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CFP Certification Exam Practice Test 1
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CFP Certification Exam Practice Test 1
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25 Questions

1. When Valerie passed away, she owned these assets: a life insurance policy of $100,000 with a properly named beneficiary, a home valued at $450,000 held JTWROS, jewelry valued at $35,000, an IRA valued at $575,000 with named beneficiary, an Irrevocable Trust of $375,000 for the benefit of her granddaughter Reese, and a car valued at $8,000 held fee simple by Valerie. Based on this information, what is the value of Valerie's Probate Estate?
2. According to the Internal Revenue Code, Section 170(C), which entity is not considered a Qualifying Organization for purposes of charitable contributions?
3. Donald bought TRE stock 20 years ago for $50 per share. The stock had a market value of $35 per share when Donald gifted it to his daughter Nina. When the stock falls to $25, Nina decides to sell it to purchase a new car. For tax purposes, what is the loss recognized per share for Nina?
4. Cars International has a dividend payout ratio of 35% and pays a dividend of $2.25 per share. What are Cars International's earnings per share?
5. Bes is an investor with a margin account. Her brokerage firm requires 50% as the initial margin, and 40% as the maintenance margin. She purchases a stock on margin for $14,000. The stock’s value later drops to $10,000. What is Bes's initial margin amount and maintenance margin amount, respectively?
6. A married couple would like to set up 529 Plan college education accounts for their two young grandchildren. For 2020, what is the maximum amount they could have contributed in total to both 529 plans without incurring gift tax?
7. Your client Jerry, age 25, would like to purchase life insurance to protect his young family in the event of his premature death.
8. Municipal bonds may be insured by which of the following?
1. SIPC
2.FDIC
3.AMBAC
4.MBIA

9. Which of the following expenses is not a qualified distribution of 529 plan funds?
10. Currently, unemployment is at a 10-year high and continues to increase. Businesses are operating at their lowest capacity levels. The current business cycle is best described as…
11. Which is considered an advantage of a 529 Plan college savings program?
12. Pedro has a $600,000 mortgage on his California home. He additionally takes out two home equity loans, one for $50,000 to fund his son’s college education and another for $110,000 to add on to his home. What is the total principal from these loans on which he can deduct interest expenses?
13. Rogue Bank is working on a loan for your client, Dana. They inform Dana that the PITI of her home loan cannot exceed 28% of her income. Dana currently makes $67,000 per year. Taxes for the home are $3,500 per year and insurance is $1,000 per year. Dana is interested in a 30-year loan with an annual interest rate of 5.5%. Based on this information, what is the maximum loan amount Dana will qualify for?
14. Michelle has owned QWE mutual fund for over 20 years and has accumulated additional shares over these years. She is now ready to sell the fund, though her accountant suggests she gradually sell shares over a few years, for tax purposes. Which method would not help Michelle determine which shares of QWE are sold?
15. Tom owns a small golf pro shop and has started a SEP IRA for himself and his employees. He wants to make minimal contributions into his employee's SEP IRAs. If Tom uses the most restrictive requirements to determine eligible employees, which of the following employees may he consider ineligible for contributions?
16. Which statement is inaccurate regarding elasticity of demand?
17. Your clients, ages 70 and 72, are discussing their estate planning needs with you. They’ve been married only to each other and have no children. They would like to leave any remaining assets at the end of their lives to charity. Currently, their estate is worth about $500,000. What do you suggest?
18. If structured correctly, which type(s) of ownership(s) will avoid probate and allow assets to pass directly to a planned beneficiary at the death of the owner?
1. IRA
2.Individual bank account
3.JTWROS
4.Joint Tenancy
5.Revocable Trust

19. Which statement regarding a bond’s price fluctuation is not true?
20. Tina, age 35, is married. She is a homemaker and doesn’t work outside the home. Her husband, Tom, is a computer engineer who makes $100,000 annually. Their income tax filing status is Married Filing Jointly. Tina would like to know if she can contribute to her own Individual Retirement Account. Which of the following statements best describe Tina's situation?
21. Which is not a characteristic of a recession?
22. Your client Tom, age 45, is getting nervous about the market. He’s a moderate investor and estimates he will earn around 6% per year on his investments. His IRA currently has $100,000. Tom is considering lowering his risk tolerance to a more conservative model, which he estimates will earn him only 4% annually. If Tom decides to lower his risk tolerance from now until he retires at age 65, how much less money is he expected to have than if he kept a moderate risk tolerance?
23. Brad is purchasing his first home for $200,000 and plans to make a 15% down payment. The lender qualifies for a 30-year fixed rate loan on the remaining amount at 4.99% APR. Brad wants to escrow the amount needed for property tax and insurance, which he believes will be around $5,000 annually. What amount of Brad' monthly payments will be made to principal and interest of the loan?
24. Paul and Jane, ages 30 and 34, are a young couple on a budget. They have two dependent children and have very little saved for retirement. Paul makes $65,000 per year and is the sole breadwinner of the family. He has group life insurance coverage of $250,000 but no disability insurance coverage or long-term care insurance. Jane has a whole life policy which provides benefits of $10,000, but also has no disability insurance coverage or long-term care. Paul and Jane are concerned about their future long-term care needs. Due to their cash flow, they’re only able to purchase one of the following insurance policies. As their planner, which do you recommend they purchase based on their current coverage and anticipated needs?
25. All of the following are true regarding an S Corporation except…

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