1.According to the concept of adverse selection, individuals who are ________ likely to need insurance benefits are the ones __________ likely to purchase coverage.

a.

most, least

b.

most, most

c.

least, most

d.

least, least

2.Policy benefits of a variable life insurance policy will vary according to the:

a.

Underwriting requirements

b.

Value of equities supporting the contract

c.

Mortality factor

d.

Flexibility of premiums

3.Paula wants to save $40,000 for a down payment on a new car in 3 years.She can invest $1,000 at the beginning of each month, and she expects to earn 10% compounded monthly on her investments.How much will Paula have saved in 3 years?

a.

$42,130.00

b.

$40,278.48

c.

$41,781.57

d.

$43,182.37

4.Based on the Markowitz model, which of the following securities would a rational investor select?

a.

Rate of return 7%, beta 1.2

b.

Rate of return 6%, beta 1.2

c.

Rate of return 4%, beta 1.3

d.

Rate of return 7%, beta 1.1

5.What is the current market price of a bond with par value $1,000 that pays 10% coupon semi-annually and matures in 8 years? Comparable bonds are yielding 12.6%.

a.

$871.29

b.

$999.99

c.

$489.04

d.

$710.18

6.According to the Principle of ____________, a CFP Board designee shall make and/or implement only recommendations which are suitable for the client.

a.

Objectivity

b.

Fairness

c.

Competence

d.

Diligence

7.Originally, an investment for $200,000 at 12% p.a. for 5 months at simple interest.What is the value at the end of 4 months if it is discounted by 9% p.a. compounded annually? (to the nearest dollar)

a.

$192,661

b.

$200,810

c.

$208,437

d.

$193,846

8.When a bond is selling at a premium to par, the YTM will always be ___________ the bond's coupon rate.If a bond is selling at a discount to par, the coupon rate will always be ____________ the YTM.

a.

greater than, less than

b.

less than, less than

c.

greater than, greater than

d.

less than, greater than

9.If your total assets equal $500,000, your short term liabilities equal $30,000 and long term liabilities equal $120,000, your debt ratio is:

a.

24%

b.

30%

c.

70%

d.

6%

10.Family financial goals should be:

a.

Very general in nature

b.

Individually determined

c.

Realistically attainable

d.

Reserved for retirement planning

11.According to the Principle of _____________, a CFP Board designee who has knowledge that another CFP Board designee has committee a violation of the Code of Ethics which raises substantial questions as to the designee's honesty, trustworthiness or fitness as CFP Board designee in other respects, shall promptly inform the CFP Board.

a.

Diligence

b.

Competence

c.

Professionalism

d.

Integrity

12.According to the Principle of ____________, a CFP Board designee shall not solicit clients through false or misleading communication or advertisements.

a.

Objectivity

b.

Fairness

c.

Professionalism

d.

Integrity

13.Sam and Lele are in their late 20s with 3 young children. Their most important financial planning concerns would probably include all of the following except:

a.

Liability and insurance planning

b.

Employee benefit planning

c.

Retirement and estate planning

d.

Savings and investment planning

14.Which of the following is/are correct regarding a bond's coupon rate?

I. The smaller a bond's coupon, the greater its relative price fluctuation

II. The smaller a bond's coupon, the greater its reinvestment risk

a.

II only

b.

Both I and II

c.

Neither I nor II

d.

I only

15.Find the accumulated value of $2,000 over 7 years and 6 months at 12.50% p.a. compounded quarterly. (to 2 decimal places)

a.

$4,895.40

b.

$3,996.86

c.

$5,034.41

d.

$3,526.95

16.John's home cost $200,000 to rebuild if it were destroyed.Insurance on the home is currently $120,000 with a $500 deductible.If a kitchen fire causes $30,000 of damage and John's files a claim, how much will the insurance company pay?

a.

$30,000

b.

$29,500

c.

$30,500

d.

$120,000

17.The current yield will increase when a bond's:

I.price increases

II.price decreases

III.coupon increases

IV.coupon decreases

a.

II. and III. only

b.

III. only

c.

I. and IV. only

d.

I. and III. only

18.Kim's short term liability and long term liability are $8,000 and $22,000 respectively, and her assets are $200,000.What is Kim's solvency ratio?

a.

89%

b.

85%

c.

15%

d.

11%

19.The future value of an investment for $500,000 at 6% p.a. for 7 months at simple interest is: (to the nearest dollar)

a.

$517,500

b.

$508,750

c.

$512,250

d.

$525,000

20.A client provides a current personal balance sheet to the financial planner during the initial data gathering phase of the financial planning process.This financial statement will enable the financial planner to gain an understanding of all the following except:

a.

Client's liquidity position

b.

Client's use of debt

c.

Diversification of the client's assets

d.

Size of the client's net cash flow

21.Your total cash income is $40,000.You pay $5,000 in taxes and $30,000 in other expenses.Your savings ratio is:

a.

10.0%

b.

14.3%

c.

13.3%

d.

12.5%

22.A company's current ratio is 1.9 times.If some of the accounts payable are paid off from sell of inventory, the:

a.

% change in numerator would decrease more than the % change in denominator, resulting in a lower current ratio

b.

% change in denominator would decrease more than the % change in numerator, resulting in a higher current ratio

c.

% changes in numerator and denominator would decrease proportionally, leaving the current ratio unchanged

d.

None of the above

23.A sum of money is left invested for 2 years.In the first year, it earns interest at 12% p.a. compounded monthly.In the second year, the rate of interest is 8% compounded quarterly.Find the effective annual rate of interest that would accumulate the same amount of interest at the end of year 2. (to 2 decimal places)

a.

12.20%

b.

10.44%

c.

13.20%

d.

11.04%

24.If an insured borrows a portion of the cash value from her whole life policy, which of the following is true?

I.The insured may borrow up to 100% of the face amount of the policy

II. The loan must be paid within five years

III. The loan will not charge interest

IV. Any outstanding loans must be deducted from the face amount of the policy before death benefits are paid

a.

I, II, III and IV

b.

I. and II. only

c.

IV. only

d.

I., II. and IV only

25.The three key groups in the economic environment are:

a.

Consumers, economists, and business

b.

Government, consumers, and business

c.

Government, regulation, and business

d.

Consumers, business, and managers

26.Which of the following type of loss exposures may be appropriately handled through using the 'risk avoidance' approach?

a.

high-frequency, low-severity

b.

low-frequency, high-severity

c.

low-frequency, low-severity

d.

high-frequency, high-severity

27.The Martin Marotta Company increases their annual dividend by 4% each year. The common stock has a market price of $42.05 a share on a required return of 11%. What is the amount of the dividend this company just paid?

a.

$2.48

b.

$2.83

c.

$2.72

d.

$2.52

28.A small business owner who maintains a retail store in a high risk neighbourhood installs shatterproof windows and a security system.Which major method or risk management technique is the store owner using?

a.

Loss control

b.

Risk transfer

c.

Risk avoidance

d.

Loss prevention

29.The Code of Ethics consists of two parts: Part I - _________, and Part II - __________.

a.

Principles, Ethics

b.

Principles, Rules

c.

Rules, Ethics

d.

Rules, Principles

30.Investments are distinguished from savings on the basis of:

a.

Initial dollar outlay

b.

Level of risk and expected return

c.

Length of time held

d.

Depreciation

31.Ignoring salaries tax liability, what is the current estimated monthly discretionary income of Mary after deducting all her expense and committed financial obligations?

a.

$19,450

b.

$10,700

c.

$8,200

d.

$21,700

32.What is the required monthly mortgage payment to the bank on the mortgage loan of the residential flat owned by Mary and Peter? (to the nearest dollar)

a.

$21,052

b.

$22,678

c.

$25,772

d.

$27,323

33.What is the expected return of the Peter's MFP portfolio if based on portfolio weighting?

a.

14.80%

b.

15.64%

c.

11.08%

d.

17.68%

34.According to the portfolio management theory, Peter would like to know a security's systematic risk is proportional to:

a.

Its diversifiable risk

b.

The standard deviation of its return

c.

The covariance of its return with the return on the market portfolio

d.

The variance of its return

35.If Peter is going to borrow a short term loan from a bank at APR 15%, what is the EAR of the loan if Peter wants to make quarterly repayment?

a.

16.73%

b.

17.02%

c.

16.08%

d.

15.87%

36.Which one of the following recommendations for Mary's and Peter's short term investment portfolio asset allocation strategy until they are married is most appropriate?

a.

As they do not have any retirement plan, they should invest in growth-oriented equities to promptly build up a retirement fund.

b.

As they will need a sum of money in a relatively short period of time, they should only invest in conservative short term financial products.

c.

As they are young, they have a relatively high risk tolerance level and should invest in growth-oriented equities.

d.

As they have no experience in investment, they should place their savings in long term fixed deposit.

37.Please refer to thefollowingCase'B'for Questions Q38to Q40

Case 'B'

Vincent, aged 35, is working in an accountancy firm in Country A.His estimated average life time annual salary is $800,000 which is subject to 15% tax rate.Out of his average annually salary, he estimates that 25% will be used for self-maintenance and 8% for life insurance premium.The remaining amount is used to support his family.He plans to retire at the age of 65.Assume the discount rate is 5% p.a., apply the Human Life Value Approach to estimate the current value of Vincent's life to his family.

What is Vincent's average annual income to support his family?

a.

$536,000

b.

$616,000

c.

$416,000

d.

$480,000

38.What is the closest present value of the annuity factor per dollar?

a.

13.28

b.

15.37

c.

19.61

d.

17.54

39.What is the closest Human Life Value of Vincent?

a.

$6,393,920

b.

$8,401,440

c.

$7,189,480

d.

$9,412,800