.3%

Question 63

Question 63

Miguel has been dollar-cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 10 years. He earns an average annual compound return of 11% on this investment, compounded quarterly. How much is the fund worth today?

A) $142,536

B) $146,456

C) $157,105

D) $161,032

Answer 63

The correct answer is (B).

Make sure that the calculator is in BEGIN mode and then solve for FV:
P/YR = 4
PV = 0
PMT = ‹2,000›
i = 11
N = 10 × 4 = 40
This will result in an FV of $146,456.0380, or about $146,456.

Question 64

Question 64

Orlando recently purchased a house for $300,000. He made a down payment of $50,000 and financed the balance over 30 years at 7%. If his first payment is due on August 1st of the current year, how much interest will he pay in the current year?

A) $1,036.64

B) $2,539.52

C) $7,279.64

D) $17,419.55

Answer 64

The correct answer is (C).

P/YR = 12
PV = $300,000 − $50,000 = $250,000
FV = 0 
i = 7
N = 30 × 12 = 360 
This will result in a PMT of ‹$1,663.2562›. 
Then, use the amortization function as follows: 
Amortization – HP 10BII 
1 [INPUT] 5
[orange] [AMORT] = = 
Principal = $1,036.64
Interest = $7,279.64

Question 65

Question 65

The McCartneys plan to retire in 20 years and are interested in refinancing their home. Their current mortgage balance is $177,000. They recently discovered that they could reduce their mortgage interest rate from 10% to 4%. The value of homes in their neighborhood has been increasing at the rate of 5% annually. If the McCartneys were to refinance their house with $3,000 in closing costs added to their current mortgage balance over a period of time that coincides with their chosen retirement date, what would be their new monthly payment including principal and interest?

A) $1,069

B) $1,073

C) $1,087

D) $1,091

Answer 65

The correct answer is (D).

Use the following calculations to solve for PMTOA:
P/YR = 12
PV = $177,000 + $3,000 = $180,000
FV = 0
i = 4
N = 12 × 20 = 240
This will result in a PMTOA of ‹$1,090.76›, or about $1,091

Question 66

Question 66

All the following statements about average annual earnings by degree attainment are correct EXCEPT:

A) Average earnings for a person with a master’s degree are about twice as high as those of a person with only a high school degree.

B) The typical person with only a high school degree earns less than $40,000 per year.

C) There is a clear positive relationship between degree attainment and earnings.

D) The typical person with a college degree earns over $100,000 per year.

Answer 66

The correct answer is (D).

The typical person with a bachelor’s degree earns about $62,000.
People with master’s degrees earn about $75,000, while people with a doctorate or professional degree earn about $95,000 per year.

Question 67

Question 67

For the typical client, which of the following methods for paying for a child’s college education should take the lowest precedence?

A) Scholarships

B) Grants

C) Work study

D) Paying out of pocket

Answer 67

The correct answer is (D).

Paying for a child’s college education should be a relatively low-priority goal for the typical client. There are many options to paying for a child’s education at no cost to the parent, including scholarships, grants, work study, and student loans.

Question 68

Question 68

Which of the following statements about subsidized and unsubsidized Stafford student loans is (are) correct?

I. For both types of loans, the first payment is due 6 months after the borrower graduates.
II. From the time the funds are dispersed until the borrower graduates, only unsubsidized loans accrue interest.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 68

The correct answer is (C).

Both statements are correct.

Question 69

Question 69

All the following are advantages of Stafford loans over private student loans EXCEPT:

A) Most private student loans require someone besides the student to cosign or guarantee the loan.

B) Stafford loans generally offer lower interest rates and more favorable terms.

C) Unlike private loans, Stafford loans do not have a limit on how much a person may borrow.

D) Private student loans are not funded or subsidized by the federal government.

Answer 69

The correct answer is (C).

Borrowers may only take a limited amount of Stafford loans each year. After reaching that limit, many borrowers turn to private student loans to meet their education funding needs.

Question 70

Question 70

Loan balances may be forgiven or cancelled at the end of all the following Stafford loan repayment plans EXCEPT

A) The Income-Contingent Repayment (ICR) plan.

B) The graduated repayment plan.

C) The Revised Pay as You Earn (REPAYE) repayment plan.

D) The Income-Based Repayment (IRB) plan.

Answer 70

The correct answer is (B).

The graduated repayment plan and standard repayment plan do not offer loan forgiveness at the end of the plan

Question 71

Question 71

Your client wants to help their child with educational expenses but is not able to pay out of pocket at the moment. The client and their child are considering student loans. Which of the following risks should you discuss with the client?

A) If their child defaults on a Stafford loan, the federal government may garnish your client’s wages.

B) The child will not be eligible for a Stafford loan unless the client cosigns the loan.

C) If the client cosigns a private loan, the client will be responsible for making half of the monthly payments.

D) If the child defaults on a private loan which the client cosigned, the client may have their Social Security payments reduced.

Answer 71

The correct answer is (D).

If the child defaults on a cosigned private loan, the client may have their wages garnished and Social Security payments reduced to make payments on the loan. Statements (A) and (B) are incorrect because the client cannot cosign on a Stafford loan. Statement (C) is incorrect because the client will only be expected to help repay the loan if the child defaults.

Question 72

Question 72

A 55-year-old client wants to take a distribution from a Roth IRA to pay for higher education expenses but does not want to pay a 10% penalty or be subject to any taxes. Which of the following types of distributions meets those conditions?

A) A distribution of a prior contribution to a Roth IRA

B) A distribution of any kind from a Roth IRA

C) A distribution of any kind from a traditional IRA

D) A distribution of earnings from a Roth IRA

Answer 72

The correct answer is (A).

Distributions of a prior contribution to a Roth IRA may be taken tax-free and penalty-free even if the distribution is not used to pay for higher education expenses. While distributions of earnings used to pay for higher education expenses generally are able to be taken penalty-free, they usually are subject to taxation if taken before the client is aged 59 ½.

Question 73

Question 73

All the following are problems with using UTMAs or UGMAs to help fund a child’s education EXCEPT:

A) Account holders are only allowed to own cash; younger children may be better served by investing in riskier assets such as equities.

B) Once the child reaches the age of majority, they may use the assets in the account for other expenses besides education.

C) Both are considered student assets, which count much more than parental assets on the FAFSA and therefore limit financial aid
eligibility.

D) Income in both is subject to the kiddie tax, which in 2020 taxes account income at the parent’s marginal tax rate.

Answer 73

The correct answer is (A).

Both accounts may hold equities.

Question 74

Question 74

One of your clients is highly motivated to help their child pay for college. You are concerned, however, that this client will not be able to fund their own retirement plan. Of the four options listed below, which will have the most negative impact on your client’s retirement plan?

A) Taking an IRA distribution

B) Opening a HELOC

C) Taking a permanent life insurance policy loan

D) Taking a graduate PLUS loan

Answer 74

The correct answer is (A).

Taking an IRA distribution will directly reduce this client’s retirement investment assets. Moreover, it will prevent them from continuing to earn tax-deferred or tax-free growth on those assets. A HELOC will have a minimal effect on the retirement plan as, generally, only interest must be paid until the home is sold. A permanent life insurance policy loan may have no effect on the plan as the loan will be paid off at the death of the insured. Graduate PLUS loans are the responsibility of the student-borrower.

Question 75

Question 75

One of your clients, aged 55, has a high net worth and retired 3 years ago. To pay for his expenses, he pulls cash from his savings and therefore has an adjusted gross income (AGI) of under $10,000. Meanwhile, his 18-year-old daughter is filling out her FAFSA as his dependent. Based on this information, which of the following methods for determining her financial need is both available to her and will allow her to qualify for the most financial aid?

A) The regular method

B) The simplified method

C) The automatically assessed formula

D) The lifetime learning credit

Answer 75

The correct answer is (C).

The test for determining whether a student may use the simplified or automatically assessed formulas only considers parental income and not assets. It is possible, then, for a wealthy person with little or no income to use either of these advantageous formulas. Because the automatically assessed formula assumes a $0 expected family contribution, it is the most likely to maximize her supposed financial need.

Question 76

Question 76

Maeve and Manisha are dating and file as single filers. Maeve is earning a master’s degree, while Manisha is taking continuing education classes online. This year, Maeve incurs $10,000 of qualified education expenses, and Manisha incurs $2,000 of qualified education expenses. What is the total amount of lifetime learning credits they may claim this year between their tax returns?

A) $1,200

B) $2,000

C) $2,400

D) $2,500

Answer 76

The correct answer is (C).

As single filers, Maeve and Manisha may each claim up to $2,000 of lifetime learning credit. Maeve may claim $2,000 (20% of $10,000), while Manisha may claim $400 (20% of $2,000).

Question 77

Question 77

Pauline and Mel are a married couple with two children in college this year. They have a combined adjusted gross income of $75,000 and file jointly. They paid $3,000 in qualified educational expenses for one of their children and $2,000 for the other. What is the amount of the American Opportunity tax credit they can claim on their tax return this year?

A) $2,000

B) $2,500

C) $4,250

D) $5,000

Answer 77

The correct answer is (C).

The AOTC is a credit equal to 100% of the first $2,000 of qualified expenses plus 25% of the next $2,000 of qualified expenses per child (in the first 4 years of post-secondary education). The AOTC for the first child will be $2,250, or $2,000 + $250. For the second child, it will be $2,000. In total, the couple can take $4,250.

Question 78

Question 78

Tammy and Tara want to save for their 8-year-old daughter’s education. The cost today, due at the beginning of the year, is $12,000. They expect that cost to inflate at 5% per year and they plan to pay for 4 years of college. If they can earn an 8% return on their investments, how much must they save at the end of each year if they want to make their last savings payment at the beginning of their daughter’s first year of college (when she is 18 years old)?

A) $3,930

B) $4,042

C) $4,793

D) $5,176

Answer 78

The correct answer is (D).

Using the account balance method, make the following calculations:
They must first determine the first year’s future value.

1 P/YR
10 [N]
5 [I/YR]
12,000 [+/-][PV]
0 [PMT]
[FV]

The FV is $19,547.

Next, calculate the total savings need.

1 P/YR
BEGIN MODE
4 [N]
[(1.08 ÷ 1.05) − 1] × 100 = 2.8571 [I/YR]
19,547 [+/-] [PMT]
0 [FV]
[PV] 

The PV is $74,989.

Finally, calculate the payments.

1 P/YR
END MODE
10 [N]
8 [I/YR]
0 [PV]
74,989 [FV]
[PMT] 

The PMT is $5,176.

Question 79

Question 79

A French architect working in Germany would count toward which of the following?

I. Germany’s gross national product
II. France’s gross domestic product

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 79

The correct answer is (D).

A French architect would count neither toward Germany’s gross national product nor toward France’s gross domestic product. This person would count toward Germany’s gross domestic product and France’s gross national product.

Question 80

Question 80

By definition, an economy is in an expansion when

A) Gross domestic product increased from one year to the next.

B) The inflation rate is positive.

C) The inflation rate has increased from one year to the next.

D) The gross domestic product increased by more than the inflation rate.

Answer 80

The correct answer is (A).

An economic expansion occurs when the gross domestic product is increasing. Statements (B), (C), and (D) are incorrect because inflation is not a direct factor when determining whether an economy is in an expansion.

Question 81

Question 81

All of the following factors would prevent a person from being considered unemployed EXCEPT:

A) The person works part-time.

B) The person is retired.

C) The person is not working after being fired for gross incompetence.

D) The person is not actively looking for work.

Answer 81

The correct answer is (C).

For the purposes of the unemployment rate, unemployed people are at least 16 years old, are not working, and are looking for work. The reason someone lost their job does not affect whether that person is considered unemployed.

Question 82

Question 82

All of the following statements about the Federal Reserve’s use of open market operations in an easing policy are true EXCEPT:

A) More cash would enter the open market.

B) More Treasury securities would enter the open market.

C) Interest rates would likely decrease.

D) The money supply would increase.

Answer 82

The correct answer is (B).

Under an easing policy, the Federal Reserve purchases Treasury securities off the open market and adds them to its balance sheet. More cash would then enter the open market, increasing the money supply and subsequently reducing interest rates.

Question 83

Question 83

Which of the following statements about interest rates and monetary policy are correct?

A) The overnight rate is the rate at which banks borrow from the Federal Reserve.

B) Increases to the discount rate generally boost economic growth.

C) The discount rate is the rate at which banks may lend to each other overnight.

D) The discount rate is controlled by the Federal Reserve.

Answer 83

The correct answer is (D).

The Federal Reserve controls the discount rate, which is the rate at which banks borrow from the Federal Reserve. Statements (A) and (C) are incorrect because the overnight rate is the rate at which banks borrow from each other. Statement (B) is incorrect because increases to the discount rate generally decrease economic growth.

Question 84

Question 84

All of the following will shift the demand curve down and to the left EXCEPT

A) Higher tax rates.

B) Higher disposable income.

C) Higher savings rates.

D) Increased prices of complementary products.

Answer 84

The correct answer is (B).

Higher disposable income will shift the demand curve up and to the right. All other statements will shift the demand curve down and to the left.

Question 85

Question 85

Which of the following statements is consistent with theories about the supply curve?

A) Companies will produce more of a good if consumers will pay less for the good.

B) Increased manufacturing costs tend to shift the supply curve down and to the right.

C) More competition tends to shift the supply curve up and to the left.

D) New technologies tend to shift the supply curve down and to the right.

Answer 85

The correct answer is (D).

New technologies tend to shift the supply curve down and to the right. Then, firms are willing to produce higher quantities of a good for relatively lower prices. Statement (A) is incorrect because firms will produce more of a good if consumers will pay more for the good. Statement (B) is incorrect because increased manufacturing costs tend to shift the supply curve up and to the left. Statement (C) is incorrect because more competition tends to shift the supply curve down and to the right.

Question 86

Question 86

Vertibird, Inc., makes a special type of very expensive high-end helicopters. Demand for these helicopters would most likely be considered

A) Elastic.

B) Inelastic.

C) Stable.

D) High.

Answer 86

The correct answer is (A).

Demand for these helicopters is most likely elastic. Statement (C) is incorrect because, by definition, elastic goods do not have a stable demand. Statement (D) is incorrect because demand for this product likely is low, as few consumers will be able to afford one.

Question 87

Question 87

Alexa has the following accounts with the following balances at her local bank:

Individual checking account: $100,000
Individual savings account: $200,000
Irrevocable trust account: $500,000
Revocable testamentary trust account: $250,000
How much of the money in her accounts will be insured by the FDIC?

A) $500,000

B) $750,000

C) $800,000

D) $1,050,000

Answer 87

The correct answer is (B).

Together, Alexa’s individual accounts are insured for $250,000. Her irrevocable trust account and her revocable testamentary trust accounts are each insured for $250,000. Therefore, she is insured up to $750,000 ($250,000 + $250,000 + $250,000).

Question 88

Question 88

The U.S. Securities Exchange Commission was created with the passage of which of the following acts?

A) The Securities Act of 1933

B) The Securities Exchange Act of 1934

C) The Investment Company Act of 1940

D) The Investment Advisers Act of 1940

Answer 88

The correct answer is (B).

The SEC was created from the Securities Exchange Act of 1934.

Question 89

Question 89

Which of the following statements is (are) correct?

I. The real rate of return decreases as the inflation rate increases.
II. The real rate of return increases as the nominal rate increases.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 89

The correct answer is (C).

Both of these statements are correct

Question 90

Question 90

All of the following are considered lagging economic indicators EXCEPT

A) The average duration of unemployment.

B) Average debt-to-income ratios.

C) The average number of new building permits filed.

D) The ratio of inventories to sales.

Answer 90

The correct answer is (C).

The average number of new building permits filed is considered a leading indicator

Question 91

Question 91

Based on the information provided, which of the following people is a client of a financial planner or financial advisor?

A) A person who consented to a financial advising engagement orally but not in writing

B) A person who has received a financial planning firm’s brochure

C) A person whom a financial planner hired to perform routine office work

D) A person who receives general information from the planner’s radio show

Answer 91

The correct answer is (A).

A client is any natural person, business organization, or legal entity who receives financial services from the financial planner pursuant to an engagement. When a financial planner delivers financial advice but not financial planning, the engagement letter does not need to be provided in writing.
Statement (B) is incorrect because receiving a firm’s brochure does not make a person a client (rather, they would be considered a prospect).
Statement (C) is incorrect because this person would be considered an employee. Statement
(D) is incorrect because general information does not constitute financial planning or advice.

Question 92

Question 92

Which of the following statements is correct in regard to financial planning and financial advice?

A) Financial planning and financial advice are synonymous.

B) Only in financial planning does a financial planner implement and monitor recommendations.

C) More written documentation is expected when providing financial planning than when providing financial advice.

D) Financial planning can only occur if the client signs an engagement letter.

Answer 92

The correct answer is (C).

Statement (A) is incorrect because financial planning and financial advice are not synonyms; pieces of financial advice are delivered within a financial planning engagement.
Statement (B) is incorrect because the implementation and monitoring of recommendations are not required to be part of a financial planning engagement.
Statement (D) is incorrect because, while financial planners are expected to provide engagement letters to their clients, the CFP board may still rule that financial planning occurred even without a letter. Many factors would lead the board to make this decision.

For example, if the planner-client relationship has lasted for a long time, involves numerous topics, and required the planner to manage client assets, it is likely that the board would classify the relationship as a financial planning engagement.

Question 93

Question 93

Which of the following may be delivered orally when providing financial advice but must be in writing when providing financial planning?

A) Conflicts of interest

B) How the client pays

C) The privacy policy

D) All of the above

Answer 93

The correct answer is (B).

How the client pays may be communicated orally when providing financial advice but must be in writing when providing financial planning. Statement (A) is incorrect because conflicts of interest must be disclosed when providing financial planning, but the disclosure may be delivered orally.
Statement (C) is incorrect because the privacy policy must be in writing regardless of whether financial advice or financial planning is provided.

Question 94

Question 94

Treating others with dignity, courtesy, and respect embodies which of the following duties?

A) Competence

B) Diligence

C) Integrity

D) Professionalism

Answer 94

The correct answer is (D).

Professionalism is defined as treating others with dignity, courtesy, and respect.

Question 95

Question 95

When a financial planner partners with another financial services professional to provide a service to a client, which form(s) of compensation must be disclosed to the client?

I. Monetary compensation
II. Nonmonetary compensation

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 95

The correct answer is (C).

When working with outside professionals, both monetary and nonmonetary compensation arrangements must be disclosed to the client.

Question 96

Question 96

Which of the following statements about “Monitoring Progress and Updating” is (are) correct?

I. This step is included in the seven-step practice standards.
II. This step is required of every financial planning engagement.

A) I only

B) II only

C) Both I and II

D) Neither I nor II

Answer 96

The correct answer is (A).

“Monitoring Progress and Updating” is part of the practice standards but is not necessary in any given engagement if it is explicitly excluded from the scope of the engagement.

Question 97

Question 97

An individual engaging in a behavior that appears on the presumption list will be

A) Permanently barred from using the CFP® marks.

B) Barred from using the CFP® marks until the individual files a successful petition.

C) Privately censured by the CFP board.

D) Investigated by the CFP board to determine whether the individual should be privately censured, suspended from using the CFP®
marks, or have their right to use the CFP® marks permanently revoked.

Answer 97

The correct answer is (B).

Behaviors on the presumption list bar individuals from using the CFP® marks until they file a successful petition to the CFP board.

Question 98

Question 98

An investigation by the CFP board has determined that a financial planner must be disciplined. Which of the following forms of discipline may this planner be subject to?

A) A private censure

B) A 10-year suspension from using the CFP® marks

C) A monetary fine

D) A lifetime ban from working in financial services

Answer 98

The correct answer is (A).

The forms of discipline available to the CFP board are private censure, public letter of admonition, suspension, and revocation.

Question 99

Question 99

All the following statements about overturning a ruling that a CFP® candidate must be denied from using the marks because the candidate committed a transgression are correct EXCEPT:

A) The reconsideration process begins when the candidate submits a written petition.

B) Professional staff ensure the candidate’s transgression is on the presumption list, as opposed to the transgression being considered
unacceptable conduct.

C) The commission grants or denies the petition based on information provided by the candidate.

D) If the commission denies the petition, the candidate may appeal to the full CFP board.

Answer 99

The correct answer is (D).

Once a written petition is submitted, the commission’s decision to grant or deny the petition is final

Question 100

Question 100

Generally, financial planners may not share confidential and nonpublic client information. There are certain circumstances, however, in which a planner may share this information. All the following are examples of such circumstances EXCEPT:

A)

A member of the client’s immediate family requests the information.

B)

An employee paraplanner requires the information to conduct an analysis.

C)

The IRS has requested the information as part of an audit.

D)

A local government agency has subpoenaed the information.

Answer 100

The correct answer is (A).

A planner must not disclose any nonpublic personal information about a client except for ordinary business purposes or for legal and enforcement purposes, such as during an IRS audit.