Test

Mary is a CFP^® professional and is in the identifying and selecting goals step of the financial planning process. Mary has been asked to develop a capital needs analysis for her client and has established assumptions for tax rates, investment returns and inflation rates. Her client disagrees with Mary’s assumptions regarding inflation and other economic variables used in the retirement needs analysis calculation. What should Mary do next?

• If Mary and her client are unable to agree on the assumptions used for the retirement capital needs analysis, Mary should limit the scope of the engagement and exclude retirement capital needs analysis from her recommendations.

• Mary should follow the client's instructions, even if the client's assumptions are unreasonable.

• The CFP Board’s Code and Standards require Mary to disengage from the client.

• Mary should provide her client with multiple projections, consistent with all varying assumptions.

Pat and Marie have the following expenses and account balances:

Pat’s annual 401(k) plan contribution: $16,500

Pat’s annual salary: $100,000

Current liabilities: $24,000

Housing costs (P&I&T&I) monthly: $2,167

Cash & Cash equivalents: $18,000

Monthly nondiscretionary cash flows: $6,000

Monthly debt payments other than housing: $500

Pat’s employer matches $1 for $1 up to 3% of Pat’s salary in his 401(k) plan.

Based on the information above, calculate Pat and Marie’s emergency fund ratio in months.

• 0.25 months.

• 1 month.

• 2 months

• 3 months

Pat and Marie have the following expenses and account balances:

Pat’s annual 401(k) plan contribution: $16,500

Pat’s annual salary: $100,000

Current liabilities: $24,000

Housing costs (P&I&T&I) monthly: $2,167

Cash & Cash equivalents: $18,000

Monthly nondiscretionary cash flows: $6,000

Monthly debt payments other than housing: $500

Pat’s employer matches $1 for $1 up to 3% of Pat’s salary in his 401(k) plan.

Based on the information above, calculate Pat and Marie’s current ratio in numbers.

• 0.75 : 1

• 1 : 1

• 1 : 1.3

• 2 : 1

Tricia, a new client for Stephan, a CFP^® professional, has asked for Stephan’s help with her financial planning. Specifically, she wants a complete analysis of her retirement situation including retirement projections and wants Stephan to evaluate how much and what type of investments she should purchase. Which of the following is correct according to the Code and Standards?

• Stephan is not providing financial advice and should ensure that any products recommended are suitable for the client.

• Stephan is engaged in financial planning only if he performs all seven steps covered in the Practice Standards.

• Stephan is not engaged in financial planning but should put the client’s interest first.

• Stephan is engaged in financial planning and should act in the best interest of the client.

A family of four with total income of $45,000 and two students in college will likely qualify for which of the following?

1. Pell grant.

1. Subsidized Stafford loan.

2. PLUS loan.

• 2 only

• 3 only

• 1 and 2

• 1, 2, and 3

What is the geometric rate of return for a stock that has experienced the following prices?

• Year 1 = $25

• Year 2 = $32

• Year 3 = $35

• Year 4 = $37

• 10.29%

• 12.78%

• 13.25%

• 13.96%

Your client, who is wealthy and in the top marginal income tax bracket, is interested in purchasing a franchise with some of his friends. After carefully reviewing the proposal, you have determined that apart from a large up-front investment, the business will not need to retain income and income generated in future years will be paid out to the investors. Further, your client wants to be assured that after investing so large an amount, the business would not be disrupted if one of his partners lost interest, encountered personal financial reversals or died.

What legal form of business meets the requirements of your client given these circumstances?

• A limited partnership.

• A general partnership.

• A C corporation.

• An LLC

Holly would like to plan for her daughter’s college education. She would like for her daughter, who was born today, to attend college for 4 years, beginning at age 18. Tuition is currently $10,000 per year and tuition inflation is 7%. Holly can earn an after-tax rate of return of 10%. How much must Holly save at the end of each year, if she wants to make the last payment at the beginning of her daughter's first year of college?

• $2,845.81.

• $3,345.31.

• $4,009.87.

• $4,900.78.

Which of the following convictions, if any, will always bar a candidate from becoming a CFP^® professional?

1. Conviction for tax fraud.

1. Conviction for passing a bad check.

• 1 only

• 2 only

• Both 1 and 2

• Neither 1 nor 2

Your client, Alex, has only two assets in his portfolio: assets A and B. Asset A had a standard deviation of 40%, and Asset B has a standard deviation of 20%. 50% of his portfolio is invested in Asset A, and 50% is invested in Asset B. The correlation for assets A and B is 0.90. What is the standard deviation of Alex’s portfolio?

• > 30%.

• < 30%.

• = 30%.

• Not enough information given to determine the result.