FREE Ultimate Certified Financial Planner Questions and Answers

Question 1

Which of the following combinations of investments would present the lowest risk to a female retiree 72 years old while still providing her with a respectable inflation hedge for her 15 year life expectancy, according to Modern Portfolio Theory?

Accepted Answer

40% Stock, 50% Bonds, 10% Cash

Answer

For a 72-year-old retiree with a 15-year life expectancy, the portfolio needs to balance capital preservation and income with some growth to combat inflation. A 40% stock allocation provides a reasonable hedge against inflation and potential growth, while 50% in bonds offers income and stability. The 10% cash provides liquidity, creating a diversified portfolio that aligns with Modern Portfolio Theory for a moderate-conservative risk profile.

Question 2

Megs wants to sell her Xf Automotive (an electric car firm) stock to lock in a profit, but she fears that due to company-specific risk, it may soon suffer a significant decline. If she thinks electric cars will be around in the future, she should:

Accepted Answer

Establish a bullish call spread position on Xf Automotive.

Answer

A bullish call spread involves buying a call option at a lower strike price and simultaneously selling a call option at a higher strike price. This strategy allows Megs to profit if Xf Automotive's stock price rises, but it also limits her potential losses if the stock declines significantly. It's an effective way to hedge against company-specific risk while still expressing a bullish view on the stock, albeit with capped upside.

Question 3

At the time of his mother's passing in 2025, Kenneth will receive her whole estate, which is an investment portfolio of individual stocks, valued at $1,250,000. No previous gifts had been given. For $50,000, she had spent the 1980s to acquire these stocks. How much tax does Kenneth owe if he sells the securities for $1,300,000 nine months after receiving them, presuming there are no state capital gains taxes or inheritance taxes? Let's say that Kenneth is single, has an annual salary of $300,000, and no dividends were given.

Accepted Answer

$7,500 in Capital Gains tax

Answer

Inherited assets receive a 'stepped-up basis' to their fair market value on the date of the decedent's death. Kenneth's basis in the stocks is $1,250,000. When he sells them for $1,300,000, his capital gain is $50,000 ($1,300,000 - $1,250,000). Inherited property is always considered long-term capital gain, regardless of the beneficiary's holding period. With an annual salary of $300,000, Kenneth's long-term capital gains are taxed at 15%, resulting in a tax of $7,500 ($50,000 * 0.15).

Question 4

Thor, 25, works as an engineer for a Fortune 500 company and makes $92,000 each year. He has been there for three years. Loki contributes 9% of his salary, with the first 4% matched dollar for dollar. Which of the following, assuming all net returns after expenses and fees are equal at 8% per year over the accumulation time period and that he can contribute $4,000 per year into any of the alternatives, will produce the highest after-tax income at age 65?

Accepted Answer

Contributing the $4,000 to a Roth IRA

Answer

A Roth IRA is funded with after-tax dollars, meaning all qualified distributions in retirement are completely tax-free. In contrast, Traditional IRAs and 401(k)s offer tax deferral, but distributions are taxed as ordinary income in retirement. Given the goal of the highest *after-tax* income at age 65, the Roth IRA provides the most tax-efficient outcome by eliminating future taxes on all growth and withdrawals.

Question 5

Rosie is an architect who works as a 1099 employee on a contract basis for numerous companies in New York City. She is a single woman who makes a net income of $130,000 and is worried about saving money for retirement. Which approach will enable her to save the most cash before taxes?

Accepted Answer

Establish a SEP IRA and max it out.

Answer

As a 1099 employee, Rosie is considered self-employed, making a SEP IRA an excellent choice for maximizing pre-tax retirement savings. A SEP IRA allows for significantly higher contributions than an Individual IRA or Roth IRA, typically up to 25% of her net self-employment earnings (with an annual maximum, e.g., $69,000 for 2024). This enables her to defer a substantial portion of her income from taxes while saving for retirement.

CFP - Certified Financial Planner Practice Test

CFP - Certified Financial Planner Practice Test

FREE Ultimate Certified Financial Planner Questions and Answers