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CFP Exam Questions with Verified Solutions, Exams of Advanced Education

American Public University System (APUS)Advanced Education

CFP Exam Questions with Verified Solutions

Typology: Exams

2024/2025

Available from 07/15/2025

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CFP Exam Questions with Verified
Solutions
Topic 1: Financial Planning Process - ANS-...
6 step process: EGADIM - ANS-1. Establish Relationship
2. Gather Information
3. Analyze data
4. Develop plan
5. Implement
6. Monitor
Step 1: Establish Relationship - ANS-• Services that will be provided
• compensation/billing
• Responsibilities of both client/planner
• Time frame of relationship
Step 2: Gather quantitative and qualitative data - ANS-• It is important that goals be
defined before any recommendations
• A goal should be specific, prioritized and quantified
• Fact finder form
Step 3: Analyze data - ANS-• Identify strengths and weaknesses
• Analysis of current position
• Should be based on realistic assumptions
Step 4: Develop Plan - ANS-• Objective
• Should be presented to client
• Mutually decide on revisions
• Prioritized list of implementation steps and timing
Step 5: Implement - ANS-• Work closely with other professional team members
• Help client with product acquisitions
Step 6: Monitor - ANS-• Fed tax changes
• Economic changes
• Modifications to plan
Topic 2: Code of Ethics & Professional Responsibility + Disciplinary Rules Procedures -
ANS-...
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Download CFP Exam Questions with Verified Solutions and more Exams Advanced Education in PDF only on Docsity!

CFP Exam Questions with Verified

Solutions

Topic 1: Financial Planning Process - ANS-... 6 step process: EGADIM - ANS-1. Establish Relationship

  1. Gather Information
  2. Analyze data
  3. Develop plan
  4. Implement
  5. Monitor Step 1: Establish Relationship - ANS-• Services that will be provided
  • compensation/billing
  • Responsibilities of both client/planner
  • Time frame of relationship Step 2: Gather quantitative and qualitative data - ANS-• It is important that goals be defined before any recommendations
  • A goal should be specific, prioritized and quantified
  • Fact finder form Step 3: Analyze data - ANS-• Identify strengths and weaknesses
  • Analysis of current position
  • Should be based on realistic assumptions Step 4: Develop Plan - ANS-• Objective
  • Should be presented to client
  • Mutually decide on revisions
  • Prioritized list of implementation steps and timing Step 5: Implement - ANS-• Work closely with other professional team members
  • Help client with product acquisitions Step 6: Monitor - ANS-• Fed tax changes
  • Economic changes
  • Modifications to plan Topic 2: Code of Ethics & Professional Responsibility + Disciplinary Rules Procedures - ANS-...

Aspirational Principles - ANS-• Integrity

  • Objectivity
  • Competence
  • Fairness
  • Confidentiality
  • Professionalism
  • Diligence Confidential Information can be disclosed only when... - ANS-• The client consents
  • Court ordered
  • CFP must defend accusations
  • Civil suit between client and CFP CFP Board of Professional Review - ANS-• Inquiry Panel - grounds for discipline
  • The Hearing Panel - Recommendation to board
  • Board of Appeal - w/in 30 days Topic 3: Financial Planning Practice Standards - ANS-... Statement of Financial Position - ANS-• Assets=liabilities+Net worth
  • Assets should be distinguished from items of income
  • Assets and net worth increase through appreciations in the value of assets
  • Paying off liabilities with cash does not increase net worth because assets decline by an equal amount
  • Buying an asset does not decrease net worth because assets increase by the value of the asset purchased
  • Assets should be shown at FMV
  • Assets are categorized as cash and cash equivalent, invested assets, and use assets
  • Footnotes are important for clarity
  • Part of FP job is to help client increase net worth
  • LIKE A SNAPSHOT IN TIME Statement of Cash Flows - ANS-• Total inflows always equal outflows
  • Outflows include spending and savings
  • Cash flow is increased by selling non-income producing assets and by buying income- producing assets
  • Free cash flow will increase when debt payments are eliminated: paying off debt
  • Outflows are usually categorized as fixed or variable Balance sheet vs. indiv. statement of fin. position - ANS-• Net worth vs. shareholder equity
  • Majority of business assets will be use assets Business statement of cash flows - ANS-• The majority of inflows typically come from sale of products or services

200-2: Obtaining quantitative Information and Documents - ANS-• Interviews, questionnaires, client records and documents

  • Mutually define clients relevant goals, needs, and priorities
  • Objectives should be precise and measurable
  • Obtain sufficient relevant, quantitative information and documents 300-1: Analyzing and Evaluating the Clients Information - ANS-• Personal assumptions need to be made regarding: retirement age, life expectancy, income needs, risk factors, time horizons and special needs
  • Economic assumptions need to be made regarding: inflation rates, tax rates, and investment returns 400-1: Identifying and Evaluating Financial Planning Alternatives - ANS-• What is possible?
  • What other actions can be taken other than one currently using
  • May involve consulting other professionals 400-2: Developing the Financial Planning Recommendations - ANS-• What is recommended?
  • What strategy will best suit meeting clients goals considering alternatives 400-3: Presenting the Financial Planning Recommendations - ANS-• How to present?
  • Should present in manner to help client make informed decision
  • Should communicate factors: assumptions, interdependence of recommendations, advantages & disadvantages, risks, time sensitivity 500-1: Agreeing on Implementation Responsibilities - ANS-• Should mutually decide how to split up responsibilities 500-2: Selecting Products and Services for Implementation - ANS-• Practitioner uses professional judgement in selecting the products and services that the of clients interest
  • Professional judgement incorporates both qualitative and quantitative information 600-1: Defining Monitoring Responsibilities - ANS-• What is to be monitored?
  • Frequency of monitoring
  • Communication method Topic 4: Financial Statements - ANS-... Personal statements - ANS-• Statement of financial position (balance sheet)
  • Cash budget (statement of cash flow) Business statements - ANS-• Balance sheet
  • Income statement
  • Statement of cash flows
  • Pro forma statements Rules for Budgets - ANS-• Be reasonable in establishing goals
  • Budget for fixed expenses first
  • Make saving a priority
  • Necessities such as food, clothing, and transportation should have high priority
  • Spread large annual expenses over income period
  • Large expenses are not easiest to cut
  • Develop prioritites
  • Don't and cant count every penny
  • Actual records of expenditures should be kept Emergency Fund Planning - ANS-• Many planners recommend an emergency fund equal to 3 to 6 months of clients take home pay or expenses
  • These funds need to be put in safe and liquid assets Liquid vs. marketability/liquid substitutes - ANS-• Liquid = can be converted into cash quickly, easily, and without significant loss of value
  • Marketability = availability of a marketplace in which to buy, sell, exchange Recommended monthly mortgage payment - ANS-28% of GI Recommended monthly payment on all debt - ANS-36% of GI Recommended Consumer debt (credit card) payment - ANS-20% of NI Recommended annual saving - ANS-5-10% of Income Topic 6: Financing Strategies - ANS-... Secured vs. Unsecured debt - ANS-• Secured = less risk to lender, so lower interest rates ex: home mortg
  • Nonsecured = ex: department store charges Lease vs. buy - ANS-• Taxes play an important role
  • Higher the marginal tax rate the greater advantage to owning Personal Residence tax exemption - ANS-• If personal residence in 2 of past 5 years then $250,000 exlusion of gain
  • If need to move due to health, employment, or other unforeseen cicumstances (eg. Divorce) then exclusion based on # months they lived in home/ Mortgage Financing - ANS-• Includes: Annual interest pymt, appraisal fees, legal fees, title insurance, loan origination fee, credit reporting fees, and points
  • A point is 1% of loan amount Conventional Mortgage - ANS-fixed rate of interest over duration of the loan

FDIC Insurance - ANS-• Insures depositor accts in banks and most types of nonbank thrift institutions up to $100,

  • Separate insurance is also provided for retirement accts up to $250,
  • Money market accounts are FDIC Insured
  • Money market mutual funds are NOT FDIC insured
  • Interests of joint owners in different accounts are added together and insured to a maximum of $100, Ownership categories that are separately insured - ANS-• Individual
  • Joint
  • Irrevocable trust
  • Testamentary trust
  • Retirement Plans National Credit Union Share Insurance Fund (NCUSIF) - ANS-Credits are insured by this agency Pension Benefit Guaranty Corporation (PBGC) - ANS-Defined-benefit pension plan benefits are insured by the federal Pension Benefit Guaranty Corporation (PBGC)