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Certified Financial Planner MCQ 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 MCQ flashcards as text

  1. Which college savings vehicle offers the greatest tax advantage and flexibility, including state income tax deductions in many states?

    Answer: 529 College Savings Plan

    529 plans offer tax-free growth and withdrawals for qualified education expenses, higher contribution limits than ESAs, and many states offer income tax deductions for contributions.

  2. A client in the 32% tax bracket converts $50,000 from a traditional IRA to a Roth IRA. What is the immediate tax cost of this conversion?

    Answer: $16,000 (32% of $50,000)

    A Roth IRA conversion is treated as ordinary income; $50,000 converted at the 32% marginal rate results in $16,000 of additional federal income tax.

  3. What does the 'safe harbor' rule under Section 4% withdrawal rate assume about a retirement portfolio?

    Answer: A portfolio of 50–75% stocks can sustain 4% annual withdrawals for 30 years

    The 4% rule, based on the Trinity Study, suggests that a diversified portfolio of 50–75% equities can sustain inflation-adjusted annual withdrawals of 4% for a 30-year retirement period.

  4. Which disability income insurance provision ensures the policy cannot be cancelled and premiums cannot be raised as long as premiums are paid on time?

    Answer: Non-cancelable and guaranteed renewable provision

    A non-cancelable and guaranteed renewable provision locks in both the insurer's obligation to continue coverage and the premium rate, providing maximum protection for the insured.

  5. A client has $500,000 in a taxable account with a $200,000 cost basis. If they donate the appreciated securities directly to a charity, what is the tax benefit?

    Answer: Deduction of $500,000 FMV with no capital gains tax due

    Donating appreciated securities directly to a qualified charity allows a deduction of the full fair market value ($500,000) while avoiding capital gains tax on the $300,000 appreciation.

  6. Which document grants a designated individual legal authority to make financial decisions for a client if the client becomes incapacitated?

    Answer: Durable power of attorney for finances

    A durable power of attorney for finances remains effective even if the principal becomes incapacitated, granting the agent authority to manage financial matters.

  7. An investor's portfolio earned 12% last year. The benchmark returned 10%, the risk-free rate was 3%, and the portfolio's beta is 1.2. What is the portfolio's Jensen's Alpha?

    Answer: −0.4%

    Jensen's Alpha = Actual Return − [Rf + Beta × (Rm − Rf)] = 12% − [3% + 1.2 × (10% − 3%)] = 12% − 11.4% = −0.4%, indicating underperformance on a risk-adjusted basis.