CPF Practice Exam Questions And 100%
Correct Answers
S Corp : Because a sole proprietorship does not limit your client's liability, this would not
be appropriate. A limited partnership may be suitable, but there is no indication of a
general partner. A C Corporation would not provide your client with flow-through
taxation as he specifically asked for. The best answer is S Corp - Answer Your client is
opening up a new business and his number one priority is to limit his personal liability.
Furthermore, he would like to have to abide through taxation, and also be able to sell
interests in his business easily in the future. Which of the collowing entities is most
appropriate to meet your clients goals?
The nondeductible excise tax for over-contributing to an IRA is 6%, not 10%. An emplyee
who makes voluntary contributions to a retirement plan is considered an active
participant. However, an employee participating in a 457 plan is not an active
participant. Reguarding alimony payments, they remain taxable to the recipient if the
divorce was executed before December 31, 2028, and the divorce decree has not been
modified based on the Tax Cuts and Job Acts of 2017. - Answer Which of the following is
correct regarding IRA contributions?
In the third step of the financial planning process, the financial planner is supposed to
identify the client's financial strengths and weaknesses, and consider the alternatives
available for the achievement of goals. (this answer is subject to change, when the CPF
board adopts its new code of ethics and standards of conducts) - Answer Which of the
following are included as part of the third step of the financial planning process?
Itemized deductions are personal expenses, such as home mortgage interest and
medical expenses that are allowed as a deduction from the AGI in arriving at taxable
income. They are below-the-line deductions. - Answer Your client asks you to explain
how itemized deductions will impact her taxes. You tell her that itemized deductions are:
R^2 is the Coefficient of Determination and a measure of systematic risk. If R^2 is high
(>0.60), then beta is the relevant measure to use when comparing securities. The bete
measures are Jensen's alpha and Treynor. If R^2 is low(<0.60), then standard deviation
, is the relevant measure to use when comparing securities. The standard devaition
measure is Sharpe. - Answer Tyler received a tip from his friend about a new mutual
fund he should consider adding to his portfolio. He wanted to see if the find was
appropriate, so he looked on the Internet and found the following data: standard
deviation is high, r^2 is 0.30, alpha is high, and the beta is 0,70. What do you tell Tyler
about the data that he has collected?
Since she has placed a beneficiary on each of the assets, or alternatively used joint
tenancy, the assets will pass by contract and will bypass probate. Although these assets
will not be part of her probate estate, they would still be part of her gross estate. Life
insurance payable to a decedent's estate is includable in the probate estate. - Solution
Your client has expressed concern about privacy and does not want any of her assets
probated at her death. Which of the following assets would be probated?
In a conditionally renewable policy, the insurer may be allowed not to renew the policy
because of some specified reasons provided by the contract. -Answer The right not to
renew the policy, under conditionally renewable policy, is vested with the insurer and it
is because of specific reasons outlined within the contract.
A noncanceable policy guarantees that the right of the insured to renew exists for a
stated number of years at a guaranteed premium upon renewal. Answer The schedule of
premiums will never change unless the insured buys more coverage in the future.
A guaranteed renewable policy gives the insured the right to renew for a stated number
of years, with a guaranteed premium at renewal. - Answer The insurer cannot change
the premium unless the change is made for an entire class of policy holders.
The defined benefit plan, target benefit plan, and cash balance plan all favor older
empoyees. Money purchase plans ensure that a contribution is made annually and will
allow Dr. Bowman to reach his goal. - Solution Dr. Bowman is a 29-year old dentist who
has just opened a very successful dental practice. He is concerned that his young
employees will move on to an established dental practice once they have completed
their training. What type of retirement program should Dr. Brown establish in order to
retain his young employees?
Mike's loss is limited to $50 per credit card. However, one card had only $25 charged
against it so his loss is limited to only $25 for that card. - Answer Mike had four credit
Correct Answers
S Corp : Because a sole proprietorship does not limit your client's liability, this would not
be appropriate. A limited partnership may be suitable, but there is no indication of a
general partner. A C Corporation would not provide your client with flow-through
taxation as he specifically asked for. The best answer is S Corp - Answer Your client is
opening up a new business and his number one priority is to limit his personal liability.
Furthermore, he would like to have to abide through taxation, and also be able to sell
interests in his business easily in the future. Which of the collowing entities is most
appropriate to meet your clients goals?
The nondeductible excise tax for over-contributing to an IRA is 6%, not 10%. An emplyee
who makes voluntary contributions to a retirement plan is considered an active
participant. However, an employee participating in a 457 plan is not an active
participant. Reguarding alimony payments, they remain taxable to the recipient if the
divorce was executed before December 31, 2028, and the divorce decree has not been
modified based on the Tax Cuts and Job Acts of 2017. - Answer Which of the following is
correct regarding IRA contributions?
In the third step of the financial planning process, the financial planner is supposed to
identify the client's financial strengths and weaknesses, and consider the alternatives
available for the achievement of goals. (this answer is subject to change, when the CPF
board adopts its new code of ethics and standards of conducts) - Answer Which of the
following are included as part of the third step of the financial planning process?
Itemized deductions are personal expenses, such as home mortgage interest and
medical expenses that are allowed as a deduction from the AGI in arriving at taxable
income. They are below-the-line deductions. - Answer Your client asks you to explain
how itemized deductions will impact her taxes. You tell her that itemized deductions are:
R^2 is the Coefficient of Determination and a measure of systematic risk. If R^2 is high
(>0.60), then beta is the relevant measure to use when comparing securities. The bete
measures are Jensen's alpha and Treynor. If R^2 is low(<0.60), then standard deviation
, is the relevant measure to use when comparing securities. The standard devaition
measure is Sharpe. - Answer Tyler received a tip from his friend about a new mutual
fund he should consider adding to his portfolio. He wanted to see if the find was
appropriate, so he looked on the Internet and found the following data: standard
deviation is high, r^2 is 0.30, alpha is high, and the beta is 0,70. What do you tell Tyler
about the data that he has collected?
Since she has placed a beneficiary on each of the assets, or alternatively used joint
tenancy, the assets will pass by contract and will bypass probate. Although these assets
will not be part of her probate estate, they would still be part of her gross estate. Life
insurance payable to a decedent's estate is includable in the probate estate. - Solution
Your client has expressed concern about privacy and does not want any of her assets
probated at her death. Which of the following assets would be probated?
In a conditionally renewable policy, the insurer may be allowed not to renew the policy
because of some specified reasons provided by the contract. -Answer The right not to
renew the policy, under conditionally renewable policy, is vested with the insurer and it
is because of specific reasons outlined within the contract.
A noncanceable policy guarantees that the right of the insured to renew exists for a
stated number of years at a guaranteed premium upon renewal. Answer The schedule of
premiums will never change unless the insured buys more coverage in the future.
A guaranteed renewable policy gives the insured the right to renew for a stated number
of years, with a guaranteed premium at renewal. - Answer The insurer cannot change
the premium unless the change is made for an entire class of policy holders.
The defined benefit plan, target benefit plan, and cash balance plan all favor older
empoyees. Money purchase plans ensure that a contribution is made annually and will
allow Dr. Bowman to reach his goal. - Solution Dr. Bowman is a 29-year old dentist who
has just opened a very successful dental practice. He is concerned that his young
employees will move on to an established dental practice once they have completed
their training. What type of retirement program should Dr. Brown establish in order to
retain his young employees?
Mike's loss is limited to $50 per credit card. However, one card had only $25 charged
against it so his loss is limited to only $25 for that card. - Answer Mike had four credit
