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CFP FINAL EXAM ALL QUESTIONS AND CORRECT ANSWERS 100% PASS (A+)
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CFP FINAL EXAM ALL QUESTIONS AND CORRECT ANSWERS100% PASS (A+)
Steps in the Financial Planning Process
1. Understanding the Client's Personal and Financial Circumstances. 2. Identifying and
Selecting Goals 3. Analyze the client's current course of action and potential alternative
courses of action 4. Developing the Financial Plan Recommendations 5. Presenting the
Financial Planning Recommendations 6. Implementing Financial Plan Recommendations
7. Monitoring the Plan
Uber Is A Drunk Person's Immediate Motorvehicle
Business Life Cycle Components
Expansion, Peak, Contraction/Recession, Trough
5 Sanity-Saving Tips for Arguing on the Internet
Direction of Variables in Business Life Cycle
Inflation: Highest Decreasing Lowest Increasing; Interest Rates: Highest Decreasing
Lowest Increasing; Unemployment: Lowest Increasing Highest Decreasing; GDP:
Highest Decreasing Lowest Increasing
Cyclical Nature in Business Cycle
Variables that fluctuate directly with the business cycle
Recession
Six consecutive months (or two quarters) of declining GDP
Depression
,If the recession lasts for 18 months or six consecutive quarters
Deflation
The opposite of inflation; prices are falling. Individuals prefer to hold cash during
deflation.
Disinflation
A decline or slowdown in the rate of inflation
Goals of the Federal Reserve
1. Maintain long-term economic growth. 2. Maintain price levels supported by the
economy. 3. Maintain full employment
Margin Call Formula
Margin Call = Loan ÷ (1 - Maintenance Margin)
Value Line Ranking
Ranking stocks using a scale of 1 to 5. 1 - Highest ranking - Signal to BUY! 5 - Lowest
ranking - Signal to SELL!
Morningstar Ranking
Ranks mutual funds, stocks, ETFs and Bonds using 1 to 5 stars. 1 star - Lowest ranking -
Low performing; 5 stars - Highest ranking - High performing
Ex-Dividend Date vs. Date of Record
An investor must purchase the stock before the ex-dividend date or 2 business days
prior to the date of record.
Securities Act of 1933
,Regulates the issuance of new securities (Primary Market). Requires new issues to be
accompanied by a prospectus.
Securities Act of 1934
Regulates the secondary market and trading of securities. Created the SEC to enforce
compliance with security regulations and laws.
Investment Company Act of 1940
Authorized the SEC to regulate investment companies. Three types of investment
companies: Open, Closed and Unit Investment Trusts.
Investment Advisers Act of 1940
Required investment advisors to register with the SEC or state. Less than $100 million in
assets, register with the state. Greater than $110 million, register with the SEC.
Securities Investors Protection Act of 1970
Established the SIPC to protect investors for losses resulting from brokerage firm
failures.
Insider Trading and Securities Fraud Enforcement Act of 1988
Defines an insider as anyone with non-public information. Insiders cannot trade on that
information.
Treasury Bills
Maturities of varying lengths, 52 weeks or less. Denominations of $100. Sold at a
discount to par value.
Commercial Paper
Short term loans between corporations. Maturities of 270 days or less. Not registered
with the SEC. Denominations of $100,000.
, Bankers Acceptance
Facilitates imports/exports. Maturities of 9 months or less. Can be held until maturity or
traded.
Eurodollars
Deposits in foreign banks denominated in US dollars.
Investment Policy Statement Objectives and Constraints
Objectives: Risk & Return. Constraints: Taxes, Timeline, Liquidity, Legal, Unique
circumstances.
Price-Weighted Average
Calculates average based on stock price only. Example: Dow Jones Industrial Average
(DJIA)
Value-Weighted Index
Accounts for market capitalization. Examples: S&P 500, Russell 2000, EAFE
Monte Carlo Simulation
Spreadsheet simulation providing probabilistic distribution of events. Allows for 'what if'
scenarios and sensitivity analysis.
Systematic Risks
Non-diversifiable risks measured by Beta, including Purchasing Power Risk,
Reinvestment Rate Risk, Interest Rate Risk, Market Risk, and Exchange Rate Risk.
Unsystematic Risks
Diversifiable risks, including Accounting Risk, Business Risk, Country Risk, Default
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