General Principles

Question 1

Question 8
Harvey, married, bought a home 5 years ago for $200,000 subject to a $150,000 mortgage. The current fair
market value is $225,000 and the mortgage balance is $135,000. He needs to pay off credit card debt. What is
the maximum amount he may borrow under which the interest would be deductible on Schedule A?
A. $0
B. $50,000
$90,000
D. $100,000

Answer 1

A. Home Equity interest paid on loans that are not used to improve the home is no longer deductible.

Question 2

Question 18
Larry Jones, CFP®,
, a Registered Investment Adviser and Registered Representative, receives funds from his client
to purchase XYZ stock when the stock’s price reaches a low of $13. In complying with the CFP® Board code of
ethics, can Larry accept these funds?
A. Larry’s B/D may accept the funds, but they cannot be commingled with the planning firm’s general
accounts.
B. Larry may not accept these funds and should instruct his client that the purchase must be made by the
client’s stockbroker.
C.Larry may not accept these funds but must make the purchase immediately.
D. Larry may accept these funds and can place them in his account at the local bank, giving a receipt to his
client.

Answer 2

A. Larry’s broker/dealer may accept the funds which may not be commingled with account of the planner or the firm. The issue with the question is the commingling of client funds and Larry’s account.

Question 3

Question 25
Which of the following statements are true?
I. A CFP® certificant may not commingle client money or property with funds of the financial planning
firm.
II. Client funds may be commingled in a common client investment account.
A. I
B. II
C. I and Il
D. Neither I nor lI

Answer 3

C. I and II

Question 4

Question 26
In a typical business cycle, the economy passes through trough into recovery, which industry tends to
outperform others?
A. Pharmaceutical manufacturing
B. Gold mining
C. Public utilities
D. Automobile manufacturing

Answer 4

D. Automobile manufacturing.
auto sales historically lead the business cycle into expansion the clinical industry answers a and CR defensive industries, and we have a little sensitivity to business cycle changes. The price of gold tends to mirror the fear of inflation. Inflation normally appears close to the peak in the business cycle.

Question 5

Question 27
Based on his gut feel but no research, a financial planner makes a recommendation that a client buy a particular
stock. The client invests in that security. The financial planner is guilty of which of the following?
1. Negligence
Il. A tort
IlI. Violation of her fiduciary responsibility
IV. A contract violation
V. Conduct requiring arbitration
A. All of the above
B. 1, III, IV, V
C. 1, II, III
D. II, IV, V

Answer 5

C. The planner could be negligent. Negligence is in an unintentional tort. She failed on her fiduciary responsibility. Arbitration may not be required.

Question 6

Question 29
If the U.S. is experiencing high unemployment, falling stock prices, and declining consumer spending, then what
action(s) will Congress, or the Fed most likely take?
The Fed will lower the prime rate.
II. The Fed will sell securities.
III. The Congress will authorize spending programs.
IV. The Fed will raise the discount rate.
V. The Fed will take a tight money policy.
A. I, III, V
B. II, III, V
C. II, IV, V
D. III, V
E. III

Answer 6

E. III
The third does not set the prime rate if the feds sell securities or raises its discount rate, the tightens credit