Applied Financial Planning Certification Exam 1 (AFP) (AFP-Exam-1) Free Practice Test

Question 1

If a deceased person was entitled to rights or things at death, what strategy should the estate representative use to enhance the net estate value after tax?

A. Include the rights or things in a second personal tax return for the deceased.

B. Include the rights or things in the deceased's final personal tax return.

C. File for annual tax reassessments on the terminal tax return until all rights or things are paid.

D. Transfer ownership of the rights or things to the beneficiaries of the estate.

Correct Answer: A

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Question 2

Huxley is meeting with his financial planner to review his retirement goals. He has saved $250,000 in an RRSP, currently contributes $10,000 per year, and his portfolio is expected to continue to earn an average of
5% per year. Huxley is hoping to retire in 18 years with $1 million saved in his RRSP. What strategy should Huxley's financial planner recommend to ensure he is on track?

A. Increase the risk profile of the portfolio for a target return of 12%.

B. Increase the retirement goal value to $1,250,000.

C. Increase his target retirement date to 25 years.

D. Increase monthly contributions by $350.

Correct Answer: D

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Question 3

Edward is risk averse and has limited investment knowledge. He will only purchase 100% guaranteed products insured by the CDIC. Edward is meeting with his financial planner, Marissa, for the third time this year about rates, and starts the meeting by criticizing her employer for paying such low returns on GICs.
Edward says he is considering taking his business elsewhere. How should Marissa respond to Edward's comments?

A. Offer to match any competitor rate Edward can provide in writing.

B. Show understanding of his frustration, assure him that these are the best rates she can offer and suggest a follow up meeting once Edward has had a chance to shop around.

C. Let him know that her GIC rate is the highest in the market.

D. Explain that if he can increase his risk tolerance, she can get a better rate of return for him.

Correct Answer: B

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Question 4

Henry, age 48, has been working for Bac Inc, which is a federally regulated corporation, for over eight years.
He is looking to retire at age 50 and has decided to take the commuted value of his pension: $450,000, electing to transfer the eligible remainder to his RRSP (Income Tax Act maximum pension benefit transfer value of $210,000). Henry estimates he would need $1,800 (pre-tax every month) from his registered investments to meet his retirement income goal and is looking to maximize his RRSP contribution room.
Assume no inflation, an average tax rate of 15%, an unused RRSP contribution room of $90,000, and a life expectancy to age 90. What would be the required rate of return to meet Henry's goals?

A. 3,71%.

B. 10,09%.

C. 14,35%.

D. 6,71%.

Correct Answer: D

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Question 5

Jenny and Herman are looking for tax strategies that will help them better manage their marginal annual tax rates. Jenny is currently the primary income earner in the household. She has a large non-registered portfolio that holds only plain vanilla S & P 500 index funds. Jenny and Herman have a 14-year-old daughter, and they would also like to know what income-splitting opportunities exist. They've presented several ideas to their tax planner, Isaac, for review. Which of the following will likely result in tax attribution to Jenny?

A. Jenny contributes to a spousal RRSP, which Isaac converts to a spousal RRIF and begins minimum required withdrawals in the first year after funding.

B. Jenny gifts her portfolio to her daughter who will claim any future investment income on her tax return.

C. Jenny lends her portfolio to Herman at the Bank of Canada's prescribed interest rate.

D. Jenny sells her equity security holdings to Herman at fair market value.

Correct Answer: B

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Question 6

Sapphire, age 35, a recent widow, is still in the grieving stage. She has just received a large insurance payout.
She has limited savings, a long-term time horizon, and a high tolerance for risk. What investment strategy should her financial planner recommend until Sapphire is better able to understand her new situation?

A. Deposit the funds into a high-risk investment portfolio.

B. Deposit the funds into a moderate risk investment portfolio.

C. Deposit the funds into a high interest savings account.

D. Deposit the funds into a portfolio of traditional and index-linked guaranteed investment certificates.

Correct Answer: C

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Question 7

Ivan relocates for a new job and wants to know whether his move may qualify for the work-related moving expense deduction. What minimum distance test is generally relevant?

A. The new home must be at least 30 kilometres closer to the new work location.

B. The new home must be at least 10 kilometres closer to the new work location.

C. The new home must be at least 40 kilometres closer to the new work location.

D. The new home must be at least 25 kilometres closer to the new work location.

Correct Answer: C

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Question 8

Sheeba is a financial planner and meeting with Ivana, a new client. She explains that part of her process is to recommend products and services, but prior to doing so, she will closely investigate the options to ensure they match up with Ivana's goals. Which professional responsibility has Sheeba demonstrated to Ivana?

A. Professionalism.

B. Objectivity.

C. Diligence.

D. Integrity.

Correct Answer: C

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Question 9

Daniel, age 55, plans to continue working for AMG Telecommunications Corporation until he retires at age
60. The company has a defined contribution plan and Daniel is looking for the best option that will allow him to receive the highest guaranteed income throughout his retirement. He is not concerned about leaving an estate and feels that interest rates will be at high levels as he nears retirement. What planning strategy should Daniel's financial planner recommend he implement to achieve this objective?

A. Use the proceeds to purchase a life annuity.

B. Transfer proceeds to a locked-in RRSP and purchase a laddered GIC.

C. Use the proceeds to purchase a principal-protected note.

D. Transfer proceeds to a LIRA and purchase a target date fund.

Correct Answer: A

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CSI Applied Financial Planning Certification Exam 1 (AFP) (AFP-Exam-1) Free Practice Test