CTFA Practice Exam 1 Study Guide with
Questions and Correct Answers
Q. Which of the following types of trusts can use the Uniform Principal and Income Act
power to adjust ?
A. GRAT
B. Trust under will
C. Revocable trust
D. Charitable lead trust - ✔✔Solution : The correct answer is B.
Q. Which of the following is a power of attorney for property that is effective upon execution
and does NOT terminate upon the principal's incapacity?
A. General
B. Springing
C. Durable
D. Limited - ✔✔Solution: The correct answer is C
Q. A client borrows $ 100,000 , and uses the proceeds to purchase $ 75,000 in equities and $
25,000 in tax - exempt bonds . The interest on the loan is :
A. Not deductible because it is tainted by the purchase of tax - exempt bonds B. Not
deductible because it is considered personal interest
,C. Deductible to the extent of investment income after proper allocation between taxable and
tax exempt income
D. Deductible in full as investment interest - ✔✔Solution : The correct answer is C.
Q. What is the BEST reason to include international securities in a portfolio of existing stocks
and bonds ?
A. Decrease diversification
B. Likely improve diversification
C. Likely increase portfolio volatility
D. Improve tax efficiency - ✔✔Solution : The correct answer is B.
Q. A transfer of a private foundation's income or assets to , or for , the benefit of a
disqualified person , is subject to a penalty excise tax as :
A. A taxable expenditure .
B. An act of self - dealing .
C. Prohibited distribution .
D. Unrelated business income . - ✔✔Solution : The correct answer is B.
Q. A client wants to be certain that his family trust will be administered by you , as the trust
advisor . Accordingly , which of the following is appropriate text for the trust instrument ?
, A. The trust advisor shall administer any trust created hereunder
B. A majority of adult beneficiaries can transfer the trust to another corporate fiduciary
C. Funding of the trust will not take place unless ( YOUR NAME ) is the assigned trust
advisor
D. The grantor / testator wishes the trust advisor to be the administrator assigned to the
family trust , as may be practicable - ✔✔Solution : The correct answer is D.
Q. A central goal of modern portfolio theory is to :
A. Limit the use of risky investments
B. Manage portfolio volatility and risk through diversification
C. Encourage the systematic evaluation of a portfolio on an asset - by - asset basis
D. Acknowledge that the use of prudent investments is more critical to portfolio performance
than a consideration of inflation or market risk - ✔✔Solution : The correct answer is B.
Q. A client received a $ 15,000 bonus and would like to use the money for a down payment
on a new house in a year . Which of the following is the MOST appropriate investment
approach ?
A. Buy a 5 - year , AAA - rated municipal bond
B. Purchase a 52 - week U.S. Treasury bill
C. Invest in an S & P 500 indexed mutual fund
Questions and Correct Answers
Q. Which of the following types of trusts can use the Uniform Principal and Income Act
power to adjust ?
A. GRAT
B. Trust under will
C. Revocable trust
D. Charitable lead trust - ✔✔Solution : The correct answer is B.
Q. Which of the following is a power of attorney for property that is effective upon execution
and does NOT terminate upon the principal's incapacity?
A. General
B. Springing
C. Durable
D. Limited - ✔✔Solution: The correct answer is C
Q. A client borrows $ 100,000 , and uses the proceeds to purchase $ 75,000 in equities and $
25,000 in tax - exempt bonds . The interest on the loan is :
A. Not deductible because it is tainted by the purchase of tax - exempt bonds B. Not
deductible because it is considered personal interest
,C. Deductible to the extent of investment income after proper allocation between taxable and
tax exempt income
D. Deductible in full as investment interest - ✔✔Solution : The correct answer is C.
Q. What is the BEST reason to include international securities in a portfolio of existing stocks
and bonds ?
A. Decrease diversification
B. Likely improve diversification
C. Likely increase portfolio volatility
D. Improve tax efficiency - ✔✔Solution : The correct answer is B.
Q. A transfer of a private foundation's income or assets to , or for , the benefit of a
disqualified person , is subject to a penalty excise tax as :
A. A taxable expenditure .
B. An act of self - dealing .
C. Prohibited distribution .
D. Unrelated business income . - ✔✔Solution : The correct answer is B.
Q. A client wants to be certain that his family trust will be administered by you , as the trust
advisor . Accordingly , which of the following is appropriate text for the trust instrument ?
, A. The trust advisor shall administer any trust created hereunder
B. A majority of adult beneficiaries can transfer the trust to another corporate fiduciary
C. Funding of the trust will not take place unless ( YOUR NAME ) is the assigned trust
advisor
D. The grantor / testator wishes the trust advisor to be the administrator assigned to the
family trust , as may be practicable - ✔✔Solution : The correct answer is D.
Q. A central goal of modern portfolio theory is to :
A. Limit the use of risky investments
B. Manage portfolio volatility and risk through diversification
C. Encourage the systematic evaluation of a portfolio on an asset - by - asset basis
D. Acknowledge that the use of prudent investments is more critical to portfolio performance
than a consideration of inflation or market risk - ✔✔Solution : The correct answer is B.
Q. A client received a $ 15,000 bonus and would like to use the money for a down payment
on a new house in a year . Which of the following is the MOST appropriate investment
approach ?
A. Buy a 5 - year , AAA - rated municipal bond
B. Purchase a 52 - week U.S. Treasury bill
C. Invest in an S & P 500 indexed mutual fund
