Transcript FPPI FINAL QUIZ - CFFP

CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Financial Planning Process & Insurance
Final Review Questions
©2015, College for Financial Planning, all rights reserved.
Question 1
The second stage of the financial planning process
involves gathering data. Which of the following are
functions of this stage?
I. constructing a personal financial plan
II. obtaining qualitative information about the
client
III. establishing goals and objectives
IV. identifying potential barriers to achieving goals
a.
I and II only
b.
I and III only
c.
I and IV only
d.
II and III only
e.
III and IV only
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Question 2
If a planner identifies existing or potential
problems that can negatively affect a client's
ability to achieve objectives, which one of the
following actions taken to prevent such a
problem is most likely to require immediate
attention?
a. establishing an adequate emergency fund
b. retitling of assets for estate tax purposes
c. reallocating long-term investments
d. selecting investment vehicles that are taxefficient
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Question 3
Bill and Karen Stapher have the following financial
information:
o Total monthly expenses: $4,000
o Checking account balance: $3,900
o Money market fund balance: $9,500
o Current value of 12-month CD: $5,000
o Life insurance cash value: $4,000
Based on this information, how much is reasonably
available for their emergency fund?
a. $ 9,500
b. $13,400
c. $14,500
d. $22,400
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Question 4
Margaret is in the market for a new automobile. An
automobile dealer has suggested that she lease a
vehicle. The proposed lease terms include making 36
monthly payments of $325 and returning the vehicle to
the dealer at the end of the lease period. Margaret may
owe the lease company additional money if the car’s
actual value is less than the projected value.
What type of lease agreement is the dealer proposing
to Margaret?
a. closed-end lease
b. fixed-cost lease
c. finance lease
d. operating lease
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Question 5
Renee and Alonzo want to create a college
tuition fund for their child, Elysa. They want
Elysa to be able to get income from the trust,
but do not want her to have access to the
principal when she reaches age 21.
To meet their objectives, Renee and Alonzo
should establish a
a. UGMA account.
b. UTMA account.
c. 2503(c) (minors) trust.
d. Crummey (demand) trust.
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Question 6
Jayne Rand is a financial services professional who does not
do comprehensive financial planning. Jayne sells mutual
funds, listed stocks, and bonds to her clients, but does not
specifically hold herself out as an investment adviser. Jane
earns commissions on the products she sells to clients, who
all live in her home state.
Is Jane considered an investment adviser?
a. No, because she does not qualify under any part of the
three-pronged test.
b. No, because all of Jayne's clients reside in the state in
which she has her principal office.
c. Yes, because she is indirectly compensated for giving
advice.
d. Yes, because she does not fall under one of the
exceptions or exemptions to the registration requirement.
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Question 7
Alex Reyner, a college finance professor, recently began publishing
an independent monthly newsletter that provides information about
business and investments to paid subscribers. Alex advertises his
newsletter in all newspapers in his state to attract subscribers of
which he now has 3,200. The publication discusses, among other
things, general characteristics of investment vehicles and advice
regarding the purchase of various investment vehicles. Alex does
not provide any personal financial advice to individuals other than
through the newsletter.
Is Alex required to register with the SEC? Consider the supporting
rationale in selecting your answer.
a. yes, because he issues investment advice
b. yes, because he receives compensation from the subscribers
c. no, because he is considered to be an investment adviser, but
he fits under one of the exemptions from registration
d. no, because he is not considered to be an adviser, and he is
excepted from registration
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Question 8
Bill Stout, CFP®, is a registered investment adviser. As a normal part of his
practice, Bill invests his clients' money in a predetermined mix of five
stocks, a government bond, and two unit investment trusts. Bill decided to
use these investments after reading their advertising literature in a trade
magazine. He has not read any prospectuses, nor does he adjust the
investment mix for any client. However, his clients believe Bill has made
the investment choices after careful evaluation. Bill knows almost nothing
about unit investment trusts, but he is afraid to ask his peers or make
referrals for fear of losing some clients. Bill does try to follow the current
performance of these investments, and he reads articles related to them.
Based only on this information, which of the following duties has Bill failed
to fulfill?
I.
II.
III.
IV.
diagnosis
consultation
keeping current
disclosure
a. I and II only
b. III and IV only
c. I, II, and IV only
d. II, III, and IV only
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Question 9
Juanita has just discovered that her wallet is missing from her
purse. She immediately calls her credit card companies and learns
that the following charges have been applied to her accounts:
Account
VISA
American Express
Sears
Charges
$500
$1,500
$225
Account
Master Card
Conoco
Charges
$1,250
$45
What is the total amount of these charges that Juanita is required
to pay?
a. $0
b. $245
c. $250
d. $3,520
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Question 10
Which one of the following terms is used to
describe a Chapter 13 bankruptcy?
a. a Title 9 plan
b. a wage-earner plan
c. a Regulation Z plan
d. a liquidation-recovery plan
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Question 11
Rhonda Conley wants to establish a fund that
will provide $8,000 interest per year that she
can give to her favorite causes. She expects to
earn 6% per year.
How much does she need to put into the fund
today so that she can give away the $8,000
each year, starting next year at this time?
a. $97,625
b. $126,095
c. $133,333
d. $140,892
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Question 12
Jean deposited $2,000 into her IRA yesterday.
If she puts nothing else into the account, about
how many years will it take to grow to $15,000,
assuming it earns interest at an annual rate of
8%, compounded quarterly?
a. 25 years
b. 26 years
c. 27 years
d. 104 years
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Question 13
Your client invested $15,000 in a certificate of
deposit (CD) seven years ago. The CD matures
today at a value of $36,825.
If interest was compounded semiannually over
the seven-year period, what annual
compounded rate of return did he realize on his
investment?
a. 6.21%
b. 6.63%
c. 13.25%
d. 27.38%
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Question 14
Alonso Garcia wants to open a business in five years.
He will need an additional $200,000 (stated in today's
dollars) at that time. Alonso plans to fund this goal
using a serial payment. He assumes that inflation will
average 4% and that he can earn a 10% compound
after-tax return on investments.
What serial payment should he invest at the end of the
first year (i.e., one year from today) to attain this goal?
(Round your answer to the nearest dollar.)
a. $33,699
b. $34,810
c. $35,047
d. $35,643
e. $37,069
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Question 15
An investor wants to accumulate $16,000 by the end of
seven years to achieve a financial goal. He plans to
invest a sum of $4,000 in a mutual fund today toward
the goal. In addition, he plans to invest a fixed sum
each month, beginning one month from today, for the
next seven years.
If the investor can earn a 9% annual return,
compounded monthly, over the term of the investment,
how much must he invest each month to achieve his
goal?
a. $72.53
b. $73.07
c. $201.78
d. $223.07
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Question 16
Which of the following are examples of risk
avoidance?
I. participating only in non-contact sports or
hobbies
II. installing burglar alarms in a residence
III. using public transportation instead of owning a
car
IV. increasing the deductible on a homeowners
policy
a. I and III only
b. II and IV only
c. I, II, and III only
d. I, II, III, and IV
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Question 17
Which of the following are disadvantages of a
funded self-insurance program to a business?
I. The relationship between employer and
employee may influence claim settlement.
II. Contributions to the self-insurance fund are
nondeductible.
III. Premium taxes must be paid on fund
contributions.
IV. Losses incurred are not deductible.
a. I and II only
b. III and IV only
c. I, II, and IV only
d. II, III, and IV only
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Question 18
From the insurance company's point of view, all
of the following are elements of an insurable
risk except
a. the insurable interest must be clear and
continuous.
b. the loss produced by the risk must be
definite and measurable.
c. the loss must not be catastrophic.
d. there must be a sufficiently large number of
homogeneous exposure units to make the
losses reasonably predictable.
e. the loss must be fortuitous or accidental.
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Question 19
Last week, a postal carrier was injured in the
Jacobs family’s driveway when he slipped on a
skate board left there by their daughter.
Which one of the following legal bases may
influence the Jacobs family’s liability?
a. trespass
b. strict liability per se
c. vicarious liability
d. negligence
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Question 20
Bill Johnson's son, Johnny, goes over to a neighbor's house where,
after a disagreement, he punches his neighbor's son in the
stomach. The neighbor sues and obtains a judgment for $50,000.
Bill consults his insurance agent to see if his comprehensive
personal liability policy will pay the judgment.
Will Bill's insurance provide coverage, and why?
a. Yes; the policy covers Bill because he is vicariously liable for
Johnny's action.
b. Yes; the policy covers Johnny because, as a family member, he
comes under the definition of a covered insured.
c. No; the policy does not cover intentional torts.
d. Yes; the policy covers the incident because it occurred in an
adjacent house.
e. No; the policy only covers liability arising out of use of the
home and the lot on which it is situated.
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Question 21
Which one of the following does not describe a
life insurance contract?
a. an aleatory contract
b. a contract of utmost good faith
c. a contract of adhesion
d. a bilateral contract
e. a personal contract
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Question 22
An insurance company is prohibited from using
a right given to it in a policy if, by its own
actions, it gave up the right to the policyowner
under which one of the following?
a. doctrine of equity
b. doctrine of estoppel
c. doctrine of rescission
d. doctrine of reformation
e. doctrine of waiver
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Question 23
Susan Williams is a broker for a casualty insurance company. She
solicited an auto insurance policy for your client, Howard Jones.
Howard had a history of traffic violations, but he did not disclose
this to Susan when she took his application. The company issued a
policy to Howard. Two weeks later, Howard had a car accident.
What is the company's obligation to your client in this situation?
a. The company is required to pay because Susan had express
authority to bind the company.
b. The company is not required to pay because Susan failed to
disclose full knowledge of the situation.
c. The company is required to pay because Susan had the implied
authority to do what the public reasonably believes she can do.
d. The company is not required to pay because Howard failed to
disclose relevant information.
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Question 24
As part of the process of evaluating insurance companies for a client, you
see the following facts about A+ Life Company:
o
o
o
o
o
o
o
mutual company
rated only by A.M. Best
assets of $205 million
in business for 100 years
3% lapse ratio
not on the NAIC Watchlist
high risk-based capital (RBC) ratio numbers
Would you consider doing business with this company, and why?
a.
b.
c.
d.
No, because mutual companies are always rated by several rating
agencies.
No, because they have a low lapse ratio and high RBC numbers.
Yes, because mutual insurers with high RBC numbers are always good
companies.
Yes, because they have a solid financial status and a low lapse ratio.
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Question 25
Ann Gables can save $100 per month toward
retirement. Which one of the following types of
contracts would be most appropriate for Ann?
a. variable life insurance
b. universal life insurance
c. participating whole life insurance
d. single premium deferred annuity
e. flexible premium deferred annuity
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Question 26
Natalie Gregson named her brother, David, irrevocable beneficiary
of a life insurance policy she owns on her life. Now Natalie would
like to borrow from the policy's cash value.
What right does David have to the cash value?
a. David has a conditionally vested interest in the policy and can
deny her permission to borrow from the cash value.
b. Even though David has a vested interest in the policy, he must
allow Natalie to borrow from the cash value.
c. Because David has an insurable interest in the policy he can
deny Natalie permission to borrow from the cash value.
d. Because David has no legal claim to the policy, he must allow
Natalie to borrow from the cash value.
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Question 27
Which of the following dividend options, used in
combination, generally provides the greatest total
death benefit and tax-deferred growth in a
participating whole life insurance policy?
I. accumulation at interest
II. fifth dividend option
III. reduced premium
IV. paid-up additions option
a. I and II only
b. I and III only
c. II and IV only
d. III and IV only
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Question 28
Which one of the following is not a
nonforfeiture option available on a participating
whole life insurance policy?
a. surrender of cash value
b. extended term insurance
c. reduced paid-up insurance
d. accumulate at interest
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Question 29
Which one of the following statements regarding
annuities is false?
a. A single premium variable deferred annuity generally
permits additions to the invested amount once each
year.
b. A joint and full survivor annuity guarantees a level
payment as long as either annuitant is alive.
c. A flexible premium variable annuity generally limits
changes in the investment mix to some extent.
d. A life annuity with 10 years certain and continuous
will pay benefits for at least 10 years if the annuitant
dies 6 years after the initial distribution is made.
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Question 30
Adam and Liz Driscoll have just had their first child,
Jennifer. The Driscolls want to purchase life insurance
that will ensure that funds will be available for Jennifer's
college education in the event that one or both of them
die prematurely. They want a policy that is flexible, and
also want the insurance to build some cash value. Their
budget is tight right now, and the couple's approach to
risk management decisions is conservative.
Which type of life insurance policy would best meet the
Driscolls’ current needs?
a. universal life insurance policy
b. variable life insurance policy
c. second-to-die whole life insurance policy
d. variable universal life insurance policy
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Question 31
Darren and Susan Starr want to provide funding for
their daughter Jerri, age 10, to attend four years of
college, starting at age 18. The current annual cost of
tuition is $9,000. Assume inflation of 4% and after-tax
earnings of 5%. If Darren wants to have enough life
insurance to assure adequate funds for Jerri when she
begins college (should he die today), approximately
how much insurance should he purchase for this need
alone? (Round your answer to the nearest dollar.)
a. $32,530
b. $32,560
c. $32,855
d. $32,874
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Question 32
Which of the following are accurate statements related to Mary
Smith’s rights and responsibilities related to health care. Mary left
her job 45 days ago. Mary had been covered under her former
employer's plan for 18 months. She is pregnant.
I. Mary can still sign up under COBRA.
II. Mary can sign up under the exchanges.
III. If she purchases a policy outside of the exchanges or COBRA,
the pregnancy could be a preexisting condition.
IV. Mary must notify the insurance company within 60 days of the
birth of the child to have the child covered.
a. I and II only
b. II and IV only
c. I, II, and III only
d. I, II, III, and IV
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Question 33
Under the stop-loss provision in medical
expense insurance,
a. benefits are based on a schedule of specified
maximum amounts per service.
b. unreimbursed covered expenses are limited
to a maximum amount per year.
c. all risks are covered except those specifically
excluded under the policy.
d. benefits are paid only to a specified limit.
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Question 34
Juan Blanco has a choice of several medical insurance plans
through his employer. They include an HMO, a PPO, and an
indemnity plan. He has brought you the benefit descriptions for
each plan and asked for your assistance in sorting them out. Which
one of the following statements correctly matches the description
with the type of plan?
a. One plan states that it uses gatekeeper physicians. We know,
therefore, that this must be a PPO plan.
b. One plan states that it has internal policy limits for mental and
nervous conditions. We know, therefore, that this must be an
HMO plan.
c. One plan states that it has a $5,000 stop-loss provision. We
know, therefore, that this must be a PPO plan.
d. One plan states that it has a list of independent physicians that
the employee must use if he or she is to obtain the lowest
possible out-of-pocket cost. We know, therefore, that this is
likely to be a PPO plan.
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Question 35
Walter Wimmer's first medical expenses for the year
were incurred for an operation costing $23,250 in
covered expenses. Walter has a comprehensive major
medical plan with a $250 deductible, an 80%
coinsurance provision and a $5,000 stop-loss limit. How
much will Walter's insurer have to pay?
a. $18,000
b. $18,250
c. $22,000
d. $23,000
e. $23,250
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Question 36
Which of the following are true statements related to
disability?
I. Group coverage benefits are almost always received
income tax free.
II. Individual policies purchased with after tax income are
received income tax free.
III. Group coverage covers all income including pretax
medical contributions, bonuses and stock grants.
IV. If the group coverage is taxable, it counts towards Social
Security earnings tests for PIA determinations.
a. I only
b. II only
c. II and IV only
d. II, III, and IV only
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Question 37
Which one of the following listings of groups
that are commonly underwritten for disability
income insurance are ranked in ascending order
of desirability, as perceived by the insurer?
a. professionals, white collar workers, and blue
collar workers
b. white collar workers, professionals, and blue
collar workers
c. blue collar workers, professionals, and white
collar workers
d. blue collar workers, white collar workers,
and professionals
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Question 38
Which of the following statements about disability income concepts
are correct?
I. A disability policy with a provision that allows the company to
increase premiums, but does not allow the company to
terminate the policy, is said to be guaranteed renewable.
II. The elimination period is the time period the insurance
company has to cancel a policy if incorrect information was
put in the application.
III. A residual benefit is normally paid when there is a loss of
income due to a disability, even if the insured is still able to
work, following a period of total disability.
IV. The probation period in a disability policy is the time between
submission of the application and its approval or rejection.
a.
b.
c.
d.
e.
I only
I and III only
III and IV only
I, II, and III only
I, III, and IV only
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Question 39
Wade Casslin, age 68, is interested in obtaining longterm care insurance. He is a widower, is in good health,
and wants to make sure he is taken care of if he is
incapacitated. He also wants his estate of a few
hundred thousand dollars left to his children.
Which one of the following considerations should Wade
want to apply to his decision?
a. He should definitely not have a plan that provides
home care.
b. A policy that lasts a year or so would give him time
to qualify for Medicaid.
c. A policy with a hospitalization requirement is a
sound way to save on premium.
d. An inflation benefit is a good idea.
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Question 40
A person who wants to use Medicaid to pay for
long-term care expenses may be required to
"spend down" his or her assets.
Which of the following are assets that likely
would be exempt from the Medicaid spenddown provisions?
a. a home and an automobile
b. tax-exempt funds below $50,000
c. certificates of deposit with a maturity longer
than two years
d. Treasury bills, notes, and bonds
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Question 41
Which one of the following types of adjusters
works for the insured?
a. a bureau adjuster
b. an independent insurance agent
c. a public adjuster
d. a contract adjuster
e. a staff adjuster
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Question 42
Debbie Dublin recently lost one of her diamond
earrings and she filed an insurance claim.
Which one of the following is not an option for
the insurer?
a. replace both earrings
b. require Debbie to surrender the remaining
earring before receiving a check
c. replace the lost earring
d. issue a check for the replacement value of
the earrings
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Question 43
Tom and Mary Lynn Brown are evaluating their
homeowners insurance. Their house has a current value of
$1.5 million. Both Tom and Mary Lynn enjoy fine art and
have a collection valued at $500,000. Tom recently bought
Mary Lynn a two-carat diamond ring valued at $30,000.
The declarations page of the Brown's homeowners
coverage shows the following information:
o Type HO 00 03
o Dwelling: $1.4 million
o Personal property: $800,000
o HO 00 15 personal property endorsement
o Liability: $300,000 each occurrence
o Deductible: $500 loss deductible clause
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Question 43 (cont’d)
Based only on your analysis of the information
presented here, which of the following would you tell
the Browns about their personal property coverage?
a. Coverage is more than adequate.
b. Coverage should be supplemented with a personal
property endorsement (i.e., floater) for the fine art
and the diamond ring.
c. Basic coverage is inadequate, but the HO 00 15
increases coverage to make it adequate.
d. The HO 00 03 personal property coverage should
be increased by $530,000 to cover the art collection
and jewelry.
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Question 44
Which one of the following statements about different
forms of homeowners coverage is correct?
a. HO 00 02 policies apply different perils (forms) for
coverages A through D.
b. HO 00 04 policies provide basic structural coverage.
c. HO 00 03 policies cover valuable personal property
completely.
d. HO 00 08 policies provide replacement cost
coverage on insured homes.
e. HO 00 06 policies generally provide greater coverage
for personal property than they provide for any
structure.
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Question 45
Professional liability refers to liability arising
from
a. failure to use due care and the degree of
skill expected of a person in a particular
profession.
b. compliance with the wishes of a client based
on a belief that the customer is always right,
even if the client’s desires are incompatible
with his or her needs.
c. loss of income by a client during the
rendering of professional services.
d. a person practicing his or her hobby.
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Question 46
Which of the following statements about title insurance are
correct?
I. An attorney's opinion as to the accuracy of the abstract on a
given piece of property provides the same protection as title
insurance.
II. The title insurance policy protects the property purchasers
from all defects in title except those listed in the policy.
III. Title insurance policies can last 50 years or more.
IV. Under the Torrens System, a person who holds title to the
property gets compensated for his or her loss, but the most
recent buyer keeps the property.
a. I and III only
b. II and IV only
c. III and IV only
d. I, II, and III only
e. II, III, and IV only
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Question 47
Which one of the following best describes the "medical
payments" section of a personal auto policy?
a. It provides benefits to the insured and anyone riding
in the insured's vehicle, up to the policy limit.
b. It covers liability for persons driving the insured's
vehicle without permission, up to the policy limit.
c. It pays for medical expenses incurred by the driver
of an automobile that has been in an accident with
the covered vehicle.
d. It provides limited coverage for expenses incurred
by uninsured motorists involved in an accident with
the covered vehicle.
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Question 48
Bonny Clausen purchased her company’s main building
for $450,000. Its replacement cost is $375,000. She has
the building insured for $350,000, with a $1,000
deductible and an 80% coinsurance clause.
Assume a fire caused $100,000 of damage to the
building. How much will her insurance policy pay?
a. $ 79,000
b. $ 96,222
c. $ 96,250
d. $ 99,000
e. $100,000
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Question 49
Personal automobile insurance with other than
by collision (comprehensive) coverage provides
coverage, up to the policy limit, for
a. property damage to another vehicle caused
by the insured while driving a covered
vehicle.
b. damage to the insured's car.
c. liability resulting from damage to other
vehicles.
d. liability resulting from damage to personal
property other than vehicles.
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Question 50
Commercial general liability insurance insures
against
a. nonautomobile liabilities of the business,
except those that involve injuries to
employees.
b. every type of business liability.
c. automobile liabilities incurred by the
business.
d. professional liability.
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CERTIFIED FINANCIAL PLANNER CERTIFICATION
PROFESSIONAL EDUCATION PROGRAM
Financial Planning Process & Insurance
Final Review Questions
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