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1. Liberty University BUSI 352 Final exam complete solutions correct answers key
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Question 1 Based on the CAPM, what return should Jordan expect from a security that last year
returned 9% with a standard deviation of 12%, a beta of 1.2, when the overall market return has
been 10.2%, and the risk free rate of return is 3%?
Question 2 The supply of coffee has been drastically reduced due to drought resulting in
substantially higher prices. Which of the following statements is/are correct? 1: The demand curve
for coffee will shift to the right. 2: The demand curve for creamer will shift to the left. 3: The
demand for orange juice will increase.
Question 3 Reed just found out that his dad, Red, has terminal cancer. Terminal illness can be
devastating for a family. The financial planner working with Red will likely have to deal with which
of the following? 1: Estate documents 2: Beneficiary designation forms 3: Emotional issues
Question 4 An investment policy statement is created to: 1: Outline the general rules for the
advisor. 2: Lists the client’s objectives and constraints. 3: Assists with future investment advisors
understanding the past investment positions. 4: Risk is part of the list of objectives.
Question 5 Joe would like to know which portfolios performed the best, on a risk adjusted basis.
Given the portfolios below and assuming a risk free rate of return of 3%, which portfolio returned
the most per unit of risk, (from highest to lowest), using the Sharpe ratio? Stock A: 8% Actual
Return; 5% Standard Deviation Stock B: 12% Actual Return; 8% Standard Deviation Stock C: 10%
Actual Return; 6% Standard Deviation Stock D: 6% Actual Return; 4.25% Standard Deviation
Question 6 Which of the following is a good benchmark for savings for retirement as a percent of
gross income for someone who is between age 25 and 30?
Question 7 Lori, a selfemployed pediatrician, currently earns $200,000 annually. Lori has been able
to save 15% of her annual Schedule C net income. Assume that Lori paid $19,000 in social
security taxes, and that she plans to pay off her mortgage at retirement, thereby relieving her of
her only debt. Lori presently pays $4,333.33 per month toward the mortgage. Based on the
information provided herein, what do you expect Lori’s wage replacement ratio to be at

2. retirement?
Question 8 All of the following are advantages to investing in open end investment companies
except:
Question 9 Elin wants to retire in 20 years when she turns 60. Elin wants to have enough money
to replace 120% of her current income less what she expects to receive from Social Security. She
expects to receive $20,000 per year from Social Security in today’s dollars. Elin is conservative and
wants to assume a 6% annual investment rate of return and assumes that inflation will be 3% per
year. Based on her family history, Elin expects that she will live to be 95 years old. If Elin currently
earns $100,000 per year and expects her raises to equal the inflation rate, approximately how
much does she need at retirement to fulfill her retirement goals?
Question 10 Sonny is a lawyer, who practices as a sole practitioner and files a Schedule C. He has
been successful in commercial litigation and had gross income of $350,000. His expenses include
salaries of $125,000, rent of $50,000, utilities and other expenses of $75,000, and selfemployment
taxes of $20,000 (assumed). What is the most that Sonny could contribute to a SEP for the current
year?
Question 11 Saben is 40 and wants to retire in 20 years. His family has a history of living well into
their 90s. Therefore, he would like to plan on living until age 100, just in case. He currently needs
$100,000 and expects that he will need about 80% of that if he were retired. He can earn 9
percent in his portfolio and expects inflation to be 3 percent annually. Some years ago, he
purchased an annuity that is expected to pay him $30,000 per year beginning at age 60. It
includes an inflation rate cost of living adjustment. In addition, he received $500,000 from his
uncle BJ when he died. Saben has spent $200,000 on his home, but is investing $300,000 for his
retirement. His Social Security benefit in today’s dollars is $20,000. Which of the following
statements is true?
Question 12 The P/E ratio of the S&P 500 should be 20 based on historical analysis and your
projection of the future. If the earnings of the S&P 500 are currently $50 then the S&P 500 should
be at:
Question 13 A client comes to you with a portfolio of securities that he has put together. Based
on your analysis the beta of the portfolio is +1. What does this mean?
Question 14 The following set of newly issued debt instruments was purchased for a portfolio.
Treasury bond Zerocoupon bond Corporate bond Municipal bond The respective maturities of

3. these investments are approximately equivalent. Which one of the investments in the portfolio
would be subject to the greatest relative amount of price volatility if interest rates were to change
quickly?
Question 15 Which of the following best describes the investment characteristics of a highquality
longterm municipal bond?
Question 16 Olessa, single and age 60, sold her home for $540,000 after living there for 20 years.
Her selling expenses were $10,000 and her adjusted basis in that home was $220,000. What is the
maximum gain that Olessa must report in connection with the sale of her principal residence?
Question 17 Mr. and Mrs. Meyer own 800 acres of farmland titles as “joint tenants with rights of
survivorship, not as tenants in common.” Currently the land is appraised at $5,000 per acre. In
addition, Mr. Meyer holds a $200,000 CD in his name only, and Mrs. Meyer holds a $200,000 CD
in her name only. Mr. and Mrs. Meyer have no debts. Mrs. Meyer’s last will and testament
provides that “all of my assets at my death shall be divided in three equal portions among my
two children and my husband.” Mrs. Meyer dies unexpectedly, leaving her husband and two
children as her sole heirs. Which of the following statements is true?
Question 18 Which of the following is not a method used to measure investment returns?
Question 19 Which of the following is not an example of a special needs situation?
Question 20 Which, if any, of the following is not a principle from the Board of Standards Code of
Ethics and Professional Responsibility? 1: Integrity 2: Diligence 3: Professionalism 4: Candidness
Question 21 XYZ has a current market price of $30 per share with earnings last year of $2.50 per
share, a beta of 1.1 and a dividend of $1.25. Using the price/earnings multiplier, what price do you
expect the stock to trade at if earnings per share next year are $3?
Question 22 Cindy and Sandy are a same sex couple who got married in Vermont. Their marriage
entitles them to the same benefits under federal law as a heterosexual couple.
Question 23 Some studies have suggested that up to 70% of lotter y winners lose their winnings
within as short of a period as seven years. Which of the following statements are correct
regarding advice for a lottery winner? 1: Principal protection is the most important issue. 2: It is
extremely important to invest lottery winnings quickly to take advantage of opportunities to grow
the principal.

4. Question 24 All of the following federal income tax penalties are correct except:
Question 25 Billy is a frugal old coot who refuses to spend any money creating an estate plan
even though he has substantial assets. He has heard that he can just write his own will and sign it
and it will be effective. What is he referring to?
Question 26 A spendthrift clause in a trust does which of the following?
Question 27 Winning the lottery is hard, but managing and preserving the assets after winning is
relatively easy and history shows that most lottery winners make a successful transition to being
wealthy that lasts for a long time.
Question 28 Which of the following debts are dischargeable in bankruptcy?
Question 29 Which of the following statements concerning supply and/or demand is/are true?
Question 30 Which of the following statements concerning a CFP designee’s disclosure of
confidential client data is generally correct? 1: Disclosure may be made to any state agency
without subpoena. 2: Disclosure may be made to any party on consent of the client. 3: Disclosure
may be made to comply with an IRS audit request.
Question 31 Which of the following statements is correct regarding Social Security?
Question 32 Ashley began saving $5,000 per year from age 25 to age 35 (ten years) and then
invested the funds for another 30 years. Teeto began saving at age 35 and saved $5,000 each year
until he retired at age 65 (30 years). Which of the following statements is correct assuming they
invested their funds at 8 percent?
Question 33 During the years from 2000 to 2009, the average percentage of young adults who
were married was between 65% and 80% and has been slightly increasing over time.
Question 34 Which of the following statements is/are correct? 1: Some tax credits are refundable.
Some tax credits are nonrefundable.
Question 35 Which, if any, of the following statements is (are) correct? 1: In order to form a
partnership, there must be two individuals. 2: In order to form an LLC, there must be two
individuals.
Question 36 Randy has ten shares of stock that he bought on March 1, 2012, for $5 each. On
March 1, 2013, he sells all of the shares for $200. What is the income tax consequence of the sale?

5. Question 37 Which, if any, of the following statements is (are) correct? 1: C corporations offer
limited liability. 2: Sole proprietorships offer limited liability.
Question 38 Dennis and Rhonda are married with two boys, Blake and Chase. They have the
following accounts with the following balances at their local bank. Dennis (single account)
$300,000 Rhonda (single account) $100,000 Dennis & Rhonda ( joint account) $400,000 Rhonda &
Blake ( joint account) $100,000 How much of all of their accounts will be insured by the FDIC?
Question 39 Sydney has a portfolio with 50 shares of AAA with a current value of $20 per share, a
return of 12%, and a beta of 1.30. She also has 25 shares of BBB with a return of 10%, a 0.80 beta,
and currently priced at $60 per share. Finally she owns 75 shares of CCC priced at $50 per share,
with a 1.1 beta and a 14% return. What is the weighted average portfolio return of Sydney’s
portfolio?
Question 40 Betty wants to know what the probability is that her investment in HighFlier, Inc. will
generate a return less than zero. The investment has a mean return of 6% and a standard
deviation of 3%. Based on a normal distribution curve you correctly inform her that:
Question 41 The four stages of a business cycle would not include:
Question 42 The recent bird flu caused the chicken mortality rate to increase significantly. As a
result, what can you expect?
Question 43 Walter has come to you asking about investments that will produce steady income,
provide relative safety of principal, and give him a tax advantage. What will you recommend that
he consider adding to his portfolio?
Question 44 Each of the following is a characteristic of a sole proprietorship EXCEPT:
Question 45 Which of the following is not a primary responsibility of the Federal Reserve (Fed)?
Question 46 Families with special needs children have more complicated lives than traditional
families. Which of the following is correct?
Question 47 James, age 30, is planning to retire at age 65. Based on the results of James’ risk
tolerance questionnaire, he is an aggressive investor, with a primary objective of growth in his
retirement assets. Generally, which of the following asset allocation strategies is most appropriate
for James’ retirement investments?
Question 48 All of the following are excluded from the gross income of the recipient except:

6. Question 49 The statement, “Harry is a very pleasant young man who is interested in politics and
is generally skilled with woodworking equipment” might be found in what document?
Question 50 Which of the following is/are not a principle of the Board of Standards Code of Ethics
and Professional Responsibility? 1: Integrity 2: Disclosure 3: Objectivity 4: Competence
Question 51 Which of the following statements is/are correct? 1: A general power of appointment
may cause inclusion of the assets under the power in the gross estate of the power holder
without having had the power holder exercise the power. 2: A medical durable power of attorney
permits the power holder to direct the withholding of artificial life sustaining methods are
procedures.
Question 52 Bob wants to accumulate wealth, but he has told you that he is riskaverse. Which of
the following is the most crucial action he should take first to achieve his goal of accumulating
wealth?
Question 53 Unsystematic risk can be reduced by buying:
Question 54 The type of risk that CANNOT be eliminated through diversification is:
Question 55 When analyzing and advising clients about funding their retirements, qualitative
factors are of much less significance than quantitative or financial factors.
Question 56 Jason purchased a mutual fund at NAV of $40 and it was redeemed 8 month s later
at $42. During the time he owned the fund, he received a capital gains distribution of $2/share.
What is his holding period return?
Question 57 Your client, Alex, has only two assets in his portfolio: assets A and B. Asset A had a
standard deviation of 40%, and Asset B has a standard deviation of 20%. 50% of his portfolio is
invested in Asset A, and 50% is invested in Asset B. The correlation for assets A and B is 0.90.
What is the standard deviation of Alex’s portfolio?
Question 58 A new client owns a U.S. Treasury bond that matures in 26 years. She purchased the
bond because she was told that Treasury bonds are risk free. Which of the following statements
about Treasury security risks should you communicate to your client? 1: Treasury securities do not
have interest rate risk because their coupons are fixed at the time of issue. 2: Treasury securities
with long maturities have purchasing power risk because their coupon returns are fixed, even if
interest rates rise substantially over the holding period. 3: Treasury securities do not have default
risk because the federal government has the powers to tax and create money.

7. Question 59 Which of the following persons, if any, is (are) not a party to a trust? 1: Trustee 2:
Beneficiary
Question 60 Which, if any, of the following statements is (are) correct? 1: Deflation is a decrease in
the overall price levels of goods and services. 2: Disinflation is a slowdown in the rate of inflation.
Question 61 Which of the following is/are forms of discipline? 1: Private Censure 2: Revocation 3:
Suspension 4: Public Letter of Admonition
Question 62 You are a CFP designee who has been approached by the general partner of Silky
Industries (SI) to provide financial planning services to the top executives at SI. Your sister has a
fifteen percent limited partnership interest in SI. Can you accept this engagement?
Question 63 Which of the following debts are discharged in bankruptcy?
Question 64 Which of the following is the most common range for wage replacement ratios?
Question 65 Which of the following types of investment risk cannot be eliminated through
diversification? Selected Answer: Systematic risk Question 66 Considering employment and
production, which two of the following industries are typically more affected by recession? 1:
Capital goods 2: Consumer durable goods 3: Consumer nondurable goods 4: Services
Question 67 Which, if any, of the following statements is (are) correct? 1: Financial risk has to do
with the amount of leveraging or the use of borrowed funds that a firm utilizes to structure its
investment and finance its asset. 2: Debenture bonds are backed by the income from a specific
project.
Question 68 Which of the following statements regarding closeend investment companies, if any,
is correct? 1: Closeend funds continually create new shares as new monies are obtained. 2: Close-
end funds offer price guarantees.
Question 69 Which of the following is/are true regarding revocation? 1: Revocation is permanent.
2: A CFP designee may petition CFP Board for reinstatement after revocation if the designee
proves that he or she has been rehabilitated by clear and convincing evidence. 3: Revocation is
not always permanent.
Question 70 Which of the following are advantages to being a shareholder? 1: The expected
returns for equities are higher than debt securities. 2: Equities have prices listed on major
exchanges and are marketable. 3: Equities typically earn their expected return. 4: Equities that do

8. not pay a dividend are tax efficient.
Question 71 DWI has just paid an annual dividend of $2 per share, which is expected to grow at 5%
indefinitely. If your client’s required rate of return to meet her retirement goals is 12%, what is the
intrinsic value of the stock using the constant growth dividend discount model?
Question 72 Which, if any, of the following statements is (are) correct? 1: The revocation of the
right to use the CFP mark may last up to five years. 2: It is standard to publish revocations
through a press release.
Question 73 Which of the following statements about retirement planning trends is correct? 1:
The ratio of the work life expectancy to the retirement life expectancy has been increasing. 2: The
change in the number of defined benefit plans has resulted in a shift in risk from emplo yers to
employees. 3: The increased life expectancy, combined with reduced annuitized benefits has
increased the risk of superannuation for retirees.
Question 74 CFP designee agrees to be bound by Continuing Education (CE) Requirements
established by Certified Financial Planner Board of Standards. The CE Requirements for a regular
continuing designee (not a new designee or a designee who has been inactive) are as follows.
Question 75 Which of the following convictions, if any, will always bar a candidate from becoming
a CFP? 1: Conviction for tax fraud 2: Conviction for passing a bad check
Question 1 An automobile in a state with an automobile titling law will pass from a decedent to
his heir/legatee according to:
Question 2 Jason purchased a mutual fund at NAV of $40 and it was redeemed 8 months later at
$42. During the time he owned the fund, he received a capital gains distribution of $2/share.
What is his holding period return?
Question 3 Mr. and Mrs. Meyer own 800 acres of farmland titles as “joint tenants with rights of
survivorship, not as tenants in common.” Currently the land is appraised at $5,000 per acre. In
addition, Mr. Meyer holds a $200,000 CD in his name only, and Mrs. Meyer holds a $200,000 CD
in her name only. Mr. and Mrs. Meyer have no debts. Mrs. Meyer’s last will and testament
provides that “all of my assets at my death shall be divided in three equal portions among my
two children and my husband.” Mrs. Meyer dies unexpectedly, leaving her husband and two
children as her sole heirs. Which of the following statements is true?

9. Question 4 An analysis of the monthly returns for the past year of a mutual fund portfolio
consisting of two funds revealed the following statistics. Fund A total return = 18% Fund A
Standard deviation = 23% Fund A Percentage of portfolio = 35% Fund B total return = 11% Fund
B Standard deviation = 16% Fund B Percentage of portfolio = 65% The Correlation Coefficient (r)
between the two funds equals 0.25. What is the standard deviation of the portfolio?
Question 5 DWI has just paid an annual dividend of $2 per share, which is expected to grow at 5%
indefinitely. If your client’s required rate of return to meet her retirement goals is 12%, what is the
intrinsic value of the stock using the constant growth dividend discount model?
Question 6 Which of the following is not correct regarding the Federal Reserve?
Question 7 The supply of coffee has been drastically reduced due to drought resulting in
substantially higher prices. Which of the following statements is/are correct? 1: The demand curve
for coffee will shift to the right. 2: The demand curve for creamer will shift to the left. 3: The
demand for orange juice will increase.
Question 8 Which of the following statements concerning supply and/or demand is/are correct? 1:
If demand increases and supply simultaneously decreases, equilibrium price will rise. 2: There is an
inverse relationship between price and quantity demanded. 3: If demand decreases and supply
simultaneously increases, equilibrium price will fall. 4: If demand decreases and supply remains
constant, equilibrium price will rise.
Question 9 Which of the following is not a method used to measure investment returns?
Question 10 Each of the following is a characteristic of a sole proprietorship EXCEPT:
Question 11 Cindy and Sandy are a same sex couple who got married in Vermont. Their marriage
entitles them to the same benefits under federal law as a heterosexual couple.
Question 12 Walter has come to you asking about investments that will produce steady income,
provide relative safety of principal, and give him a tax advantage. What will you recommend that
he consider adding to his portfolio?
Question 13 Which, if any, of the following statements is (are) correct? 1: C corporations offer
limited liability. 2: Sole proprietorships offer limited liability.
Question 14 Elin wants to retire in 20 years when she turns 60. Elin wants to have enough money
to replace 120% of her current income less what she expects to receive from Social Security. She

10. expects to receive $20,000 per year from Social Security in today’s dollars. Elin is conservative and
wants to assume a 6% annual investment rate of return and assumes that inflation will be 3% per
year. Based on her family history, Elin expects that she will live to be 95 years old. If Elin currently
earns $100,000 per year and expects her raises to equal the inflation rate, approximately how
much does she need at retirement to fulfill her retirement goals?
Question 15 Your client, Alex, has only two assets in his portfolio: assets A and B. Asset A had a
standard deviation of 40%, and Asset B has a standard deviation of 20%. 50% of his portfolio is
invested in Asset A, and 50% is invested in Asset B. The correlation for assets A and B is 0.90.
What is the standard deviation of Alex’s portfolio?
Question 16 XYZ has a current market price of $30 per share with earnings last year of $2.50 per
share, a beta of 1.1 and a dividend of $1.25. Using the price/earnings multiplier, what price do you
expect the stock to trade at if earnings per share next year are $3?
Question 17 Which, if any, of the following statements is (are) correct? 1: The average income or
standard of living is a key determinant of demand. 2: Downward sloping demand indicates that if
the price is decreased, demand will increase.
Question 18 Which of the following statements concerning supply and/or demand is/are true?
Question 19 Randy has ten shares of stock that he bought on March 1, 2012, for $5 each. On
March 1, 2013, he sells all of the shares for $200. What is the income tax consequence of the sale?
Question 20 On June 2, 2011, Ashley purchased 100 shares of stock for $10,000. When it was
worth $20,000, on December 25, 2011, she gifted all the stock to her nephew, Richard. Richard
sold the stock on October 15, 2012, for its fair market value of $25,000. What is Richard’s tax
consequence?
Question 21 Bob wants to accumulate wealth, but he has told you that he is risk-averse. Which of
the following is the most crucial action he should take first to achieve his goal of accumulating
wealth?
Question 22 Which of the following statements about retirement planning trends is correct? 1:
The ratio of the work life expectancy to the retirement life expectancy has been increasing. 2: The
change in the number of defined benefit plans has resulted in a shift in risk from employers to
employees. 3: The increased life expectancy, combined with reduced annuitized benefits has
increased the risk of superannuation for retirees.

11. Question 23 Which of the following statements regarding retirement trends is correct?
Question 24 Which, if any, of the following statements is (are) correct? 1: The revocation of the
right to use the CFP mark may last up to five years. 2: It is standard to publish revocations
through a press release.
Question 25 Beth and Scott have been married for 15 years but are now getting divorced. They
were married young and have one child, who is age 9. This is a very emotional time for both of
them. If you were their advisor, which of the following would you recommend?
Question 26 Dennis and Rhonda are married with two boys, Blake and Chase. They have the
following accounts with the following balances at their local bank. Dennis (single account)
$300,000 Rhonda (single account) $100,000 Dennis & Rhonda ( joint account) $400,000 Rhonda &
Blake ( joint account) $100,000 How much of all of their accounts will be insured by the FDIC?
Question 27 Which of the following is not one of the four stages of a business cycle?
Question 28 Which of the following statements regarding investment risk is correct? 1: Beta is a
measure of systematic, non-diversifiable risk. 2: Rational investors will form portfolios and
eliminate systematic risk. 3: Rational investors will form portfolios and eliminate unsystematic risk.
4: Systematic risk is the relevant risk for a well-diversified portfolio. 5: Beta captures all the risk
inherent in an individual security.
Question 29 Approximately how any families are raising one or more children with a disability?
Question 30 Unsystematic risk can be reduced by buying:
Question 31 Which of the following situations would cause a shift in the demand curve, as
opposed to a change in the quantity demanded?
Question 32 Based on the CAPM, what return should Jordan expect from a security that last year
returned 9% with a standard deviation of 12%, a beta of 1.2, when the overall market return has
been 10.2%, and the risk free rate of return is 3%?
Question 33 Joe would like to know which portfolios performed the best, on a risk adjusted basis.
Given the portfolios below and assuming a risk free rate of return of 3%, which portfolio returned
the most per unit of risk, (from highest to lowest), using the Sharpe ratio? Stock A: 8% Actual
Return; 5% Standard Deviation Stock B: 12% Actual Return; 8% Standard Deviation Stock C: 10%
Actual Return; 6% Standard Deviation Stock D: 6% Actual Return; 4.25% Standard Deviation

12. Question 34 Lori, a self-employed pediatrician, currently earns $200,000 annually. Lori has been
able to save 15% of her annual Schedule C net income. Assume that Lori paid $19,000 in social
security taxes, and that she plans to pay off her mortgage at retirement, thereby relieving her of
her only debt. Lori presently pays $4,333.33 per month toward the mortgage. Based on the
information provided herein, what do you expect Lori’s wage replacement ratio to be at
retirement?
Question 35 When dealing with a client who is terminally ill, it is important to consider viatical
settlement options and accelerated benefit provisions in life insurance policies.
Question 36 Inflation refers to:
Question 37 Which of the following is a good benchmark for savings for retirement as a percent
of gross income for someone who is between age 25 and 30?
Question 38 Trusts can be very beneficial in many financial planning situations. Many trust
benefits, such as asset protection and control, are appropriate considerations for a family with a
special needs person. Which of the following types of trusts would generally be used to protect
an award from winning a lawsuit on behalf of a special needs child?
Question 39 There is only one type of special needs trust that planners can use to preserve assets
and make use of government benefits for a special needs child.
Question 40 Which of the following is/are forms of discipline? 1: Private Censure 2: Revocation 3:
Suspension 4: Public Letter of Admonition
Question 41 Which of the following is/are not a principle of the Board of Standards Code of Ethics
and Professional Responsibility? 1: Integrity 2: Disclosure 3: Objectivity 4: Competence
Question 42 Which of the following is the most common range for wage replacement ratios?
Question 43 Which of the following statements is/are correct? 1: A general power of appointment
may cause inclusion of the assets under the power in the gross estate of the power holder
without having had the power holder exercise the power. 2: A medical durable power of attorney
permits the power holder to direct the withholding of artificial life sustaining methods are
procedures.
Question 44 A new client owns a U.S. Treasury bond that matures in 26 years. She purchased the
bond because she was told that Treasury bonds are risk free. Which of the following statements

13. about Treasury security risks should you communicate to your client? 1: Treasury securities do not
have interest rate risk because their coupons are fixed at the time of issue. 2: Treasury securities
with long maturities have purchasing power risk because their coupon returns are fixed, even if
interest rates rise substantially over the holding period. 3: Treasury securities do not have default
risk because the federal government has the powers to tax and create money.
Question 45 Ashley began saving $5,000 per year from age 25 to age 35 (ten years) and then
invested the funds for another 30 years. Teeto began saving at age 35 and saved $5,000 each year
until he retired at age 65 (30 years). Which of the following statements is correct assuming they
invested their funds at 8 percent?
Question 46 Colin is considering the purchase of a preferred stock that pays a fixed dividend of
$6 per year. If his required rate of return is 9%, what is the maximum that Colin will pay for this
stock using the zero growth dividend model?
Question 47 Which of the following types of investment risk cannot be eliminated through
diversification?
Question 48 Saben is 40 and wants to retire in 20 years. His family has a history of living well into
their 90s. Therefore, he would like to plan on living until age 100, just in case. He currently needs
$100,000 and expects that he will need about 80% of that if he were retired. He can earn 9
percent in his portfolio and expects inflation to be 3 percent annually. Some years ago, he
purchased an annuity that is expected to pay him $30,000 per year beginning at age 60. It
includes an inflation rate cost of living adjustmen t. In addition, he received $500,000 from his
uncle BJ when he died. Saben has spent $200,000 on his home, but is investing $300,000 for his
retirement. His Social Security benefit in today’s dollars is $20,000. Which of the following
statements is true?
Question 49 Considering employment and production, which two of the following industries are
typically more affected by recession? 1: Capital goods 2: Consumer durable goods 3: Consumer
non-durable goods 4: Services
Question 50 Sydney has a portfolio with 50 shares of AAA with a current value of $20 per share, a
return of 12%, and a beta of 1.30. She also has 25 shares of BBB with a return of 10%, a 0.80 beta,
and currently priced at $60 per share. Finally she owns 75 shares of CCC priced at $50 per share,
with a 1.1 beta and a 14% return. What is the weighted average portfolio return of Sydney’s
portfolio?

14. Question 51 Which of the following is not a primary responsibility of the Federal Reserve (Fed)?
Question 52 The type of risk that CANNOT be eliminated through diversification is:
Question 53 Which of the following statements, if any, represents a benefit of the probate process?
1: The cost of probate is generally not very high, depending on the jurisdiction. 2: The probate
process results in clear title passing to the legatees.
Question 54 What is the geometric rate of return for a stock that has experienced the following
prices? Year 1 = $25 Year 2 = $32 Year 3 = $35 Year 4 = $37
Question 55 Trusts can be very beneficial in many financial planning situations. Many trust
benefits, such as asset protection and control, are appropriate considerations for a family with a
special needs person. Which of the following is true?
Question 56 Reed just found out that his dad, Red, has terminal cancer. Terminal illness can be
devastating for a family. The financial planner working with Red will likely have to deal with which
of the following? 1: Estate documents 2: Beneficiary designation forms 3: Emotional issues
Question 57 Which, if any, of the following statements is (are) correct? 1: The value of a gift for
gift tax purposes is equal to the fair market of the gifted property on the date of the gift or date
of death. 2: The value of a publicly traded security for estates and gift tax purposes is equal to the
average of the high and low trading price on the date of the gift or date of death.
Question 58 Martin began saving $5,000 per year from age 25 to age 35 (ten years) and then
invested the funds for another 30 years. Bob began saving at age 35 and saved $5,000 each year
until he retired at age 65 (30 years). At what rate of return will Martin and Bob have the exact
same balance at age 65?
Question 59 Families with special needs children have more complicated lives than traditional
families. Which of the following is correct?
Question 60 John purchased a stock that has a beta of 1.2, a standard deviation of 13%, and
returned 16% this year. The market’s return was 12% with a standard deviation of 14%. If the risk
free rate of return is 3%, what is the alpha of John’s stock?
Question 61 Differentiating between separate, joint, community and inherited property is not that
important when going through a divorce because the court will decide on the property
settlement, based on the facts and circumstances.

15. Question 62 If the risk/return performance of a stock lies below the Security Market Line, the
stock is said to have a:
Question 63 Trusts can be very beneficial in many financial planning situations. Many trust
benefits, such as asset protection and control, are appropriate considerations for a family with a
special needs person. Which of the following trusts would generally be used by a parent or
grandparent to provide for needs, such as medical treatments, education or travel for a special
needs child?
Question 64 If the Federal Reserve wants to increase interest rates, which of the following actions
might they take?
Question 65 Which of the following methods of joint ownership permits the right to partition the
asset without the consent of the joint owner? 1: Community property 2: Joint tenancy with the
right of survivorship 3: Tenants by the entirety 4: Tenants in common
Question 66 Michael has an investment with the following annual returns for four years. Year 1: 10%
Year 2: -3% Year 3: 5% Year 4: 11% What is the Arithmetic Mean (AM) and what is the Geometric
Mean (GM)?
Question 67 Bill, who is single, sells his personal residence to move from Atlanta to Chicago due
to being transferred by his employer. He has owned and used the house for 18 months. The sale
price is $460,000, selling expenses are $25,000 and his adjustable taxable basis is $180,000. What,
if any, is Bill’s taxable gain?
Question 68 Olessa, single and age 60, sold her home for $540,000 after living there for 20 years.
Her selling expenses were $10,000 and her adjusted basis in that home was $220,000. What is the
maximum gain that Olessa must report in connection with the sale of her principal residence?
Question 69 You are a CFP designee who has been approached by the general partner of Silky
Industries (SI) to provide financial planning services to the top executives at SI. Your sister has a
fifteen percent limited partnership interest in SI. Can you accept this engagement?
Question 70 Which of the following statements concerning a CFP designee’s disclosure of
confidential client data is generally correct? 1: Disclosure may be made to any state agency
without subpoena. 2: Disclosure may be made to any party on consent of the client. 3: Disclosure
may be made to comply with an IRS audit request.
Question 71 Which, if any, of the following statements is (are) correct? 1: Deflation is a decrease in

16. the overall price levels of goods and services. 2: Disinflation is a slowdown in the rate of inflation.
Question 72 The following set of newly issued debt instruments was purchased for a portfolio.
Treasury bond Zero-coupon bond Corporate bond Municipal bond The respective maturities of
these investments are approximately equivalent. Which one of the investments in the portfolio
would be subject to the greatest relative amount of price volatility if interest rates were to change
quickly?
Question 73 CFP designee agrees to be bound by Continuing Education (CE) Requirements
established by Certified Financial Planner Board of Standards. The CE Requirements for a regular
continuing designee (not a new designee or a designee who has been inactive) are as follows.
Question 74 Edwin has a security that returned 8%, -2%, 6% and 12% over the last four periods.
What is the time weighted rate of return?
Question 75 The P/E ratio of the S&P 500 should be 20 based on historical analysis and your
projection of the future. If the earnings of the S&P 500 are currently $50 then the S&P 500 should
be at: