CFP Certified Financial Planner 4

Question 1

Which behavioral finance bias causes investors to hold losing investments too long because they feel losses more acutely than equivalent gains?

Accepted Answer

Loss aversion

Answer

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.

Question 2

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?

Accepted Answer

$21,898

Answer

$600,000 ÷ 27.4 (Uniform Lifetime Table factor for age 72) = $21,898 RMD for the current year.

Question 3

Which long-term care insurance inflation protection option provides the strongest benefit growth over time for a younger buyer?

Accepted Answer

5% compound inflation rider

Answer

A 5% compound inflation rider grows benefits exponentially, doubling approximately every 14 years, outpacing simple inflation or CPI-linked riders over long periods.

Question 4

In the financial planning process, which step immediately follows identifying and selecting goals?

Accepted Answer

Analyzing the client's current course of action and potential alternatives

Answer

After identifying goals, the CFP process requires analyzing the client's current financial situation and evaluating alternative strategies before making recommendations.

Question 5

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?

Accepted Answer

Grantor Retained Annuity Trust (GRAT)

Answer

A GRAT allows the grantor to receive annuity payments while transferring appreciation above the hurdle rate to beneficiaries with minimal or no gift tax.

CFP - Certified Financial Planner Practice Test

CFP - Certified Financial Planner Practice Test

CFP Certified Financial Planner 4