CSI Applied Financial Planning Certification Exam 1 (AFP) Sample Questions:

1. Wendy, age 60, has a holding company whose sole asset is a commercial property. The property appreciated considerably in value over the last 10 years, and she expects the property value will continue to grow. Wendy is concerned about the tax implications this may have when she dies and leaves the property to her children.
What strategy should Wendy's financial planner recommend to her?

A) Sell the property to her children below market value.
B) Conduct an estate freeze.
C) Transfer the common shares of the company into joint name with her children.
D) Gift common shares to her children and retain majority ownership.

2. A client sends an email alleging that a mutual fund recommendation was unsuitable because the fund declined sharply after purchase. The client asks for compensation. What is the financial planner's first professional obligation?

A) Document the complaint and follow the firm's complaint-handling procedure.
B) Promise reimbursement to preserve the relationship.
C) Remind the client that all investments can lose money and close the matter.
D) Delete the email if the account forms were signed correctly.

3. Alexander and Irena, age 30 and 32 respectively, are married and have been working full-time for one year.
They have a daughter, age 3, and are expecting their second child. They recently bought a home with a mortgage balance of $390,000 at 4% amortized over 25 years. Their financial planner is trying to determine their tolerance for risk. After completing the life-cycle analysis, how can their financial planner explain the stage in which the couple finds themselves and the risk tolerance associated with it?

A) They are at the accumulation stage where they can tolerate a high level of risk.
B) They are at the financial independence stage where their tolerance of risk is low.
C) They are at the gifting stage where their tolerance of risk is low.
D) They are at the consolidation stage where they can tolerate moderate to high level of risk.

4. Dianna has just taken a 20-year mortgage and wants insurance only to ensure the mortgage can be repaid if she dies during that period. She is considering whole life insurance. What should her planner most likely explain?

A) Term insurance is generally better aligned with a temporary liability.
B) Whole life is always cheaper for temporary mortgage needs.
C) Critical illness insurance replaces life insurance for mortgage protection.
D) No insurance is needed if the mortgage is insured by the lender.

5. A planner establishes a long-term target portfolio of 65% equities and 35% fixed income based on the client's objectives and constraints, with periodic rebalancing. Which allocation approach is being used?

A) Market timing.
B) Strategic asset allocation.
C) Tactical asset allocation.
D) Speculative allocation.

Solutions: