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FP511 Final Exam |Questions with Complete Solutions Rated A+
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FP511 Final Exam |Questions withComplete Solutions Rated A+
Recently, Fallon, an avid shopper, has heard from her friends that an investment in Shoes-2-You
stock was a wise idea because the shoes sold are very stylish. Even though Fallon's financial planner
has advised her that investing in this stock is a poor decision, she invests in it anyway. Her brother,
Stanley, congratulates her on her investment because he feels it is a wise investment. Stanley
considers himself to be an expert in investments. Unfortunately, he considers his expertise to be
much greater than it actually is. In the past, Stanley has taken credit for any investment decisions
that have positive returns but blames the economy when an investment does poorly. Considering
Fallon's and Stanley's behavior, which of the following statements is CORRECT? - Ans The correct
answer is that Fallon's behavior is an example of confirmation bias; Stanley's behavior is
representative of overconfidence. Confirmation bias is paying attention to information that
supports a preconceived opinion and poorly made decision, while disregarding accurate,
unsupportive information. Overconfidence tends to make Stanley believe his level of ability is much
higher than what it is. Anchoring is making irrational decisions based on information that should
have no influence on the decision at hand. Mental accounting is putting money into separate
"accounts" based on the function of these accounts.
Melissa has $8,000 in a savings account, which she has earmarked for an Australian vacation
later this year. The roof of her house was damaged recently and it requires considerable
repairs. Melissa does not want to spend the money in her savings account to make the repairs
because she believes that money is for her upcoming vacation. Instead, she withdraws $4,000
from her traditional IRA to make the repairs. She has to pay income tax of $1,120 plus a penalty
of $400 on the IRA withdrawal. This is an example of which of the following behaviors? - Ans
The correct answer is mental accounting. Melissa's irrational financial decision resulted from
mentally putting her money into separate "accounts" based on the function of those accounts.
,Self-control bias occurs when an individual lacks self-discipline and favors immediate
gratification over long-term goals. Herding occurs when a person follows the actions of a
larger group, whether rational or not. Confirmation bias means people tend to pay attention
to information that supports their preconceived opinions while disregarding accurate,
unsupportive information.
Mark is meeting with a new client, Macy. It is important that Mark understand Macy's
psychological ability to deal with uncertain outcomes includes risk tolerance, risk capacity, and
risk perception. During what step in the financial planning process should Mark measure
Macy's abilities? - Ans The answer is understanding Macy's personal and financial circumstance.
All of the other answer choices are steps that are too late in the process for this measurement.
Wendy, a CFP® professional, is meeting with her client, Chrissy, to discuss her goals. Chrissy
advises Wendy that one of her goals is to take an expensive hiking trip in the Alps, something
her mother and grandfather had done when they were young. She'd like to keep this tradition
in her family. Wendy believes that, because of Chrissy's financial circumstances, this is not the
best use of Chrissy's money. What should Wendy do to best serve her client, Chrissy?
I. Wendy should understand that expensive trips like hiking in the Alps is an important family
tradition to Chrissy.
II. Wendy should consider the trip as one of Chrissy's goals and explain how such a goal
would impact her overall financial plan.
III. Wendy should share her opinion with Chrissy and persuade her to abandon this as one of
her goals.
IV. Because Wendy, as Chrissy's financial planner, does not feel taking the trip is a wise financial
decision, she - Ans The correct answer is I and II. Wendy should respect Chrissy's wishes and
understand that such a trip is part of a family tradition. She should consider the trip as one of
Chrissy's goals; however, she should also let her know how such a goal would impact Chrissy's
overall financial plan. Wendy should not share her opinion with Chrissy or try to persuade her
to abandon it as one of her goals.
In his financial planning practice, Frank allows his clients' goals and values to drive his
relationships with them. He sees himself as a consultant. Frank's approach to financial
counseling is known as - Ans The correct answer is the strategic management approach. In this
approach, the client's goals and values drive the client-planner relationship and the planner
serves as a consultant. In the classical economics approach, planners attempt to achieve better
financial outcomes by increasing financial resources or reducing expenditures. The cognitive-
, behavioral approach believes a client's attitudes, beliefs, and values influence their behavior
and tries to replace negative beliefs with positive attitudes that should result in better
financial results.
Which of the following statements regarding the classical economics approach to
financial counseling is CORRECT?
I. This approach features the use of a SWOT analysis.
II. This approach is based on the use of psychoanalytic theory such as Freudian or
Gestalt theory.
III. Clients choose among alternatives based on objectively defined cost-benefit and risk-return
tradeoffs.
IV. This approach believes that increasing financial resources or reducing financial expenditures
results in improved financial outcomes. - Ans The correct answer is III and IV. Statement I is
incorrect; the strategic management approach features the use of a SWOT analysis. Statement
II is incorrect; the financial counseling approach that is based on the use of
psychoanalytic theory such as Freudian or Gestalt theory is the psychoanalytic approach.
Which of the following statements regarding open-ended and closed-ended questions is
CORRECT?
I. Planners should use as many open-ended questions as possible when developing client goals
and expectations.
II. Closed-ended questions facilitate effective communication between the client and planner
because they require the client to answer in her own words. - Ans The correct answer is I only.
Planners should use as many open-ended questions as possible when developing client goals and
expectations. These types of questions require clients to answer in their own words. Open-ended
questions facilitate effective communication between clients and planners. Statement II is
incorrect. Closed-ended elicit "yes" or "no" answers, and this can restrict communication.
Bernie is meeting with his clients, Mike and Alyssa, to define their goals. Mike tells Bernie that
one of his goals is purchasing a hunting camp in two years and Alyssa shakes her head. What
is the best action for Bernie to take next? - Ans The correct answer is ask Alyssa if the camp if
a mutually agreed-upon goal. Alyssa's body language (shaking her head) may express that she
does not agree with this goal. Therefore, Bernie should clarify whether or not she is on board
with Mike's idea. If Alyssa is agreeable, Bernie should then get more details regarding the
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