Part – 1

1. What are the common client characteristics for a high income

earner?
(a) Often debt laden for purchase of home
(b) Very focused on post retirement income
(c) Employed or self-employed. Taxation strategies more important
(d) Starting to accumulate assets, often going into debt to achieve
them

2. What is step three of the financial planning process?

(a) Identification of financial problems
(b) Goal setting
(c) Preparation of written alternatives and recommendations
(d) Data gathering

3.Which one of the following statements would be INAPPROPRIATE if

included in a Statement of Advice for a client?
(a) We expect that your investments will return at least 5% per annum
on average over the next 5 years
(b) Your investments will return at least 5% each year for the next 5
years
(c) Investments in these asset classes have averaged 5% return each
year. We would be expect that to continue for you
(d) Investments in these asset classes returned 5% last year. We
anticipate that this return will continue to be achieved over the long
term

4. A data collection form should collect:

(a) Both qualitative and quantitative information
(b) Quantitative information only
(c) Qualitative information only
(d) Financial information only

5. Which of the following statements is INCORRECT?

(a) Quantitative data is facts and figures
(b) Qualitative data can be used to make inferences
(c) A client's age is an example of qualitative data
(d) All data can be divided into either quantitative or qualitative data

6. An example of QUALITATIVE data is:

(a) Unit trust balance
(b) Age
(c) Preferred retirement date
(d) Outstanding debts
7. If a client has an investment time frame of six years, what is the
planning horizon?
(a) Intermediate
(b) Medium-term
(c) Long-term
(d) Short-term

8. Clients often have concerns about what is involved in seeing a

financial adviser. Raising and discussing those concerns with the
clients before they raise them themselves can have many advantages.
These advantages include:
I. It encourages openness in the discussion between the client and the
adviser
II. It gives the client confidence in the adviser, since potentially
negative
issues are being freely raised
III. It allows for a quicker interview, thus saving time for all parties
IV. It allows the adviser to take control of the interview
(a) I and II
(b) I and IV
(c) II and III
(d) I, II and III

9. Which of the following asset classes can produce both income as

well as growth?
(a) Equities only
(b) Property and equities
(c) Property, equities, fixed interest, and cash
(d) Property, equities, and fixed interest

10.The sponsor of a mutual fund is its

(a) Manager
(b) Trustee
(c) Promoter
(d) None of the above

11. Which of the following is an example of liability risk?

(a) Through your actions, causing injury to others, or damage or loss to
others' property
(b) Death
(c) Loss or damage to one's own property
(d) Loss of income over an extended period of time

12. Installing a car alarm is an example of:

(a) Risk avoidance
(b) Risk control
(c) Risk transference
(d) Risk retention

13. For estate planning, a CFP CM certificant should

(a) Refer the preparation of a will to a lawyer
(b) Know the contents of a will
(c) Be aware of estate planning issues
(d) All of the above

14. A person who declares will after the death of a person is called
(a) Testator
(b) Executor
(c) Testate
(d) Deceased

15. A fixed interest investment is distinguished by two factors. They

are:
(a) The term and the interest rate are both variable at the start of the
investment
(b) The term and the interest rate are both fixed at the start of the
investment
(c) The term is fixed at the start of the investment, but the interest
rate is variable
(d) The interest rate is fixed at the start of the investment, but the
term is variable

16. Which of the following is a DISADVANTAGE of managed

investments?
(a) Poor liquidity
(b) The need for active management
(c) Lack of diversity
(d) Loss of personal control over decision making

17. When is an investment said to be negatively geared?

(a) When the investment income is less than the cost of the
investment
(b) When the investment income is greater than the cost of the
investment
(c) When the investment income is the same as the cost of the
investment
(d) When the investment income is negative

18. Why is retirement planning becoming increasingly important?

(a) Governments are less likely to want to support the elderly
(b) There are better medical treatments ensuring longevity
(c) Clients want to be able to afford expensive overseas holidays when
they retire
(d) We are moving towards a self-funding retirement structure

20. An investment product has experienced a loss of customers. A

QUALITATIVE reason for this might be:
(a) The return on that asset class is lower than other asset classes.
Consequently, investors
are moving out of this product in search of better returns
(b) The tax treatment of the product has changed, making it less
attractive than it was
previously
(c) A new product has been introduced that is likely to be a better
investment for clients
(d) The fund's original management team has left and their
replacement team is not as well respected. Consequently, customers
are leaving
21.What are the four phases of the business cycle?
(a) Recovery, expansion, contraction, and recession
(b) Recovery, boom, contraction, and depression
(c) Recovery, boom, contraction, and recession
(d) Recovery, contraction, peak, and recession

22. Determining your client's surplus income and how it can best be
used is part of which step in the development of a comprehensive
strategy?
(a) Step 1 - Check that information is complete
(b) Step 2 - Confirm the client's current financial position and any
financial concerns
(c) Step 3 - Establish the client's goals
(d) Step 4 - Put in place recommendations to meet the client's desired
future financial position

23. A client has had a long-term asset allocation of 70% growth, 30%
defensive. She is looking to increase it to 80% growth, 20% defensive
due to the strength of the market. Her adviser suggests she retain her
existing allocation. This is an example of:
(a) Risk profile allocation
(b) Planned allocation
(c) Strategic allocation
(d) Tactical allocation

24. What strategy do advisers use to ensure that the client's long-term
goals are met by directing investments into appropriate asset classes?
(a) Risk profiling
(b) Tactical allocations
(c) Cash flow and budgeting
(d) Asset allocation strategy

25. Which of the following best describes a master trust?

(a) The investor is the owner of the underlying assets
(b) A trustee owns the assets on behalf of the investor
(c) The assets are owned by a syndicate
(d) The assets are owned directly by the members of the trust

26. Which of the following is a benefit TO THE ADVISER of presenting

advice in a written form?
(a) It reduces the likelihood of being sued for wrongful advice since, if
the advice was appropriate, there is a record of that advice
(b) It allows the client to have something to which they can return if
they become unsure of the strategy suggested
(c) It ensures the adviser is presenting appropriate advice
(d) It ensures that the licensee is aware of the advice that is going to
be given to the client. If the licensee does not like the advice they can
prevent it from being presented

27. In a Statement of Advice, how must fees, commissions and costs

be presented?
(a) In both Fees and percentage amounts
(b) In fees only
(c) In percentage amounts only
(d) In either fees or percentage amounts

28. Your clients appear to be happy with the advice presented to them
as they are nodding as each part of the advice is explained. Is the
nodding a potential problem and if so, what might you do to overcome
it?
(a) No, there is no problem with nodding as it shows that the client
understands the advice
being explained
(b) Yes, the client might not understand the advice but doesn't want to
show it by asking for clarification. Asking s of the client along the way
and encouraging them to ask s will help reveal any lack of
understanding
(c) Yes, the client might be nodding so as to avoid showing any lack of
understanding. Taking the initiative and re-explaining the advice is the
best way to handle such a response
(d) No, the client is nodding because they understand the advice. Once
the advice has been fully presented, give the client time to let it sink in
before asking the client to commit to proceeding with the advice
29. You have term deposits of Rs. 4,00,000 with a bank. In order to
meet sudden
requirements for liquidity and short-term credit, you are applying for
an overdraft facility with the bank. What is the rate of interest you will
pay on this facility?
(a) The bank will apply a flat rate of interest on the amount of
overdraft allowed to actually utilize.
(b) The bank will apply a flat rate of interest on the amount of
overdraft allowed to you.
(c) The bank will apply rate of interest linked to the term deposit rate,
on the amount of overdraft utilized.
(d) The bank will apply rate of interest linked to the term deposit rate,
on the average amount of overdraft remaining unutilized from the OD
limit.

30. The Nifty has doubled since the last time you advised your client to
reduce his equity exposure. The client is annoyed. What might be the
most appropriate action to take immediately?
(a) Apologize for wrongly forecasting the market
(b) Change his asset allocation by increasing his equity exposure
(c) Help the client understand the logic of his asset allocation
(d) Rebalance his asset allocation by reducing equity investments
31. A professional indemnity policy protects the insured from risk
arising out of
_________________.
(a) Intentional misconduct
(b) Misrepresentation of professional competence
(c) Negligence
(d) Undisclosed conflict of interest

32. White Knight s a financial services firm that specializes in

investment advisory services. In its brochure for Financial Planning
services, it may state _____________.
(a) It can offer superior investment returns on customer portfolios and
talk of the
arrangements to offer advice in other areas
(b) It has the competence to take care of all Financial advisory
requirements of the customer
(c) Its competence in investment advisory services and the
arrangements to offer advice in other areas
(d) Its Financial Planning services are the best available in the market
in light of its investment advisory capabilities and arrangements to
offer advice in other areas

33. The economy is going through a phase of expansion and growth.

Industrial production and profitability are high. Your client has a
portfolio that is heavily invested in bonds. Which of the following fears
of the client is well founded?
(a) Higher rates of growth will increase demand for funds and interest
rates will firm up, leading to fall in bond prices.
(b) Higher rates of growth will require higher imports and expenses.
The government deficits will go up.
(c) The central bank will try to reduce rates to make funding of
business cheaper and reduce costs. That will depress returns on bonds.
(d) The currency will become convertible and interest rates will rise as
a consequence.

34. Jubin is a Financial Planner in a large firm. His wife has some large
investments in the shares of a few companies. Jubin is required to offer
views on almost all of these holdings to clients. Under the Code of
Ethics and Rules of Professional Conduct _______
(a) Jubin must disclose the fact to his client(s) so as to make them
aware of any potential conflict of interest
(b) Jubin has to disclose these holdings only to his employers, if
required by the firm’s internal compliance rules
(c) Jubin need not follow any code of ethics and rules of professional
conduct.
(d) Jubin will not violate the Code and the Rules if he does not disclose
his wife’s holdings

35. Which of the following is a correct interpretation of the Rules of

Conduct pertaining to the Ethic of Confidentiality?
(a) A Member must when requested by the client, provide to a person
authorized by the client, all original documents prepared or received
by the Member in undertaking the advisory task
(b) A Member owes to the Member’s partners or co-owners a
responsibility to act in good faith (expectations of confidentiality) only
while in business together, not thereafter
(c) The Member shall maintain the same standards of confidentiality to
employers as to clients
(d) Under no circumstance, will any Member divulge any information or
knowledge regarding the FPSB India or its members that they may
know or be exposed to

36. The body responsible for the formulation and implementation of

monetary policy in India is ___________________________.
A. Reserve Bank of India
B. SEBI
C. Government of India
D. Institute of Economic Research.
37. Which of the following statements does not reflect the meaning of
financial planning?
A. Determine your specific financial goals and objectives.
B. Design strategies to attain your financial objectives.
C. Analyse your present financial position.
D. Invest in securities that provide the highest return.

38. Alok purchased an insurance policy on his life that requires ten
equal annual
premiums. The policy provides a 100,000 death benefit if Alok dies
within ten years of purchasing the policy, as long as he continues to
pay the annual renewal premiums. All forms of coverage cease after
the 10-year period. The type of insurance purchased by Alok is:
A. Disability income insurance.
B. Term insurance.
C. Whole of life insurance.
D. Participating endowment insurance.

39. All of the following changes in planning assumptions will increase

the amount a person will need in order to achieve his retirement goals
except:
A. An increase in the rate of inflation.
B. A decrease in the rate of investment earnings.
C. A decrease in the planned retirement age.
D. A decrease in the mortality age.

40. Which of the following is not a characteristic/feature of a Will?

A. Serves as a declaration of intent only.
B. Must be in writing.
C. Only takes effect upon the death of testator.
D. Revocable by divorce

Part – 2

41. Mr. Sinha’s investment portfolio comprises Rs.2 Lakh in equity,

Rs.5 Lakh in debt and Rs. 1 Lakh in his bank current account. Over one
year the returns on equity and debt are 5% and 12%. At the end of the
year to maintain his current asset allocation, he needs to _____________.
(a) Do nothing.
(b) He needs to move Rs, 10000/- from equity and Rs. 60000/- from
debt to cash.
(c) He needs move Rs.7500/- to equity from debt and Rs. 8750/-to cash
from debt
(d) He needs to invest Rs. 70000/- in debt and equity.

42. A 10 year 8.0% bond (Face Value- Rs.1000, interest payable semi-
annually) maturing 6 years from today is available at a yield to
maturity of 6.0%. It is likely to be priced at _______________.
(a) Rs. 1100
(b) Rs. 1149
(c) Rs. 1168
(d) Rs. 1498

43. If the post tax rate of return on an investment is 9% and the

inflation rate is 5%, the real rate of return is
(a) 3.81%
(b) 3.0%
(c) 2.86%
(d) 2.74%

44. Mrs. & Mr. Arora are aged 55 and 58 years respectively. Both
expect to work till they turn 65. Their only goal is to fund their
retirement. Which of the following is likely to be an appropriate asset
allocation strategy for them?
(a) 10% sectoral equity, 20% diversified equity, 30% long-term debt,
and 40% medium term debt
(b) 20% Sectoral equity, 60% diversified equity, 20% long-term debt
(c) 30% Sectoral equity, 30% diversified equity, 40% cash/ liquid
investments.
(d) 80% long-term debt, 20% medium term debt

45. ABC Ltd. is willing to prepay your Cumulative Fixed Deposit with
them, without any penalty and with all the accumulated interest
(compounded half yearly). You had invested Rs. 4000 with them 3.5
years back. If they are giving you back Rs. 4985, what is the
annualized rate of interest you have earned?
(a) 6.40%
(b) 3.2%.
(c) 6.5%.
(d) 7.2%.

46. Which of the following is a tort of negligence?

(a) Mr. Joy was playing golf. He swings a new golf club on the fairway
and the head of the club flies off, and hit another golfer who was
standing 20 feet away.
(b) Mr. Vishal takes medication that he knows makes him drowsy and
then proceeds to drive. He gets into an accident injuring the
passengers in another car.
(c) Mrs. Jaya locks Ms. Rani in a room to prevent him from leaving the
building
(d) Mrs. Priti experienced a sudden surge of chest pain while driving,
which causes her to lose control of her car and hit another car.

47. Any possible occurrence which may have a negative financial

implication, can be plotted on a graph with X axis measuring the
frequency (low-high) and Y axis measuring the financial impact (low-
high). You can view the classification in four quadrants.
Quadrant I - Low frequency, Low Impact
Quadrant II - Low frequency, High Impact
Quadrant III - High frequency, High Impact
Quadrant IV - High frequency, Low Impact
It would not be practical to purchase insurance for events falling in
_________________.
(a) Quadrant I & IV
(b) Quadrant I, II & IV
(c) Quadrant I, III & IV
(d) Quadrant III

48. A particular 5 year fixed deposit gives a return of 8% compounded

yearly. If the inflation rate is 6%, the real rate of return is
(a) 2.00%
(b) 8.00%
(c) 1.89%
(d) None of the above

49. Calculate the yield to maturity of a bond with the following details:
Face Value : 1,000.00
Market Price : 950.00
Coupon Rate (paid annually) : 5.0%
Remaining Te to Maturity : 6 years
(a) 5.16%
(b) 4.29%
(c) 5.00%
(d) 6.02%

50. All the following assets are generally considered to be protected

from a decline in purchasing power due to increase in inflation except:
A. The husband’s employment income.
B. The wife’s rental income.
C. The wife’s dividend income.
D. The husband’s pension income.

51. All the following are characteristics of a typical risk averse except:
I. Overestimation of risks.
II. Preference for certainty.
III. Over-optimism.
A. I, II
B. II, III
C. I
D. III

52. A corporation proposes to issue a 5-year bond with a coupon rate

of 8.0%. The prevailing yield to maturity of bonds with similar risk and
term is 10.0%. The bond will sell `____________ to its face value.
A. At a premium.
B. At a discount.
C. At par.
D. At some indeterminate value.

53. Identify which amongst the following represents a personal risk:

A. The economic loss to the owners of a factory destroyed by a fire.
B. The economic loss to a husband when his wife is taken ill.
C. The economic loss to the owners of a firm brought about by a
products liability suit.
D. The economic loss to a physician brought about by a professional
indemnity suit.

54. Which of the following may not be considered as essential

characteristics of a sound financial plan?
A. It must be tailored towards achieving client’s objectives.
B. It must provide measures to guarantee attainment of goal.
C. It must be within client’s resources to implement the plan.
D. It must clearly identify the roles of the implementers.

55. Which of the following is/(are) considered quantitative information

that needs to be gathered by a financial planner from a client:
I. Assets and liabilities.
II. Insurance policies.
III. Investment portfolio.
IV. Family relationships.
A. I, II
B. I, II, III
C. I, II, IV
D. All of the above.

56. Why is it necessary for a financial planner to establish a well-

defined client-planner relationship?
I. To prove that the planner is an honest person.
II. To instill a sense of trust between them.
III. To develop a sense of confidence in the planner’s ability.
IV. To facilitate discussion on personal issues.
A. I, II
B. II, III
C. II, III, IV
D. All of the above.

57. Why is it important for a financial planner to practice good

professional ethics?
I. To maintain continued trust on the profession.
II. To avoid being the case of “one rotten apple spoils the entire
basket”.
III. To avoid intervention from regulators.
A. I
B. I, II
C. I, III
D. All of the above.

58. The confidentiality principle requires a financial planner to do the

following, except:
A. Not to disclose a client’s information to a third party without the
client’s consent.
B. Disclose client’s information only in response to a proper legal
process.
C. Use client’s information only for the purpose of preparing the
financial plan.
D. Treat clients in the same manner the planner wants to be treated.

59. Compute liquidity Ratio. Cash expenses per month=30000,

Salary=60000, Bank savings a/c 150000
(a) 4
(b) 5
(c) 2
(d) 6

60. A strategic review of a client’s situation is required in case of

(a) Macro level changes
(b) Micro level changes
(c) Neither
(d) Both

Part – 3
61. A firm purchases a machinery for Rs.800000 by making a down
payment of Rs.150000 and the remainder in equal annual installments
of Rs.150000 for 6 years. How much is the rate of interest that the firm
is paying?
(a) 12.02%
(b) 10.17%
(c) 10.85%
(d) 11.00%

62. If the loan of Rs.3,00,000 is to be repaid in 6 annual installments

with a coupon rate of 12% p.a. then the equated annual; installment
will be:
(a) Rs.71967
(b) Rs.72967
(c) Rs.74005
(d) Rs.75995
(e) Rs.76004

63. A person took a loan of Rs.10,000 on Jan 1,2003. At the end of

every month he has to pay Rs.1000 for 12 months so that his loan will
be totally repaid by December 31,2003. The implied interest rate per
annum is (approx)
(a) 20%
(b) 25%
(c) 28%
(d) 35%
(e) 42.%

64. If the annual cash flow for a bond is Rs.200, the present value of
the cash flows if the inflows continue for 5 years at a required rate of
11% is
(a) Rs.639
(b) Rs.739
(c) Rs.839
(d) Rs.869
(e) Rs.939

65. An income stream provides Rs.2000 for first three years and
Rs.3000 for next three years, if interest rate is 14%, then the present
value of income stream is:
(a) Rs.8650.85
(b) Rs.8860.50
(c) Rs.9403.20
(d) Rs.9624.25
(e) Rs.9344.00
66. Suppose you expect to receive Rs15000 annually for 5 years, each
receipt occurring at the end of the year. What is the present value of
this stream of benefits if the discount rate is 10%?
(a) -56861.80
(b) -57463.75
(c) -75000.00
(d) 55000.00

67. You want to take a trip to US which costs Rs.1000000 the cost is
expected to remain unchanged in nominal terms. You can save
annually Rs.50000 to fulfill your desire. How long will you have to wait
if your savings earn an interest rate of 12%.
(a) 10.79 years
(b) 11.00 years
(c) 11.23 years
(d) 10.99 years

68. Suppose a firm borrows Rs.1000000 at an interest rate of 13%.The

loan is to be paid in 5 equal installments payable at the end of each of
the next 5 years. The annual installment payable will be how much?
(a) 284314
(b) 284390
(c) 285436
(d) 285467

69. Your father deposits Rs.500000 on retirement in a bank which pays

10% annual interest compounded semi annually. How much can be
withdrawn every year for a period of 10 years?
(a) 80242.58
(b) 80534.20
(c) 82345.15
(d) 40121.29

70. If you invest Rs.5000 today at a compound interest rate of 9%,

compounded quarterly, what will be its future value after 80 years?
(a) 4932758.34
(b) 6183456.95
(c) 5722377.12
(d) None of the above

71. Karan wants to withdraw Rs. 1200/- at the end of each month for
the next 5 years. He expects to earn 10% interest compounded
monthly on his investments. What lump sum should he deposit now?
(a) Rs. - 56949
(b) Rs. - 58630
(c) Rs. - 56478
(d) Rs. – 59119

72. An investment gets doubled in 6.35 years. What is the rate of

return, as per the rule of 69?
(a) 11.22%
(b) 11.50%
(c) 11.34%
(d) None of the above

73. You can earn a return of 15% by investing in equity shares on your
own. You are considering a recently announced equity mutual fund
scheme where the initial issue expenses are 5% and the recurring
expenses are expected to be 2%. How much should the mutual fund
scheme earn to provide a return of 15% to you?
(a) 17.00%
(b) 17.75%
(c) 17.79%
(d) 18.25%

74. 34 You wish to save for your daughter’s education, the present cost
of which is around Rs.240000 and is expected to grow every year at
the rate of 7%. If your daughter is 10 years old and is likely to be in the
college in another 8 years time, what is the amount of investment to
be made if it is likely to earn 11% return?
(a) 178936
(b) 179836
(c) 173896
(d) 178930

75. Spykar an accomplished Financial Planner is also an expert on

derivatives and high yielding bonds. He understands client
requirements well and is able to come up with appropriate portfolio
restructuring ideas for clients. He believes in quickly moving clients
from one investment to another through a dynamic process of research
and recommendations. What according to the Rules relating to the
Code of Ethics is the most applicable in this case?
(a) He does not violate the Rules if he explains to the client the
reasons and is able to show that the moves are appropriate to the
client
(b) He does not violate the Rules since he conducts and has access to
research and advises on products relevant to clients based on an
understanding of their requirements
(c) He does not violate the Rules since he is an acknowledged expert
and knows what is best for his clients
(d) He violates the Rules as it amounts to active churning of client
portfolios