Practice Test GeeksCFP - Certified Financial Planner Practice Test
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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

  1. A client receives stock options from her employer. NSOs (Non-Qualified Stock Options) differ from ISOs (Incentive Stock Options) in that NSOs:

    Answer: Create ordinary income at exercise equal to the spread between exercise price and FMV

    When NSOs are exercised, the spread (FMV minus exercise price) is taxed as ordinary income and subject to payroll taxes, unlike ISOs which may qualify for capital gains treatment.

  2. Which portfolio rebalancing approach triggers a trade only when an asset class drifts beyond a predetermined percentage from its target allocation?

    Answer: Percentage-of-portfolio (threshold) rebalancing

    Threshold rebalancing triggers trades when an asset class deviates by a set percentage (e.g., ±5%) from its target, balancing transaction costs against allocation drift.

  3. A couple files jointly and has $350,000 of realized capital gains from selling their primary home. They lived there for 4 of the last 5 years. How much is excluded from income?

    Answer: $500,000

    Married couples filing jointly may exclude up to $500,000 of gain on the sale of a primary residence if ownership and use tests are met (2 of last 5 years).

  4. Under ERISA, which fiduciary standard applies to plan sponsors managing a 401(k) plan?

    Answer: Prudent expert standard — act as a prudent person familiar with such matters would

    ERISA's prudent expert standard requires plan fiduciaries to act with the care and skill of a prudent person knowledgeable in retirement plan management.

  5. A client is in the 32% marginal tax bracket. A municipal bond yields 4.2%. What is the taxable equivalent yield?

    Answer: 6.18%

    Taxable equivalent yield = tax-exempt yield ÷ (1 − tax rate) = 4.2% ÷ (1 − 0.32) = 4.2% ÷ 0.68 = 6.18%.

  6. Which business continuation agreement requires each business owner to purchase life insurance on the other owners to fund a buyout at death?

    Answer: Cross-purchase buy-sell agreement

    In a cross-purchase agreement, each co-owner personally buys life insurance on the other owners, using the death proceeds to purchase the deceased's business interest.

  7. A CFP professional discovers their client's ex-spouse has been fraudulently transferring marital assets before a divorce settlement. What is the CFP's primary obligation?

    Answer: Advise the client of the situation and recommend they seek legal counsel

    The CFP should inform the client and recommend legal counsel, since the CFP's duty runs to the client and asset fraud in a divorce is a legal matter requiring an attorney.