Certified Financial Planner Flashcards
7 cards from real CFP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Certified Financial Planner flashcards as text
Which behavioral finance bias causes investors to hold losing investments too long because they feel losses more acutely than equivalent gains?
Answer: Loss aversion
Loss aversion, identified by Kahneman and Tversky, describes the tendency to feel losses approximately twice as powerfully as equivalent gains, leading to holding losers too long.
A client age 72 has a traditional IRA worth $600,000 on December 31 of the prior year. Her life expectancy factor is 27.4. What is her required minimum distribution?
Answer: $21,898
$600,000 ÷ 27.4 (Uniform Lifetime Table factor for age 72) = $21,898 RMD for the current year.
Which long-term care insurance inflation protection option provides the strongest benefit growth over time for a younger buyer?
Answer: 5% compound inflation rider
A 5% compound inflation rider grows benefits exponentially, doubling approximately every 14 years, outpacing simple inflation or CPI-linked riders over long periods.
In the financial planning process, which step immediately follows identifying and selecting goals?
Answer: Analyzing the client's current course of action and potential alternatives
After identifying goals, the CFP process requires analyzing the client's current financial situation and evaluating alternative strategies before making recommendations.
A business owner wants to transfer a family business to children while minimizing gift tax. Which technique freezes the senior generation's interest and shifts future appreciation to heirs?
Answer: Grantor Retained Annuity Trust (GRAT)
A GRAT allows the grantor to receive annuity payments while transferring appreciation above the hurdle rate to beneficiaries with minimal or no gift tax.
Which Medicare supplement (Medigap) plan offers the most comprehensive coverage, including all cost-sharing, for those eligible before January 1, 2020?
Answer: Plan F
Medigap Plan F covers all Medicare cost-sharing including the Part B deductible, making it the most comprehensive plan, though it is no longer available to new Medicare enrollees after 2020.
What is the primary purpose of a Monte Carlo simulation in retirement planning?
Answer: To model the probability of a retirement plan succeeding across thousands of random market scenarios
Monte Carlo simulation runs thousands of randomized market return scenarios to estimate the probability that a retirement plan will not run out of money.