CFP Certified Financial Planner 5

Question 1

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

Accepted Answer

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

Answer

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.

Question 2

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

Accepted Answer

Percentage-of-portfolio (threshold) rebalancing

Answer

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.

Question 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?

Accepted Answer

$500,000

Answer

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).

Question 4

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

Accepted Answer

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

Answer

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

Question 5

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

Accepted Answer

6.18%

Answer

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

CFP - Certified Financial Planner Practice Test

CFP - Certified Financial Planner Practice Test

CFP Certified Financial Planner 5