CFP practice questions

1. 01

   Time value of money

   Question 1. If a client invests $10,000 at the beginning of each year for two years earning a 10% annual return, what is the accumulated future value?

   Answer to question 1

   AA. $20,000BB. $21,000CC. $23,100DD. $24,200

   Check answerExplanation after you answer
2. 02

   Personal financial statements

   Question 2. Sarah owns a $500,000 whole life insurance policy with a $45,000 cash surrender value and a $1,000,000 term life insurance policy. To accurately evaluate her net worth on her personal Statement of Financial Position, which recommendation should her financial planner make?

   Answer to question 2

   AA. List the $500,000 whole life face amount and the $1,000,000 term death benefit as assets on the balance sheet.BB. List the $45,000 cash surrender value as an asset and omit the death benefits of both policies from the balance sheet.CC. List the $45,000 cash surrender value and the $1,000,000 term life death benefit as assets on the balance sheet.DD. List the cumulative total of premiums paid across both life insurance policies as assets on the balance sheet.

   Check answerExplanation after you answer
3. 03

   Risk capacity and tolerance

   Question 3. When designing an asset allocation for Brandon, who exhibits high psychological risk tolerance but requires his portfolio assets for a home down payment next year, which action is appropriate?

   Answer to question 3

   AA. Invest primarily in high-growth equities because Brandon is currently in the highest marginal income tax bracket.BB. Allocate heavily to aggressive equities because broader domestic stock indexes achieved strong positive returns over the trailing year.CC. Purchase long-term corporate debt instruments because Brandon possesses extensive personal knowledge and familiarity with corporate bond markets.DD. Allocate the assets primarily to short-term, liquid capital preservation instruments to match his constrained financial capacity.

   Check answerExplanation after you answer
4. 04

   Portfolio benchmarks

   Question 4. Which benchmark return evaluates Chloe's taxable account (80% equities, 20% bonds) instead of her IRA (40% equities, 60% bonds), given index returns of 10% for equities and 5% for bonds?

   Answer to question 4

   AA. 9.0%, reflecting the strategic asset allocation of her taxable brokerage accountBB. 7.0%, reflecting the strategic asset allocation of her tax-deferred retirement accountCC. 8.0%, reflecting the combined blended asset allocation across both account typesDD. 6.0%, reflecting the inverted asset allocation of her tax-deferred retirement account

   Check answerExplanation after you answer
5. 05

   Insurance deductibles

   Question 5. Elena wants to reduce her annual homeowners insurance premium by increasing her property deductible from $500 to $2,500. What prerequisite should Elena establish before making this change?

   Answer to question 5

   AA. Lower her personal liability policy limits to correspond with the higher property deductible.BB. Maintain sufficient liquid emergency reserves to absorb the higher out-of-pocket loss if a claim occurs.CC. Maintain additional long-term investment assets earmarked for routine home maintenance expenses.DD. Purchase an excess liability policy to reimburse the deductible amount if a property loss occurs.

   Check answerExplanation after you answer

Questions from the MiloPrep question bank. Independently authored practice, not official exam items. This short set is for learning and does not predict an exam score.