Experience the Quality With Free CFP Exam Questions That Helps Candidates Pass

Solo 401(k)s allow both employee deferrals and employer profit-sharing contributions, maximizing limits. SEP IRAs (A) allow only employer contributions. SIMPLE IRAs (B) are for small employers with employees. Roth IRAs (D) are capped.

The efficient frontier illustrates the set of portfolios that maximize expected return for each risk level, given diversification benefits. It does not imply zero risk (A), nor only risk-free assets (C). Historical performance (D) informs estimates but is not the frontier itself. This concept underpins asset allocation decisions and risk–return tradeoffs in the CFP curriculum.

Systematic risk affects the entire market (e.g., interest rate changes, recessions). Diversification reduces unsystematic (business/firm-specific) risk but not systematic risk. Liquidity risk varies by asset class but can be reduced with allocation.

Charitable remainder trusts (CRT) pay income to donor/beneficiaries for life, then remainder to charity. CLTs (B) reverse the order. ILITs (C) shelter insurance. Revocable trusts (D) don’t provide tax benefits.

Herding is following others’ behavior, often without independent analysis. Anchoring (B), loss aversion (C), and endowment effect (D) do not describe copying “gurus.” Herding can lead to bubbles and crashes, requiring planner intervention with education and process discipline.