Sample of Practice CFP Exam Questions: D E D R

DALTON EDUCATION, LLC
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Sample of Practice
CFP Exam Questions
This document contains a sample of practice CFP exam questions that are excellent for anyone
looking for a CFP practice exam. The following questions are reprinted from The Dalton
Reviews Online Test Bank and are representative of the type of questions you can expect on
the CFP Certification Examination. In terms of the level of difficulty, these practice CFP
exam questions are very middle of the road. In other words, they are not too easy and not
overly difficult.
Cognitive Level

The cognitive levels that are tested on the CFP are:
Knowledge - Exhibit memory of previously learned materials by recalling facts, terms,

basic concepts and answers
Application - Using new knowledge. Solve problems in new situations by applying
acquired knowledge, facts, techniques and rules in a different way
Synthesis - Compile information together in a different way by combining elements in a
new pattern or proposing alternative solutions
Evaluation - Present and defend opinions by making judgments about information,
validity of ideas or quality of work based on a set of criteria
According to the CFP Board, the CFP Certification Examination measures your critical
thinking and problem-solving ability, with less emphasis on factual recall or recognition. The
exam does not test textbook theories; rather, it assesses ones ability to apply financial planning
knowledge in an integrated approach to real-life financial planning situations.
In 2012, the exam moved away from knowledge based questions and started testing more
application level questions. The Dalton Review test bank helps develop a students knowledge
of financial planning topics, then applying that knowledge in application, synthesis and
evaluation type questions. The Dalton Review test bank emphasizes application level
questions, just like you will see on the CFP exam.
5400 Laurel Springs Parkway, Suite 202 Suwanee, GA 30024 p: (877) 426-2373 f: (877) 884-4711
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For each question you will notice a cognitive level tag (K for knowledge, A for application, S
for synthesis and E for evaluation). In addition, each question will have a level of difficulty
ranking from 1 3. A ranking of 1 is easy, 2 is medium and 3 is hard. For example: A-2
is an application question with a medium level of difficulty. K-1 is a knowledge based
question that is easy.
CAUTION: Many competing CFP review providers only have knowledge based questions.
You can be assured that The Dalton Reviews test bank and study materials have an abundance
of application, evaluation and synthesis level questions, whereas most review providers do
not!!!
Note: These questions do not represent an actual CFP exam in length or topic coverage. These
are simply practice questions to demonstrate how topics are likely to be tested on the CFP
exam.
Instructions
Work all 60 questions without looking at the answers and then score yourself. If you get stuck
on a question, do your best to select an answer but also make a note about the reason why you
selected a particular answer. If you miss the question, youll have your answer reason to refer
back to and you can compare it to the answer explanation at the end of this CFP practice exam
questions document.
About THE DALTON REVIEW
THE DALTON REVIEW is a comprehensive CFP review course for individuals planning to
take the CFP Certification Examination. THE DALTON REVIEW was developed by
former members of the CFP Board of Examiners. If anyone knows what is tested on the CFP
exam, they do.
THE DALTON REVIEW offers both the eReview and Traditional Classroom review. The
eReview is a live - instructor led - Internet delivered CFP review course. Students and
instructors communicate using their computer, speakers and a headset. If you miss a class or
want to hear the lecture again, no problem! All classes are recorded so you can play them back
anytime. This is not online, self-study, which does not have any instructor interaction or real
class time. It is a virtual classroom, with a live instructor and other students, from the comfort
of your home or office.
To learn more about The Dalton Review, please visit our website at
http://thedaltonreview.com or call us at (877) 426-2373.
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CFP Certification Examination Job Task Domains

The following Job Task Domains are based on the results of CFP Board's 2009 Job Analysis
Study and will serve as the blueprint for the March 2012 and later administrations of the CFP
Certification Examination. Each exam question will be linked to one of the following domains,
in the approximate percentages indicated following the general headings.
Job Task Domains (Approximate Percentages for each Exam)

Domain 1 - Establishing and Defining the Client-Planner Relationship (8%)
A. Identify the client (e.g., individual, family, business, organization)
B. Discuss financial planning needs and expectations of the client
C. Discuss the financial planning process with the client
D. Explain scope of services offered by the CFP professional and his/her firm
E. Assess and communicate the CFP professionals ability to meet the clients needs and
expectations
F. Identify and resolve apparent and potential conflicts of interest in client relationships
G. Discuss the clients responsibilities and those of the CFP professional
H. Define and document the scope of the engagement with the client
I. Provide client disclosures
1. Regulatory disclosure
2. Compensation arrangements and associated potential conflicts of interest
Domain 2 - Gathering Information Necessary to Fulfill the Engagement (9%)

A. Identify the clients values and attitudes
1. Explore with the client their personal and financial needs, priorities and goals
2. Explore the clients time horizon for each goal
3. Assess the clients level of knowledge and experience with financial matters
4. Assess the clients risk exposures (e.g., longevity, economic, liability,
healthcare)
5. Assess the clients risk tolerances (e.g., investment, economic, liability,
healthcare)
B. Gather Data
1. Summary of assets (e.g., cost basis information, beneficiary designations and
titling)
2. Summary of liabilities (e.g., balances, terms, interest rates). Summary of
abilities (e.g., balances, terms, interest rates)
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3. Summary of income and expenses

4. Estate planning documents
5. Education plan and resources
6. Retirement plan information
7. Employee benefits
8. Government benefits (e.g., Social Security, Medicare)
9. Special circumstances (e.g., legal documents and agreements, family situations)
10. Tax documents
11. Investment statements
12. Insurance policies and documents (e.g., life, health, disability, liability)
13. Closely held business documents (e.g., shareholder agreements)
14. Inheritances, windfalls, and other large lump sums
C. Recognize need for additional information
Domain 3 - Analyzing and Evaluating the Clients Current Financial Status (25%)
A. Evaluate and document the strengths and vulnerabilities of the clients current financial
situation
1. Financial status
a. Statement of financial position/balance sheet
b. Cash flow statement
c. Budget
d. Capital needs analysis (e.g., insurance, retirement, major purchases)
2. Risk management and insurance evaluation
a. Insurance coverage
b. Retained risks
c. Asset protection (e.g., titling, trusts, business form)
d. Client liquidity (e.g., emergency fund)
3. Benefits evaluation
a. Government benefits (e.g., Social Security, Medicare)
b. Employee benefits
4. Investment evaluation
a. Asset allocation
b. Investment strategies
c. Investment types
5. Tax evaluation
a. Current, deferred and future tax liabilities
b. Income types
c. Special situations (e.g., stock options, international tax issues)
6. Retirement evaluation
a. Retirement plans and strategies (e.g., pension options, annuitization)
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b. Accumulation planning
c. Distribution planning
7. Estate planning evaluation
a. Estate documents
b. Estate tax liabilities
c. Ownership of assets
d. Beneficiary designations
e. Gifting strategies
8. Business ownership
a. Business form
b. Employer benefits
c. Succession planning and exit strategy
d. Risk management
9. Education planning evaluation
a. Sources of financing
b. Tax considerations
10. Other considerations
a. Special circumstances (e.g., divorce, disabilities, family dynamics)
b. Inheritances, windfalls, and other large lump sums
c. Charitable planning
d. Eldercare (e.g., CCRCs, LTC, Nursing Home)
B. Identify and use appropriate tools and techniques to conduct analyses (e.g., financial
calculators, financial planning software, simulators, research services)
Domain 4 - Developing the Recommendation(s) (25%)
A. Synthesize findings from analysis of client's financial status
B. Consider alternatives to meet the clients goals and objectives
1. Conduct scenario analysis (e.g., changing lifestyle variables)
2. Conduct sensitivity analysis (e.g., changing assumptions such as inflation rate,
rates of return, time horizon)
C. Consult with other professionals on technical issues outside of planner's expertise
D. Develop recommendations
1. Considering client attitudes, values and beliefs
2. Considering behavioral finance issues (e.g., anchoring, overconfidence, recency)
3. Consider interrelationships among financial planning recommendations
E. Document recommendations
Domain 5 - Communicating the Recommendation(s) (9%)
A. Present financial plan to the client and provide education
1. Client goals review
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2. Assumptions
3. Observations and findings
4. Alternatives
5. Recommendations
B. Obtain feedback from the client and revise the recommendations as appropriate
C. Provide documentation of plan recommendations and any applicable product
disclosures to client
D. Verify client acceptance of recommendations
Domain 6 - Implementing the Recommendation(s) (9%)
A. Create a prioritized implementation plan with timeline
B. Assign responsibilities (e.g., CFP professional, client, other professional(s))
C. Support the client directly or indirectly with implementation of the recommendation(s)
D. Coordinate and share information, as authorized, with others
E. Define monitoring responsibilities with the client (e.g., explain what will be monitored,
frequency of monitoring, communication method(s)
Domain 7 - Monitoring the Recommendation(s) (5%)
A. Discuss and evaluate changes in the clients personal circumstances (e.g., aging issues,
change in employment)
B. Review the performance and progress of the plan with the client
C. Review and evaluate changes in the legal, tax and economic environments
D. Make recommendations to accommodate changed circumstances
E. Review scope of work and redefine engagement as appropriate
F. Provide client ongoing support (e.g., counseling, education)
Domain 8 - Practicing within Professional and Regulatory Standards (10%)
A. Adhere to CFP Board's Code of Ethics and Professional Responsibility and Rules of
Conduct
B. Understand CFP Board's Disciplinary Rules and Procedures
C. Work within CFP Board's Financial Planning Practice Standards
D. Manage practice risk (e.g., documentation, monitor client noncompliance with
recommendation(s)
E. Maintain awareness of and comply with regulatory and legal guidelines
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Fundamentals
1. On January 1st Lisa just purchased a home with a 20-year mortgage for $150,000 and an 8%
interest rate. What is Lisa's principal reduction for the first year? A-3
A.
B.
C.
D.
$3,254
$3,171
$3,067
$2,905
2. In step two of the financial planning process (establishing facts, information and data), all of
the following are examples of qualitative data except: K-1
A.
B.
C.
D.
Client health status.

Any potential changes in current lifestyle.
Risk tolerance levels.
Financial Statements.
3. Bob is a CFP professional and has entered into a signed engagement letter to provide the
first four steps of the financial planning process. Once Bob has made the recommendations, the
engagement letter clearly identifies that the scope of the relationship ends and that the client is
solely responsible for implementation of recommendations. Six months after Bob provided a
client with his recommendations, the client approached Bob about purchasing a life insurance
policy through Bob, which was one of the recommendations in the plan. Is Bob still engaged
with the client? A-2
A. No, the engagement letter limited the scope of the services to be provided. Bob is no
longer engaged in the financial planning process with the client. Bob is now selling
product beyond the scope of the engagement.
B. Yes, Bob is still engaged with the client because Bob previously established a
professional relationship and is now providing implementation services to the client by
selling life insurance.
C. No, a planner is not engaged with a client when only selling a single product. The
planner would be engaged if applying multiple steps in the financial planning process.
D. Yes, because even by providing two steps in the financial planning process, a planner is
considered engaged with a client.
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4. Cheryl is an insurance agent and a CFP professional that works for a large, national
insurance company. Recently, attorneys for the insurance company have required that any
employees using the CFP marks must remove the marks from their business cards, websites
and promotional materials. The attorneys are concerned about potential lawsuits from
customers alleging the CFP professionals did not exercise the duty of a fiduciary. Based on
this information, how should Cheryl proceed when working with clients? A-1
A. Cheryl must disclose in writing to her clients that although she is a CFP professional,
her firm requires her to use the suitability standard and not the duty of a fiduciary.
B. By complying with the attorneys request and removing the marks from all marketing
materials, Cheryl no longer holds herself out as a CFP, and therefore she must only
provide clients with a suitability duty of care.
C. Cheryl should remove the CFP marks as requested by the company attorneys,
however she is still required to fulfill her professional obligations to follow the
Standards of Professional Conduct and she still owes the duty of care of a fiduciary.
D. As long as Cheryl removes the marks from all business cards, stationary, brochures,
websites and does not hold herself out to the public as a CFP professional, she is not
professionally bound by the CFP Boards Standards of Professional Conduct while
conducting her business.
5. Mary is a CFP professional and is in the analyzing and evaluating step of the financial
planning process, and is developing a capital needs analysis for her client. She has established
assumptions for tax rates, investment returns and inflation rates. Her client disagrees with
Marys assumptions regarding inflation and other economic variables used in the retirement
needs analysis calculation. What should Mary do next? A-1
A. If Mary and her client are unable to agree on the assumptions used for the retirement
capital needs analysis, Mary is required to limit the scope of the engagement and
exclude retirement capital needs analysis from her recommendations or use the clients
assumptions.
B. Mary should use the assumptions that result in the most conservative recommendations
for retirement funding but provide sensitivity analysis to demonstrate variability.
C. The CFP Boards Standards of Professional Conduct require Mary to disengage from
the client.
D. Mary should provide her client with multiple projections, consistent with all of the
varying assumptions.
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6. Snidely, a CFP professional, met with Dudley and Geezer, Dudleys father. During the
meeting, Snidely entered into an oral agreement with Dudley to manage Geezers financial
affairs. Snidely did not complete a client profile of Geezer. Snidely offered to review and make
recommendations on Geezers then-current living trust. Snidely prepared a Last Will,
Revocable Trust and Durable Power of Attorney for management of Property and Personal
Affairs, and charged Geezer $400 per hour for preparing the documents. While these were
obviously needed, Geezer had not requested such documents. Geezer asked Snidely to provide
him with all the documents pertaining to his investments. Geezer complained to the CFP Board,
which upon investigation ordered a hearing date. As of the hearing date with the Disciplinary
and Ethics Commission, Snidely had not provided the requested documents to Geezer. The
Commission issued an Order to Revoke Permanently Snidelys right to use the CFP,
CERTIFIED FINANCIAL PLANNER and certification marks. The Commission ordered
Snidely to verify that he was not using the marks by submitting copies of his letterhead and
business cards within 30 days of the Order. To comply with the Code of Ethics, before
providing any services to Geezer, Snidely was required to take all of the following steps
EXCEPT: E-1
A. Provide a written agreement outlining the mutually defined obligations and
responsibilities of each party.
B. Gather appropriate data to assess Geezers financial situation, needs and objectives.
C. Provide a written agreement outlining Snidleys compensation and potential conflicts of
interest.
D. Provide a written agreement outlining how and on what terms each party can terminate
the agreement.
E. Snidely should have done all of the above.
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7. John, a CFP professional, works for a firm requiring that any investment products offered
to a client be proprietary products of the firm. Jack, his client, is 55 years old and has a
moderate risk tolerance. Johns firm has an S&P500 index fund with a reasonable fee structure.
John has discussed the funds performance and costs with Jack and they have agreed that 60%
of his equity portfolio will be allocated to this index fund. Which of the following is true
according to the CFP Code of Ethics? A-1
A. John is prohibited from providing financial planning or material elements of financial
planning because he may not be able to offer the client the best available option.
B. John may provide financial planning or material elements of financial planning as long
as the limitations concerning the proprietary products are discussed with Jack.
C. John may provide financial planning or material elements of financial planning but the
limitations concerning the proprietary products must be disclosed and it must be in
writing to Jack.
D. John could enter into a limited engagement related to Jacks specific insurance needs
next year with no written disclosures other than those required by regulatory bodies.
8. A CFP professional was asked by a client to appropriately address the following
questions:
1. How much money do I need to set aside each month to send my daughter to college in
fourteen years?
2. How much do I need to save so my spouse and I will have a secure retirement?
3. How much and what type, if any, of life insurance do I need?
4. What investment products would be best for me in order to execute an investment plan
and asset allocation plan developed by my prior financial planner?
Which of these questions considered individually would likely be considered the practice of
financial planning under the Code of Ethics? E-1
A.
B.
C.
D.
Question 1
Question 2
Question 3
Question 4
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9. Jack, a new client for Robert, a CFP professional, requests a needs analysis concerning
Jacks life insurance situation. Jack is 42, married and has two children he plans to send to
college. He wants Robert to evaluate how much and what type of insurance he should purchase.
Which of the following is required to be provided to Jack according to the Code of Ethics? A-3
A. A written agreement for Roberts services specifying on what terms the agreement can
be terminated.
B. An accurate and understandable description of the compensation arrangements being
offered, in writing.
C. A written summary of likely conflicts of interest between the client and the certificant.
D. None of the above is required by the Code of Ethics.
10. Jonathan got divorced in 2007 and subsequently had severe financial problems. In 2009, he
filed for bankruptcy. After getting back on his feet, he graduated from college and got a job
selling life insurance for a large national insurer. In July 2012, he completed all of the
requirements for the CFP designation. In August of 2012, he made his application to the CFP
Board for licensing. Which of the following is correct under the Boards revised policy
regarding bankruptcy? E-1
A. Jonathan's bankruptcy falls on the presumed unacceptable list because it is within five
years preceding his application. He will be denied the right to use the marks unless he
files a successful consideration request with the CFP Board.
B. Jonathan's bankruptcy falls on the always bar list because it is within five years
preceding his application. He will be denied the right to use the marks.
C. Jonathan's bankruptcy is no longer a concern of the CFP Board as long as he discloses it
in writing to all potential clients for the five year period following the bankruptcy.
D. Jonathan's bankruptcy will not prevent him from becoming a CFP professional, but it
will be disclosed on the CFP professionals public profile displayed on the CFP
Boards website for 10 years.
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Insurance
11. A successful architect wants to purchase disability income insurance. She is concerned
about becoming totally disabled, but also about a reduction in income if she is obliged to
reduce her workload because of a less-than-total disability. To satisfy these concerns, which of
the following should be included in her disability income coverage? A-2
A.
B.
C.
D.
Residual disability benefits.

A change-of-occupation provision.
Dismemberment benefits.
A relation of earnings-to-insurance provision.
12. Dave is 46, married and has an annual salary of $60,000. His employer offers group term
life insurance coverage equal to 2 times his annual salary. The employer's cost for Dave is $.40
per $1,000 of which Dave pays $.15 per month per $1,000. The Table 1 (Section 79) rate for
45-49 year olds is $0.29 per $1,000. What must John include in his taxable income this year
resulting from the group term insurance? Round your answer to the nearest dollar. A-1
A.
B.
C.
D.
$28
$126
$210
$244
13. Which of the following accurately reflect(s) the taxation of an annuity owned by a
decedent? A-2
A. The decedent's will determines who receives proceeds of annuity because beneficiary
designation become null and void at death.
B. Accumulated interest is income tax exempt.
C. Deferred interest is subject to Income in Respect to a Decedent (IRD)
D. The annuity proceeds must always be probated.
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14. An insured gave his correct age as 45, but when it was written down by the agent, the
numbers were transposed presenting the insured as age 54 on the application. The insured
purchased and was approved for the insurance and paid regular premiums.
One day after three years of ownership, the insured came across the policy and noticed the
error. He called the company. What was the company most likely to do? A-2
A. Cancel the policy and take the insured to court for fraud.
B. Provide the insured with a policy representing the face amount that the premiums would
have purchased.
C. Give the insured back the difference with interest.
D. Remove excess amounts from the interpolated required reserve and place them in the
general fund.
15. Your client, John Kent, purchased a limited payment whole life policy 15 years ago. He
would like to stop paying the premiums on his policy, but continues to have need of the same
amount of insurance. If he did so, which one of the following is a non-forfeiture option he
could use? A-2
A.
B.
C.
D.
Reduced paid-up insurance.

Extended term insurance.
Installments for a fixed period.
One-year term.
16. Lisa is a condo owner and has an HO-6 policy. She purchased the condo for $400,000. Her
HO-6 policy is an open peril policy and has a face value of $360,000. Her contents are covered
on a named peril basis with $100,000 in coverage. She also has an 80% coinsurance
requirement. A tornado hits the building and completely destroys the roof of the condo. The
cost to repair the roof is $50,000. How much would her condo policy cover for the roof
damage? K-2
A.
B.
C.
D.
$0.
$32,000.
$45,000.
$50,000.
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17. Smith and Jones purchased a warehouse. The value of the warehouse was $1 million. Their
insurance agent carefully explained the coinsurance requirement of 80% to them. Smith and
Jones wisely decided to insure the warehouse for the full value that they had paid for it. Their
agent, however, had failed to mention the inflation protection option which upped the amount
of insurance they had each year for coverage on the warehouse. They also had a $5,000
deductible. As a result of all this, at the end of five years with the warehouse value
approximately $1,250,000, Smith and Jones had a fire. The fire caused $50,000 worth of
damage. The insurance company paid the following: K-3
A.
B.
C.
D.
$50,000.
$40,000.
$45,000.
$35,000.
18. While John is working on his garage roof, he slips, falls off the roof, and lands on the
driveway next to the car. John broke his arm in the fall. He should seek to collect and will be
successful in doing so from which of his insurance policies? A-1
A.
B.
C.
D.
Coverage F, medical payment insurance on his homeowners.

Medical pay on his auto insurance.
His personal health insurance policy.
His extended coverage on his life insurance policy.
19. Risk transfer (or the use of insurance) would best be utilized in the case of: K-2
A.
B.
C.
D.
High frequency / high severity.

Low frequency / high severity.
High frequency / low severity.
Low frequency / low severity.
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20. Jerry Rivers owns a $250,000 level-term life policy which he purchased five years ago. He
has paid premiums of $400 per year for the past five years. He also owns a $125,000 whole life
policy which he purchased fifteen years ago. He has paid premiums of $2,000 per year for the
past 15 years, and now the policy has a cash surrender value of $40,000. Over the years, the
whole life policy has paid cash dividends to Jerry. The cumulative dividends paid to Jerry since
inception totals $5,000. Jerry has decided to cancel his $125,000 whole life policy. Which
statement is true? K-3
A.
B.
C.
D.
Jerry has a taxable gain of $10,000. This gain will be treated as a long-term capital gain.
Jerry has a taxable gain of $15,000. This gain will be treated as ordinary income.
Jerry has a taxable gain of $70,000. This gain will be treated as ordinary income.
Jerry has NO taxable gain.
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INVESTMENTS
21. What is the return that your client should expect from a security that last year returned
11.7% with a standard deviation of .146, a beta of 1.2, when the overall market return has been
10.93%, and U.S. Treasury issues are currently delivering around 3.56%? K-2
A.
B.
C.
D.
14.6%
13.3%
12.4%
11.7%
22. You are faced with several fixed income investment options. Which of these bonds has the
greatest interest rate risk? A-2
A. A U.S. Treasury bond with an 11.625% coupon, due in five years with a price of
$1,225.39 and a yield to maturity of 6.3%.
B. A U.S. Treasury strip bond (zero-coupon) due in five years with a price of $735.12 and
a yield to maturity of 6.25%.
C. A corporate B-rated bond with a 9.75% coupon, due in five years with a price of
$1,038.18 and a yield to maturity of 8.79%.
D. A U.S. Tbill selling for $950 due in six months.
23. Barbara Reed owns an LMN, Inc. bond with a par value of $1,000. LMN is a AA-rated
bond that matures in seven years. Barbara receives $55 of interest income from LMN
semiannually. Comparable debt, i.e., AA-rated, 7-year maturity, yields 12%. The bond's
duration is five years. What is the intrinsic value of the bond? K-2
A.
B.
C.
D.
$703.36
$880.80
$953.53
$954.36
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24. John Risotto has a cash need at the end of nine years. Which of the following investments
best meets this need and serves to immunize the portfolio initially? A-2
I. An 11-year maturity coupon bond.
II. A 9-year maturity coupon Treasury note.
III. A series of Treasury bills.
A.
B.
C.
D.
I only.
II and III only.
II only.
I and II only.
25. The optimum portfolio is said to occur at the point of tangency of which of the following
two measures? K-3
A.
B.
C.
D.
Indifference curve and efficient frontier.

Standard deviation and median expected return.
Beta coefficient and portfolio data.
Covariance and correlation coefficient.
26. Your client has purchased stock with a margin position that required 50% initial margin and
a 35% maintenance margin. The stock was originally valued at $23 per share when the
transaction was undertaken and your client bought 1,000 shares. What stock price will trigger a
margin call? K-2
A.
B.
C.
D.
$13.04
$17.69
$26.45
$32.86
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27. You have recommended a growth mutual fund to a new client. The client considered your
recommendation and asked why he shouldn't invest in another fund that he had been following,
which appeared to have a better performance over the past three years. You explained the
concept of risk-adjusted performance and obtained the following information about the two
funds:
Your fund:
Three-year total return = 13.5%
Average P/E ratio = 20
Standard deviation = 19
Beta = 1.03
Client Fund:
Three-year total return = 14.74%
Average P/E ratio = 24
Standard deviation =23
Beta = 1.24
Using Treynor, which fund would you recommend if the risk-free return is 3%? A-2
A.
B.
C.
D.
Client fund, because its Treynor is higher than your fund.

Client fund, because its Treynor is lower than your fund.
Your fund, because its Treynor is 10.2% compared with the client's Treynor of 9.4%.
None of the above.
28. A client has bought a stock for $40 per share. At the end of the first year, she purchases
another share at $43 per share, and at the end of the second year, with the share price of $48 she
sells her shares. Along the way, at the end of each year, she received a $2 per share dividend.
What would the time-weighted return on her investment be? K-3
A.
B.
C.
D.
9.53%
9.97%
14.3%
16.6%
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29. You purchase one call contract and pay a $3 premium that allows you to buy the stock at
$50. The stock is currently trading at $54. What is the intrinsic value of the situation youre
in? K-2
A.
B.
C.
D.
-$4
$0
$2
$4
30. A client with a large, well-diversified common stock portfolio expresses concern about a
possible market decline. However, he/she does NOT want to incur the cost of selling a portion
of their holdings NOR the risk of mistiming the market. A possible strategy for him/her would
be: A-2
A.
B.
C.
D.
Buy an index call option.

Sell an index call option.
Buy an index put option.
Sell an index put option.
THE DALTON REVIEW
TAX
31. Under the terms of a divorce agreement, Larry is required to pay his wife Joyce $2,400 per
month in alimony and child support until his child is 18 at which time he will have to pay
$2,100 per month for a period not less than 10 years. For a twelve-month period, Larry can
deduct from gross income (and Joyce must include in gross income): A-3
A.
B.
C.
D.
$0
$25,200
$3,600
$28,800
32. Marsha has the following income and losses for the current year:
I. A ($1,000) loss from a 30% interest in Laminate Partnership in which she does NOT
materially participate.
II. A ($1,500) loss from a 2% limited partnership interest in Venture, a limited
partnership.
III. A ($3,000) loss from a 12% interest in an S corporation in which she manages one
of the departments.
IV. A $40,000 salary as manager of the S corporation.
V. $1,200 of dividend income from Higher Mutual Fund.
What is Ellen's adjusted gross income from the above transactions? A-3
A.
B.
C.
D.
$35,700
$36,700
$38,200
$41,200
33. The holding period of property acquired by gift begins on: A-2
A.
B.
C.
D.
The date the property was acquired by the donor.

The date of the gift.
Either the date the property was acquired by the donor or the date of the gift.
The donee elects the date.
THE DALTON REVIEW
34. What effect does claiming the full Section 179 deduction have on an asset's adjusted taxable
basis? A-2
A. Immediate expense of the total cost and a resulting basis of zero not subject to
recapture.
B. Immediate expense of the total cost and a resulting basis of zero subject to recapture.
C. Partial expense with a reduced basis and not subject to recapture.
D. Any amount of expense not to exceed the total cost, subject to income and Section 179
expense limits reduces the adjusted taxable basis.
35. A client sold an apartment building last year for $100,000, paying a sales commission of
$5,000 plus $2,500 closing costs. The building originally cost $80,000 20 years ago. Total
straight line depreciation of $40,000 had been taken. The building had a mortgage of $60,000
which was assumed by the buyer. What is the seller's adjusted cost basis? A-2
A.
B.
C.
D.
$32,500
$37,500
$40,000
$52,500
36. Tony Scarponi has come to you asking about the impact on the basis of property that his
brother Calvin gave to him. The property had a market value of $75,000 at the time of the gift
and Calvins adjusted basis in the property was $18,000 at the time of the gift. Calvin paid gift
tax of $3,500. Tony wants to know his adjusted basis in the property. Assume Calvin had
previously utilized any annual gift tax exclusion for gifts previously given to Tony that year.
What will you tell him? A-3
A.
B.
C.
D.
Tonys basis is $18,000 the same as Calvins basis was at the time the gift was made.
Tonys basis is the fair market value of the gift at the time the gift, $75,000.
The adjusted basis for Tony is $20,660.
The adjusted basis for Tony is $21,500.
THE DALTON REVIEW
37. Hannah owns an event planning company that specializes in very high-end events. Several
years ago, Hannah purchased a magnificent chocolate fountain for $3,000 and has since taken
$1,200 in depreciation deductions on the fountain. Hannah is now ready to replace the
chocolate fountain with the tools for creating ice sculptures, but she is not sure what the tax
consequences of selling the chocolate fountain will be. Which of the following statements is
true regarding the tax consequences of selling the chocolate fountain? A-3
A. If Hannah sells the chocolate fountain for $1,800, she will have a $1,200 capital loss.
B. If Hannah sells the chocolate fountain for $1,700, she will have a $1,300 ordinary gain.
C. If Hannah sells the chocolate fountain for $2,000, she will have an ordinary gain of
$200.
D. If Hannah sells the chocolate fountain for $3,300, she will have a $1,500 capital gain.
38. Under which of the following circumstances is a trip outside the United States considered to
be purely for business? A-2
I. The taxpayer does not have control over the timing or arrangements for the trip.
II. The trip outside the United States lasts for less than seven days.
III. Less than 50 percent of the time spent on the trip was personal.
IV. Vacation was not a primary consideration for the trip.
A.
B.
C.
D.
I only.
II and III only.
I, II and IV only.
I, II, III, and IV.
39. Danny is starting a new business. His primary objective is limited liability, but he would
also like to have flow-through income taxation. At some point, he would like to be able to
easily sell interests in the business, but does not expect to have more than 20 investors. Danny
does not want to pay self-employment taxes. Which of the following entities would best suit
Danny's needs? A-2
A.
B.
C.
D.
Proprietorship.
S corporation.
C corporation.
Partnership.
THE DALTON REVIEW
40. Bebe Rebozo is contemplating the exchange of two parcels of investment land for two
similar parcels. Given the following details of the proposed transaction, compute the amount of
recognized gain or loss (if any) on both parcels if your client completes the exchanges: S-3
Parcel A: Ten acres of land acquired 15 years ago with a current basis of $50,000. In
exchange your client will receive eight acres of land (FMV = $80,000) and $20,000 in
cash.
Parcel B: Twenty acres of land acquired two years ago with a current basis of
$100,000. In exchange, your client will receive twelve acres of land (FMV = $75,000)
and $10,000 in cash.
A.
B.
C.
D.
Parcel A Recognized Gain = $20,000; Parcel B Recognized Loss = $0

Parcel A Recognized Gain = $20,000; Parcel B Recognized Loss = $10,000
THE DALTON REVIEW
RETIREMENT
41. Which of the following correctly describes "eligible individual accounts"? K-3
I. May not invest plan assets in qualifying employer securities.
II. Include individual retirement accounts.
III. They are subject to Pension Benefit Guaranty Corporation (PBGC) coverage and
insurance premiums.
IV. They are subject to minimum funding requirements.
A.
B.
C.
D.
II only.
II and IV only.
I only.
I and III only.
42. The Health Insurance Portability and Accountability Act of 1996 (HIPAA) impacts an
employee and employer in which of the following ways: K-3
I. All employees must be covered by the group health insurance plan (if offered) within
twelve months of beginning employment.
II. The waiting period is reduced by the amount of "creditable coverage" at a previous
employer.
III. If the employee does not enroll in the group health insurance plan at the first
opportunity, an 18-month exclusion period may apply.
A.
B.
C.
D.
I and II only.
I, II and III only.
II and III only.
II only.
THE DALTON REVIEW
43. Which of the following legal requirements apply to employee stock ownership plans
(ESOPs)? A-3
I. ESOPs must permit participants who are aged 55 or greater who have at least 10
years of service the opportunity to diversify the investments in their accounts.
II. ESOPs can be integrated with Social Security under the excess method.
III. An employer's deduction for ESOP contributions and amounts made to repay
interest on an ESOP's debt cannot exceed 25% of the participant's payroll.
IV. The mandatory 20% income tax withholding requirement does not apply to
distributions of employer stock from an ESOP.
A.
B.
C.
D.
I and II only.
II and IV only.
I, II and III only.
I and IV only.
44. Which of the following statements accurately describes a situation where the use of a
flexible spending account (FSA) would be advisable? E-2
I. The employer's medical plan has large deductibles, large coinsurance, or copayment
provisions.
II. There is a need for benefits that are sometimes difficult to provide on a group basis,
such as dependent care.
III. The employees are primarily non-union and operating outside of a collective
bargaining agreement.
IV. There are a great many employees who have an employed spouse with duplicate
medical coverage.
A.
B.
C.
D.
I and II only.
I, III and IV only.
I, II, and III only.
I, II, III and IV.
THE DALTON REVIEW
45. Which of the following is true concerning IRA contributions? A-2

A. An employee who makes voluntary contributions to a 401(k) plan is not considered an
active participant.
B. An employee who makes no contribution, receives no employer contributions or
forfeiture allocations in their employer's profit sharing plan is not considered an active
participant.
C. An employee who makes no voluntary contributions to a thrift plan yet receives
forfeiture allocations to a profit sharing plan is not considered an active participant.
D. An employee participating in a Section 457 plan is considered an active participant if
employee pretax deferrals are elected.
46. Which of the following is true regarding qualified incentive stock options? A-3
I. No taxable income is recognized by the employee when the qualified option is
granted or exercised.
II. The income from sale of the qualified option is taxed as capital gains when the
stock is sold.
III. The income from sale of the qualified option is taxed as ordinary income
regardless of when the stock is sold.
IV. The employer is not able to deduct the bargain element of the option as an expense
under any circumstance.
V. For favorable tax treatment the option must be held two years from the grant and
the stock for one year after exercise.
A.
B.
C.
D.
II and IV only.
I and V only.
III only.
I, II and V only.
THE DALTON REVIEW
47. Which of the following statements accurately reflect the characteristics of a Section 457
plan? A-2
I. Benefits taken as periodic payments are treated as ordinary income for taxation.
II. Lump-sum distributions are eligible for 5-year and/or 10-year averaging.
III. Deferred amounts are subject to Social Security and Medicare taxes at the later of:
performance of services or employee becomes vested in the benefits.
IV. Income tax withholding is not required until funds are actually received, not
constructively received.
V. Contributions may not exceed annual limits.
A.
B.
C.
D.
I, III and V only.

II, IV and V only.
I, II, IV and V only.
I, II, III, IV and V.
48. Your client, ABC Corporation, is considering adopting some form of retirement plan. The
clients stated objectives for a plan are in order of importance:
I. Rewarding long-term employees.
II. Retention of employees.
III. Providing a level of income at retirement equal to 50% of an employee's earnings.
IV. Tax-deductible funding.
V. No risk to employees of benefits available.
The company indicates it is willing to contribute an amount equal to 30% of payroll to such
a plan. The company has been in business for 22 years, and during the past decade has
consistently been profitable and had excess cash flows. They furnish you with an employee
census. Based upon the stated objectives, you advise ABC Corporation that the most
suitable retirement plan for the corporation would be a: A-1
A.
B.
C.
D.
Money purchase pension plan.

Non-qualified deferred compensation plan for long-term employees.
Combination of defined benefit and 401(k) plan.
Defined benefit plan.
THE DALTON REVIEW
49. Pat established his business one year ago. He has hired two assistants. He would like to
establish a retirement benefit plan for himself and his two assistants, who want to make
voluntary contributions. He is concerned about cash flows for unforeseen business obstacles
and future expansion. Which of the following reasons is/are appropriate to recommend the
establishment of a retirement plan. A-3
I. A retirement plan would allow Pat to save for his own retirement.
II. Tax savings would help to offset the cost of employer contributions.
III. A retirement plan would give the appearance of business stability and would be an
asset in the securing of business loans to meet growth and cash flow needs.
A.
B.
C.
D.
I only.
II only.
I and III only.
I and II only.
50. Jack Jones, age 40, earns $100,000 per year and wants to establish a defined contribution
plan to encourage employees to stay with his firm. He employs four people whose combined
salaries are $60,000 and who range in age from 23 to 30. The average period of employment is
3.5 years. Which vesting schedule is best suited for Jack's plan? A-2
A.
B.
C.
D.
3-year cliff vesting.

3-7 year graded vesting.
5-year cliff vesting.
2-6 year graded vesting.
THE DALTON REVIEW
ESTATE PLANNING
51. XYZ Corporation is a closely held corporation. Martin McFly, along with the three other
owners, set up a stock redemption agreement requiring the corporation to buy all shares of a
deceased or disabled shareholder. The plan is funded by entity life insurance policies on each
shareholder. Premiums are paid by the corporation but are not deducted. The agreement states
that the share price will be established by an independent, competent third party appraiser.
What are the tax implications of this plan? A-2
I. A deceased shareholder's gross estate will be increased by the amount of the life
insurance.
II. There is no step-up in basis for decedent's family on the shares of stock covered by
the plan.
III. The corporation will owe income tax on the difference between the cash value of the
policy and the death benefit amount.
A.
B.
C.
D.
I only.
I and III only.
II only.
None of the above.
52. Marie is the founder and sole owner of Purple Cakes Bakery. Allen has offered to buy her
business for a price Marie considers reasonable, but Allen does not currently have all of the
funds necessary to pay for the business at the current time. Marie is in good health, and her life
expectancy is much greater than the IRS life expectancy factor, and she wants to accept Allen's
offer. Allen is not related to Marie and has good credit. Given these facts, which transfer
method should be used to transfer the business to Allen? E-2
A.
B.
C.
D.
Grantor Retained Annuity Trust.

Self-Canceling Installment Note.
Private Annuity.
Installment Sale.
THE DALTON REVIEW
53. Your client wants to accomplish the following:

- Provide inflation adjusted income stream for his parents.
- Reduce income taxes.
- Fulfill charitable intent.
- Maintain some control over the assets.
Which of the following would accomplish your client's goals? A-3
A.
B.
C.
D.
A charitable lead unitrust.

A charitable remainder annuity trust.
A charitable pooled income fund.
A charitable remainder unitrust.
54. A will can accomplish which of the following estate planning objectives? K-1
A.
B.
C.
D.
Avoid probate.
Provide for decisions during incompetency.
Establish a testamentary credit shelter trust.
Trump a beneficiary designation on a qualified plan.
55. Making arrangements to deal with the possibility of physical or mental incapacity is an
important area of estate planning. Which of the following may be used to deal with unexpected
incapacity? E-3
I. Springing durable power of attorney for health care.
II. Revocable living trust.
III. Fee simple.
IV. Living will.
A.
B.
C.
D.
I only.
I and II only.
I, II and IV only.
I, II, III and IV.
THE DALTON REVIEW
56. Identify the statement(s) below that correctly characterize(s) property interests held by the
decedent that, at death, pass by operation of law: E-2
I. If the property passes by operation of law, the property avoids probate.
II. If the property passes by operation of law, it will not be included in the decedent's
gross estate.
III. Property that passes by operation of law cannot qualify for the marital deduction.
IV. For property passing by operation of law, the titling on the instrument determines
who will receive the property.
A.
B.
C.
D.
I only.
II, III and IV only.
I and IV only.
I, III and IV only.
57. Generation Skipping Transfer Taxes (GSTT) have all the following characteristics, except:
E-2
A. Outright gifts qualifying for the annual exclusion are not subject to the tax.
B. Assets transferred to a trust that has a grandchild as the sole beneficiary may be subject
to both gift and generation skipping transfer tax.
C. If all the beneficiaries of a trust are grandchildren (whose parents are all alive) of the
grantor then the trust is subject to GSTT.
D. A "skip person" is anyone who is more than one generation younger than the grantor.
58. Gina, age 79, recently had a stroke. Afraid that she may not live long enough to see her
family enjoy it, she would like to transfer the beach house she owns to her daughter Taylor.
While Gina is willing to make the transfer gratuitous in whole or part, Gina does not want to
pay any gift tax or utilize any of her lifetime credit amount. Which of the following techniques,
if used by Gina to transfer the beach house to Taylor, will not result in a taxable gift? A-3
A.
B.
C.
D.
GRAT.
QPRT.
SCIN.
GRUT.
THE DALTON REVIEW
59. Suzanne York has a home that she wants to pass to her children upon her death. Rather than
waiting, she gives the children the home with the stipulation that she can continue to live in the
home for the rest of her life. What has she given? A-2
A.
B.
C.
D.
A reversionary interest.
A life interest.
A term interest.
A remainder interest.
60. Sammy Free inherited property from his Uncle's estate. The value of the property received
by Sammy was declared in the estate to be valued at $20,000. Sammy put the property in
Community Property with his spouse, Alline. Sammy died last month when the property was
valued at $50,000. Sammy's will left everything to his spouse Alline. Alline sold the property
for $55,000. What is her tax basis at the date of the sale? A-3
A.
B.
C.
D.
$50,000
$20,000
$35,000
$55,000
THE DALTON REVIEW
Solutions
1. The correct answer is "B."
N = 20 x 12 = 240
i = 8/12 = .6667
PV = 150,000
PMT = ?
FV = 0
PMT = 1,254.66
12C
12f AMORT
>
X< y
10BII
I Input 12
Orange shift AMORT
=
2. The correct answer is "D." In step two of the financial planning process, "establishing facts
and gathering information," financial statements are quantitative data. Names and numbers are
usually indicators of quantitative data.
3. The correct answer is B. According to the CFP Boards Standard of Professional Conduct
FAQs, in general, once a financial planning relationship with a CFP professional has been
established, all future services provided by the CFP professional to the client are likely to be
considered by CFP Board to be part of the financial planning process. Answer A is incorrect
because CFP Board generally considers a CFP professional to be engaged with the client for
all future services provided by the CFP professional. Answer C is incorrect because the
planner is still engaged because a relationship was previously established and future services
are considered to be part of the financial planning process. Answer D is incorrect because if the
planner previously provided financial planning services and the answer is not relevant to the
question.
THE DALTON REVIEW
4. The correct answer is "C." According to the CFP Boards Standard of Professional Conduct
FAQs, removal of the CFP marks from ones business cards or stationery does not relieve a
CFP professional of the obligation to follow the Standards of Professional Conduct. Answer
A is incorrect because even though Cheryl does not hold herself out as a CFP professional,
she is still bound to the duties required by the Standards of Professional Conduct, including a
fiduciary standard of care. Answer B is incorrect because Cheryl must still abide by the
Standards of Professional Conduct, which require a fiduciary responsibility. Answer D is
incorrect because the Standards of Professional Conduct still obligate Cheryl, even though she
does not hold herself out as a CFP professional.
5. The correct answer is "A." According to Practice Standard 300-1: Analyzing and Evaluating
the Clients Information, the practitioner will utilize client-specified, mutually agreed upon,
and/or other reasonable assumptions. If the practitioner and client are unable to agree upon
assumptions regarding the capital needs analysis for retirement, it may be appropriate to amend
the scope of the engagement and/or to obtain additional information. Answer B is incorrect
because Practice Standard 300-1 requires assumptions to be client-specified and mutually
agreed upon, not the assumptions that result in the most conservative recommendations.
Answer C is incorrect because Mary is not required to disengage, but instead limit the scope of
the engagement. Answer D is incorrect because the client disagrees with her assumptions, so
either limit the scope of the engagement or use client-specified assumptions.
6. The correct answer is "A." Although the obligations and responsibilities of each party are
required to be mutually defined, this is not required to be in written form. [Rule 1.1 & 1.2] B is
required by Rule 1.2 a. Since this is a financial planning engagement, C is required by Rule 2.2
e. Since this is a financial planning engagement, D is required by Rule 1.3.
7. The correct answer is C. A is not correct because the Boards definition of best available
options in connection with the fiduciary standard associated with a financial planning
engagement allows for limitations on the certificants recommendations (such as proprietary
products) as long as they are disclosed to the client. B is not correct because although Rule 1.2
states the disclosure may be oral or written, Rule 2.2 (b) requires disclosure of conflicts of
interest (which would include proprietary products) and Rule 2.2 (e) requires written disclosure
for items 2.2 a-d when engaged in financial planning. C is correct since it notes that the
proprietary products disclosure must be in writing, in accordance with Rule 2.2 e. D is not
correct once a client becomes a financial planning client, subsequent limited engagements,
would be considered a part of the continuing financial planning engagement.
THE DALTON REVIEW
8. The correct answer is B. The Board focuses on the specificity of the engagement to
determine if it constitutes financial planning. Answering a question of a specific nature - such
as How much money do I need to set aside each month to send my two-year-old to Notre
Dame in sixteen years? - would probably not be considered financial planning. However,
answering a broader question that involves multiple aspects of a clients situation - such as
How much do I need to save so Ill have a secure retirement? - would likely rise to the level
of financial planning because of the expansiveness of the financial considerations involved.
(FAQ 1-9 and FAQ 1-12). Questions 1 and 3 are much more specific than Question 2, which
would generally require a more in-depth data gathering process and a broader set of
recommendations. D is not correct because if the client limits the engagement with the CFP
professional to implementation activities only, the engagement may not rise to the level of
financial planning. This would be the case if, for example, the recommendations provided by a
third party set out an investment strategy with specific amounts allocated to specific asset
classes and the CFP professionals actions are limited to executing transactions based on the
recommendations identified in the financial plan (FAQ 1-15).
9. The correct answer is D. A life insurance needs analysis and recommendation does not
likely meet the definition of financial planning because it is focused solely on factors related to
a single subject area (FAQ 1-12). Generally, the integration of two or more subject areas are
needed to constitute financial planning, unless the data gathering and recommendations are indepth and/or very broad (FAQ 1-14). Although the Board encourages professionals to provide
written agreements and disclosures for limited engagements, only the disclosures listed in Rule
2.2 a-d are required, and they may be oral.
10. The correct answer is D. D is correct under the revised Candidate Fitness Standards
effective July 2012. His name will also be included in a press release disclosing the bankruptcy.
A is incorrect because that was the prior requirement before the standards were revised. B is
incorrect because two or more bankruptcies are required to move to the always bar list. C is
incorrect because the Board must still be informed and will take the proactive measures listed
in Item D to ensure proper disclosure. Jonathan should also make written disclosure of this
event, but that alone is not sufficient.
THE DALTON REVIEW
11. The correct answer is "A." Residual benefits cover partial disability and directly address
the concern that the client has expressed. Options "B", "C", and "D" are valid provisions, but
do not in any way address the client's area of concern.
12. The correct answer is "A." Dave is paying $216 each year for the coverage (120 x 0.15 x
12). The Table I cost is calculated by subtracting $50,000 (the tax-free amount allowed under
Section 79) from the $120,000 actually purchased, dividing the remainder by 1,000,
multiplying the Table 1 rate of 0.29 times 12. (120,000 - 50,000/1,000 x 0.29 x 12). So, the
Table 1 premium is $244 (rounded.) Subtract the $216 already paid by Dave from the $244
Table 1 premium to determine the additional taxable income (244 - 216 = 28).
13. The correct answer is "C." Annuities are a contract and as such avoid probate and pay
proceeds to a named beneficiary. Accumulated interest income is taxable. IRD is estate and
income taxable, but the income tax will be offset by estate tax paid.
14. The correct answer is "B." The insured would be provided with a policy that represented
the amount of life insurance the premium would have purchased at the younger age of 45.
15. The correct answer is "B." An extended term insurance is correct because extended term
insurance is the only choice that is a non-forfeiture option. Option "A" - Although this is a
non-forfeiture provision, the amount of insurance coverage would be reduced. Option "C" is a
settlement options, and Option "D" is a dividend option.
16. The correct answer is "A." An HO-6 policy does not provide coverage for the building or
roof. The building and roof are covered by the condo association policy, which covers all
exterior walls and roof. The HO-6 policy covers all interior walls for a condo.
17. The correct answer is "C." Amount carried ($1,000,000) divided by amount required (80%
of $1,250,000 which is $1,000,000) times the loss, minus the deductible of $5,000. The answer
is $45,000.
18. The correct answer is "C." Option "A" - Homeowners does not pay for injury to the insured.
Option "B" - Medical pay auto pays for the insured if he or she is injured "in, on, or about the
covered auto." Here he was close, but not close enough. His personal health insurance (Option
"C") will pay.
19. The correct answer is "B." Risk transfer (or the use of insurance) would be utilized in the
case of low frequency / high severity.
THE DALTON REVIEW
20. The correct answer is "B." Upon surrendering his whole life policy, Jerry received $40,000
cash value where he had paid only $30,000 - $5,000 (dividends) = $25,000 (basis). $40,000 $25,000 = $15,000 is treated as ordinary income, taxable in the year it is received.
21. The correct answer is "C." Using the CAPM one can calculate this answer. Standard
deviation and last years return are merely distractors.
ER = Rf + B (Rm - Rf)
ER = .0356 + 1.2 (.1093 - .0356)
ER = .0356 + .0884
ER = .1240 = 12.4%
22. The correct answer is "B." With the term being equal, the bond with the lowest coupon will
have the biggest duration. The bigger the duration, the price more sensitive the bond is to
interest rate changes. Bond B has the lowest coupon, zero.
23. The correct answer is "C." The intrinsic value of a bond is its calculated present value. N =
7 x 2, i = 12 / 2, PV = ?, PMT = 55, FV = 1,000
24. The correct answer is "A." The process of portfolio immunization entails not maturity of a
security, but its duration. Duration is based on coupon rate. The larger the coupon payment,
the shorter the duration. This being the case, a bond generally pays higher interest than a note,
and a note pays higher than short-term Treasury bills. Given this information, one could
reasonably expect a shorter duration (than time to maturity), while receiving better
immunization from the bond.
25. The correct answer is "A." The Indifference Curve is the risk return trade-off which
investors are willing to make, while the Efficient Frontier is the best possible returns that could
be expected from all possible portfolios. At the point of tangency, one has attained the optimal
portfolio.
26. The correct answer is "B."
Price = Loan
1 - MM
= 23 x. 50
1 - .35
= 17.69
THE DALTON REVIEW
27. The correct answer is "C."

Your Fund:
T = 13.5 - 3.0
1.03
= 10.1942
Client Fund
T = 14.7 - 3.0
1.24
= 9.4355
28. The correct answer is "C." This is simply an uneven cash flow problem.
CF0 = <$40>
CF1 = $2
CF2 = $50
IRR = 14.33%
Note: Since this is a time weighted return, we are only concerned about the security's cash flow.
Therefore, we ignore the second purchase at $43 per share.
29. The correct answer is D.
Intrinsic Value of Call = Stock Price - Strike Price, therefore IV = 54 - 50 = 4.
30. The correct answer is "C." A put option index that closely mirrors the client's portfolio
will allow for minimization of loss in the event of market decline.
31. The correct answer is "A." The $300 per month for child support is not deductible by Larry.
Child support payments are not deductible to the payor nor includable to the payee. Larry's
$300 per month in child support will remain part of his gross income. The balance is also not
deductible because income is a fixed term which may extend beyond the life of the payee
spouse.
32. The correct answer is "C." Option I - a loss from a limited partnership in which there is no
material participation is governed under the passive activity loss rules. Since there is no other
passive activity income to offset the loss, the loss is not currently deductible. Option II - The
same passive activity loss rules apply, and therefore, the loss is not currently deductible.
Option III - Because she is a material participant in managing the S corporation, the losses are
deductible. Option IV - Wages are always included in AGI. Option V - Dividend income
unless excluded is included in AGI. $40,000 (wages) minus $3,000 (S corp loss) plus $1,200
(dividends) = $38,200.
THE DALTON REVIEW
33. The correct answer is "C." A person receiving a gift has a holding period of the donor plus
the donee if at disposition he uses the gain basis. However, the holding period for a gift
utilizing the loss basis (where a double basis rule applies) begins the holding period at the date
of the gift.
34. The correct answer is "D." Claiming Section 179 expense immediately reduces the basis of
the property by whatever the amount claimed (not to exceed original cost.) The amount of
deduction is limited in total and further subject to income limitation before the deduction is
taken.
35. The correct answer is "C." The adjusted cost basis is determined by subtracting from the
acquisition costs any depreciation or unrecovered casualty losses. The adjusted cost basis was
as follows: $80,000 (acquisition cost) minus $40,000 (depreciation) = $40,000 adjusted cost
basis.
36. The correct answer is "C."
Increase in Donee's Basis = Appreciation of the Property x Gift Tax Paid
FMV of Property at Date of Gift
[$57,000/$75,000=.04666667) x $3,500] +$18,000=$20,660
37. The correct answer is "C".

Option A
Option B
Amt
$1,800
$1,700
Realized
Adjusted
$1,800
$1,800
Basis
Gain/(Loss) $0
($100)
Tax Impact None
Ordinary
Loss
Economic
Reality
THE DALTON REVIEW
Option C
$2,000
Option D
$3,300
$1,800
$1,800
$200
Ordinary
Gain (gain is
less than
depreciation
taken)
$1,500
Part ordinary gain
($1,200) part
capital gain
($300) (gain is
more than
depreciation
taken)
Depreciations Taxpayer Taxpayer
Taxpayer took
estimate was took too
took too
too much
perfect
little
much
depreciation &
depreciation depreciation asset appreciated
38. The correct answer is "C". A trip outside the United States is considered to be purely for
business when less than 25 percent of the time spent on the trip was personal. All of the other
statements regarding travel outside the United States are correct.
39. The correct answer is "B". Option "A" is not correct because a proprietorship does not
provide limited liability and Danny would need to change entities to take on future investors.
Option "C" is not correct because a C corporation would not provide flow-through taxation.
Option "D" is not correct because a partnership would not provide limited liability and Danny
would have to pay self-employment taxes on the business net income. Therefore, only option
"B" meets all of Danny's requirements.
40. The correct answer is "A." This question pertains to like kind exchanges where boot is
involved. The rule is that any realized gain will be recognized to the extent of the lesser of
realized gain or boot received. In this case, there was a realized gain of $50,000 ($50,000 basis
for $100,000 fair market value). The boot of $20,000 is recognized in its entirety as gain since
it is the lesser of boot or realized gain. Parcel B will have no gain in that there is no realized
gain between the basis of the property given up and the fair market value of the property
received. There is a realization but it is not recognized.
THE DALTON REVIEW
41. The correct answer is "A." Eligible individual accounts (usually associated with profit
sharing, 401(k) and ESOP) are defined contribution plans, and are not subject to PBGC, nor
minimum funding requirements.
42. The correct answer is "B." All three statements are true.
43. The correct answer is "D." Deductions for interest payments are not limited for ESOP
plans. Deductions for repayment of principal is limited to 25% of covered compensation.
44. The correct answer is "D." All of the choices listed here are reasons why an employer may
want to offer an FSA.
45. The correct answer is "B." Options "A" and "C" are conditions of being considered an
active participant. Option "D" is incorrect because 457 plan participants are not considered
active participants for IRA contribution purposes.
46. The correct answer is "B." Option II, be careful of "always! Option III, if held longer than
one year, they receive capital gains treatment. Option IV, under most circumstances, the
bargain element is deductible. There are exceptions when certain qualifications have not been
met for deductibility, such as time employed, time to exercise in excess of rules, etc.
47. The correct answer is "A." There are no special tax advantages provided for 457 plans
distributed in a lump-sum. Income tax withholding is required once the benefits are
constructively received, even if not actually received.
48. The correct answer is "D." The only plan which meets all the criteria is the defined benefit
plan. All other Options would not meet criteria "III" and/or "V".
49. The correct answer is "D." Option "III" is incorrect because a retirement plan cannot be
used as collateral for a loan made to the plan sponsor. This would be a prohibited transaction.
50. The correct answer is "D." Because 60% of the benefits accrue to a key employee, the plan
is top heavy. The only vesting schedules allowed are Options "A" and "D". The only graded
vesting schedule is "D". Graded vesting encourages and rewards employee longevity.
51. The correct answer is "D." The deceased shareholder's estate will not increase due to the
life insurance, as the deceased shareholder does not own the policy and already has the value of
his interest in his gross estate. There is a step-up in basis because the decedent died and the
shares are "purchased" by the corporation. The corporation is "owed" the premiums by the
individual at death and does not pay tax.
THE DALTON REVIEW
52. The correct answer is "D". Marie would sell the business to Allen utilizing an installment
sale and would charge a reasonable rate of interest. Because Allen would not have to pay the
full sale price at the date of the transfer, he would not need to have all of the funds necessary at
that time. Because Allen is not related to Marie, she would not have any reason to enter into a
GRAT, SCIN, or Private Annuity, which may inequitably benefit Allen. The best situation
would be for Marie to sell the business to Allen in an outright cash sale, but that is not an
option in this problem.
53. The correct answer is "D." The CRUT accomplishes all of these objectives. Income for
parents eliminates "lead trust" and "pooled income." Control over assets eliminates CRATs.
CRAT cannot provide for inflation. CRUT income can increase.
54. The correct answer is "C." Wills are always probated. Incompetency management must be
addressed in a separate document, such as a trust or power of attorney. Contract named
beneficiaries take trump over Will stipulations. Business price or value is determined either in
an appraisal or in a buy/sell agreement.
55. The correct answer is C. Fee simple ownership is not an arrangement that helps to deal
with unexpected incapacity. All of the other arrangements are methods of dealing with
unexpected incapacity.
56. The correct answer is "C." Property passing by operation of law will not be probated, but
will not exclude the property (or at least a portion of it) from inclusion in the gross estate.
Property passing by operation of law qualifies for the marital deduction if it is passed in a
qualifying way to the spouse.
57. The correct answer is "D." Options "A" through "C" are true, but in the case of "D", a
grandchild whose parent has died has moved up a generation with regard to skip-person
considerations. A skip beneficiary is a generally a person who is two or more generations
younger than grantor. The reason D is wrong is that a spouse is not a skip person regardless
of age.
58. The correct answer is C. A SCIN is a note with a self canceling premium payment
attached so that the note will cancel at the transferors death. The GRAT, QPRT and the GRUT
are irrevocable trusts and will result in a current taxable gift.
59. The correct answer is "D." She has given a remainder interest. Reversionary interest would
have the home ownership returning to her. A life interest would be controlling interest for life
and term interest would be a limited time.
THE DALTON REVIEW
60. The correct answer is "A." When one spouse dies, both halves of the community property
receive a "stepped-up" income tax basis. While his original basis was $20,000, her basis in her
half of the community property is $25,000 and since she also inherited his half of community
property her total bases at the time of the sale was $50,000.

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Knowledge - Exhibit memory of previously learned materials by recalling facts, terms,

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CFP Certification Examination Job Task Domains

Job Task Domains (Approximate Percentages for each Exam)

Domain 2 - Gathering Information Necessary to Fulfill the Engagement (9%)

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3. Summary of income and expenses

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Client health status.

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Residual disability benefits.

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Reduced paid-up insurance.

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Coverage F, medical payment insurance on his homeowners.

High frequency / high severity.

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Indifference curve and efficient frontier.

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Client fund, because its Treynor is higher than your fund.

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Buy an index call option.

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The date the property was acquired by the donor.

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Parcel A Recognized Gain = $20,000; Parcel B Recognized Loss = $0

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