FP1 Full Practice Exam Questions with 100% Correct Verified Answers Latest Updated 2025, Exams of Finance

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Which statement regarding the traits or values of financial advisors is correct?

A. Professionalism is displayed by being competent and knowledgeable.

B. Diligence is displayed by being honest with clients.

C. Objectivity requires respecting clients' privacy.

D. Confidentiality requires the advisor to make impartial recommendations. --- correct answer --- A. Professionalism is displayed by being competent and knowledgeable.

Professionalism is displayed by being competent and knowledgeable by keeping up to date regarding key aspects of the financial services industry.

By and large, what statement below is true in regards to the current landscape in Canada for financial advisors?

A. There has been a dramatic shift to fee based advice as it's perceived as unbiased.

B. The role has shifted to a client driven model where building a strong client relationship is key.

C. The business is now product driven where it's all about selling higher commissioned products.

D. The industry is focusing on reducing costs and finding the most inexpensive investments for clients. --- correct answer --- B. The role has shifted to a client driven model where building a strong client relationship is key.

The role of the Advisor in the financial services industry has changed in recent years from one that is product driven to one that is client driven. Reference: Module 1, Section 1

Which statements about the evolution of the role of financial advisors is/are correct?

[I] The financial services industry has moved towards an integrated market and so have advisors.

[II] Advisors have fewer products and services to offer to clients.

[III] Advisors require a greater level of knowledge to recommend sophisticated alternatives to clients.

A. I only.

B. I and III only.

C. II and III only.

D. I and II only. --- correct answer --- B. I and III only.

Advisors have to work within a highly integrated financial services market and must possess a much higher level of knowledge than before to satisfy increasingly sophisticated clients.

Select the first step in the financial planning process.

A. Analyzing a client's data and information.

B. Recommending strategies to meet goals.

C. Establishing a relationship with the client.

D. Collecting a client's data and information. --- correct answer --- C. Establishing a relationship with the client.

The first step in the financial planning process is for an advisor to establish a relationship with the client; everything else follows.

Select the item that would provide you with quantitative data about your new client.

A. Profit sharing plan statement.

B. Risk tolerance assessment.

C. Goal setting questionnaire.

D. Fees and services agreement. --- correct answer --- A. Profit sharing plan statement.

Only the profit-sharing statement would provide you with quantitative data, i.e. numeric or other specific data that can be quantified. The other options would provide qualitative data. Reference: Module 1, Section 2.

Your client's goal is to improve her cash flow. Select the strategy that will be most effective in helping her to reach her goal.

A. Improve investment return.

B. Reduce flexible expenses and lengthen time frame for investments.

C. Increase income and reduce expenses.

D. Contribute regularly to an emergency fund. --- correct answer --- C. Increase income and reduce expenses.

Cash flow is the amount of money available for investment or other purposes. In this scenario, the client is best able to free up money for investments by increasing the amount of money coming in (income) and reducing the amount of money going out (expenses). While (b) would improve cash flow by reducing some expenses, the addition of the increase in income in (c) makes it more effective.

Kim does not recommend an investment fund to her clients that is heavily promoted by her own firm's marketing department because her analysis demonstrates that it is not consistent for her clients' goals. Select the type of responsibility that she is demonstrating.

A. Integrity.

B. Professionalism.

C. Objectivity.

D. Diligence. --- correct answer --- C. Objectivity.

Kim is fulfilling the responsibility of "Objectivity" which states that an adviser must not make recommendations that benefit the adviser or the adviser's institution when there are other products and services that might serve an adviser's clients better. Reference: Module 1, Section 2.

Select the most useful goal for setting investment priorities.

A. "I'm not sure when we'll retire, but we want to be able to travel for 10 or so years at that time."

B. "We want to buy a big house in a nice neighbourhood"

C. "We will need 70% of our current income level to retire and maintain our lifestyle."

D. "I want to be able to retire comfortably based on my current lifestyle." --- correct answer --- C. "We will need 70% of our current income level to retire and maintain our lifestyle."

General Feedback:

Options a, b, and d are not measurable or quantifiable; only c is measurable and quantifiable. Thus, only "c" is usual for setting priorities. Encouraging

clients to set specific, measurable targets instead of vague and general goals serves two functions:

It helps to clearly and explicitly define financial objectives.

It helps to measure and monitor the performance of the financial plan.

Reference: Module 1, Section 2

Nabila, an advisor, receives a call from an insurance broker asking for information about the assets she manages for a client. Nabila refuses to speak to the broker about her client without the client's permission. What type of responsibility is he demonstrating?

A. Integrity.

B. Professionalism.

C. Confidentiality.

D. Diligence. --- correct answer --- C. Confidentiality.

General Feedback: Nabila is fulfilling the responsibility of Confidentiality, which states that an adviser must respect a clients' privacy and treat their information with confidentiality. Reference: Module 1, Section 2.

Haseeb is an advisor who regularly attends industry seminars and takes continuing education courses. What type of responsibility is he demonstrating?

A. Integrity.

B. Professionalism.

C. Objectivity.

D. Diligence. --- correct answer --- B. Professionalism.

Haseeb is demonstrating the responsibility of professionalism, which states that an advisor must be competent, knowledgeable and up to date regarding all aspects of the financial services industry. Reference: Module 1, Section 2.

Which statement best describes an efficient financial

plan?

A. A plan that delivers the desired results.

B. A plan that uses a balanced approach to selecting investments.

C. A plan that generates optimal results for the least amount of money.

D. A plan that incurs the highest rates of return for the least amount of risk. --- correct answer --- C. A plan that generates optimal results for the least amount of money.

An efficient plan produces the best results for the least money, while an effective plan produces the desired results. Reference: Module 1, Section 2.

Determining a client's risk tolerance, "dreams and desires" are all examples of an advisor collecting what type of data?

A. Emotional data.

B. Qualitative data.

C. Bottom- up data.

D. Quantitative data. --- correct answer --- B. Qualitative data.

Qualitative data is any information that helps you to assess your clients' understanding of economic concepts and to determine their tolerance for risk. Qualitative questions will also help you to identify areas where goals and attitudes may conflict so you can help your clients to establish reasonable objectives and priorities. Reference: Module 1, Section 2

Ming has met with his advisor who has presented an overview of the financial plans that he has prepared. His advisor asks Ming to approve the investment recommendations. Ming has carefully reviewed the proposals, but, has questions. Choose the phase of the recommendation process the advisor has completed correctly.

A. Discuss strategies and recommendations with your clients.

B. Allow your clients to ask questions and express concerns.

C. Modify and revise your recommendations accordingly.

D. Discuss the new recommendations with your clients --- correct answer --- A. Discuss strategies and recommendations with your clients.

At this point, the advisor has not permitted Ming yet to ask questions and express concerns and has therefore not modified or revised

recommendations, meaning that there are no new recommendations available to discuss. He has only presented the initial proposals. Reference: Module 1, Section 2.

You are reviewing a client's investment portfolio and are pleased to see that all of her GICs were purchased before a recent substantial fall in interest rates. You note that she has a mortgage on her home, a substantial emergency fund, and an up-to-date insurance policy. Choose the action that you should recommend at your review tomorrow.

A. Cash in GICs.

B. Eliminate the emergency fund.

C. Refinance the mortgage.

D. Review the insurance policy. --- correct answer --- C. Refinance the mortgage.

In this example, a change in economic conditions would trigger a review of the mortgage. The other components of her portfolio would not benefit from a change as they are already protected from the impact of the economic change, however, the mortgage would be positively affected if it were to be refinanced at this point. Reference: Module 1, Section 2.

What is the correct sequence of events for the advisor to follow from start to finish when dealing with a client at the recommendation stage?

A. Discuss strategies and recommendations; implement the strategy once approved by the client.

B. Discuss strategies and recommendations; allow the client to ask questions and express concerns; implement the strategy once approved by the client.

C. Allow the client to ask questions and express concerns; discuss strategies and recommendations; modify and revise your recommendations accordingly; discuss the new recommendations with the client.

D. Discuss strategies and recommendations; allow the client to ask questions and express concerns; modify and revise your recommendations accordingly; discuss the new recommendations with the client. --- correct answer --- D. Discuss strategies and recommendations; allow the client to ask questions and express concerns; modify and revise your recommendations accordingly; discuss the new recommendations with the client.

General Feedback:

The following is the sequence of events that should take place at this stage: discuss strategies and recommendations with your clients; allow your clients to ask questions and express concerns; modify and revise your recommendations accordingly; discuss the new recommendations with your clients. Reference: Module 1, Section 2.

A client indicates that she would prefer to use her $5,000 tax refund this year to pay down her mortgage instead of contributing to an RESP for her daughter. Choose the financial planning goal-setting activity that she is performing.

A. Defining by time frame.

B. Specific and measurable.

C. Acceptable in level of risk.

D. Ordered in level of importance. --- correct answer --- D. Ordered in level of importance.

General Feedback: Because resources are typically limited, your clients should prioritize their goals and focus on achieving the most important first. Reference: Module 1, Section 2.

Score

Identify the questions that a cash flow statement answers.

[1] How much money is coming in?

[2] Where is the money going?

[3] Who is making the money?

A. I only.

B. I and II only.

C. II and III only.

D. I and III only. --- correct answer --- B. I and II only.

General Feedback:

A cash flow statement tracks the flow of income and expenses—primarily what's coming in by way of income and what's going out by way of expenses.

What category generally represents the largest expenditure of the average Canadian family and commonly offers the least flexibility?

A. Food.

B. Housing.

C. Health care.

D. Transportation. --- correct answer --- B. Housing.

General Feedback:

The housing cluster represents the largest percentage of spending for most households and is usually the spending area with the least flexibility. Reference: Module 2 Section 1.

What are the three steps involved in creating a budget?

A. Set savings goals; determine expenses to cut; review budget monthly.

B. Calculate total income; determine fixed survival costs; calculate quarterly budget.

C. Set savings goals; determine expenses to cut; review budget annually.

D. Calculate total income; determine expense priority; calculate semi- annual budget. --- correct answer --- A. Set savings goals; determine expenses to cut; review budget monthly.

General Feedback:

The three steps to creating a budget are: set savings goals; determine expenses to cut; review budget monthly. Reference: Module 2 Section 1.

Calculate this household's Gross Debt Service Ratio (GDSR) given the following information.

Annual household income (gross amount): $100,

Monthly mortgage payments: $2,

Annual property taxes: $5,

Annual heating costs: $1,

Total credit card balances outstanding: $20,000.

A. 8%.

B. 30%.

C. 20%.

D. 50% --- correct answer --- B. 30%.

General Feedback:

The calculation is: Annual Mortgage Payments $24,000 + Property Taxes $5,000 + Heating Costs $1,440 divided by Annual Income $100,000. This equals $30,440 ÷ $100,000 = 30.44%. Reference: Module 2 Section 2.

Identify the correct description of what "not in advance" refers to in Canadian mortgages.

A. There are no prepayment options allowed on the loan.

B. The principal payment is deducted before the interest is calculated on the loan.

C. Prepayments are only allowed on the anniversary date of the loan, not in advance of that date.

D. The mortgagor cannot pay off the mortgage in advance of the maturity date. --- correct answer --- B. The principal payment is deducted before the interest is calculated on the loan.

In the example with Bryan Lee and Imre and Katrina Docek, he advises the couple to take advantage of the "not-in-advance" calculation of interest by making an annual lump-sum payment on the loan. When they make two mortgage payments at once on an annual basis, the extra payment goes directly toward the principal. This shifts the interest-to-principal ratio and eliminates the debt sooner. Reference: Module 2 Section 2.

Select the most common Canadian mortgage repayment term and amortization period.

A. One year term and 15 year amortization period.

B. Two year term and 20 year amortization period.

C. Five year term and 25 year amortization period.

D. Ten year term and 35 year amortization period. --- correct answer --- C. Five year term and 25 year amortization period.

A mortgage term can range from six months to 10 years and in rare cases up to the length of the amortization. The standard repayment term in Canada tends to be five years, and the standard amortization period is 25 years, although it can be as long as 30 years. Reference: Module 2 Section 2.

What will result from choosing accelerated mortgage payments?

A. Lower payments.

B. Unchanged cash flow.

C. Shorter amortization.

D. Repayment penalties. --- correct answer --- C. Shorter amortization.

General Feedback:

An accelerated payment schedule can have the same effect as making one extra monthly payment each year. As is shown in the table displayed in the example for Janet Benjamin, as the mortgage payments increase, the amortization period decreases. Module 2 Section 2 page #27.

Choose the type of credit that is usually the most expensive.

A. Unsecured personal line of credit.

B. Secured personal line of credit.

C. Home-equity line of credit.

D. Overdraft protection. --- correct answer --- D. Overdraft protection.

The interest rate associated with overdraft protection can be as high as 21% plus there is an overdraft fee. The typical interest rate for a secured line of credit is always the lowest since the home is pledged as collateral for the debt. Module 2 Section 2.

Choose the item that is included in the calculation of the Gross Debt Service Ratio (GDSR).

A. Personal loan payments.

B. Property taxes

C. Insurance premiums.

D. Overdraft charges. --- correct answer --- B. Property taxes.

The GDSR is the calculation of all housing costs, whether rent or mortgage as a percentage of annual gross income. Mortgage costs include principal and interest payments, property taxes, heating and condominium fees (if any). Reference: Module 2 Section 2.

Select the correct statement about statutory rights for conventional mortgage prepayments.

A. The Canada Interest Act permits borrowers to make prepayments of a mortgage without penalties as of the three-year payment date anniversary.

B. The National Housing Act allows restricted prepayments of mortgages without penalties at the 12th and 24th payment-date anniversaries.

C. The Bank Act permits any prepayments of mortgages after a period of three years with a maximum penalty of three months' interest.

D. The Canada Interest Act allows prepayments of mortgages after the 5th anniversary with a maximum interest prepayment penalty of 3 months. --- correct answer --- D. The Canada Interest Act allows prepayments of mortgages after the 5th anniversary with a maximum interest prepayment penalty of 3 months

General Feedback:

The Canada Interest Act permits prepayment of a conventional mortgage (where the borrower is an individual) after the fifth anniversary of the mortgage, with a statutory maximum prepayment penalty equivalent to three months' interest. The fifth-anniversary rule does not apply to mortgages with corporate borrowers where the terms of prepayment are wholly determined by the contract between the two parties. Reference: Module 2 Section 2.

Choose the mortgage payment strategy that would likely result in the greatest interest savings for a client.

A. Changing from monthly to bi-weekly mortgage payments.

B. Changing from monthly to weekly mortgage payments.

C. Reducing the amortization period from 25 years to 15 years.

D. Making an extra monthly mortgage payment at the beginning of each year. --- correct answer --- C. Reducing the amortization period from 25 years to 15 years.

General Feedback:

While many clients will often initially assume a 25-year amortization period on a mortgage loan, it is generally advisable to select the shortest possible amortization period. A mortgage loan with a 20- or 15-year amortization period is paid off faster than a mortgage loan with a 25-year amortization period. A shorter amortization period will save substantial interest costs and improve a client's net worth. Reference: Module 2 Section 2.

Identify the correct statement(s).

[1] An individual can borrow up to 95% of a home's purchase price.

[2] The term of an open mortgage can be longer than that of a closed mortgage.

[3] With a variable-rate mortgage, the borrower is protected against interest rate spikes.

[4] The amortization period of a mortgage is the period required to completely pay it off.

A. I and IV only.

B. I and III only.

C. II and III only.

D. V only. --- correct answer --- A. I and IV only.

General Feedback:

For a high-ratio mortgage, clients can borrow up to 95% of a home's purchase price. The amortization period is the period of time over which the borrower pays off a mortgage loan. Reference: Module 2 Section 2.

Which losses can be carried back three years or forward for 20 years and applied against other sources of income?

[1] Capital losses.

[2] Business investment losses.

[3] Non-capital losses.

A. I and II only.

B. II and III only.

C. I and III only.

D. I, II and III. --- correct answer --- B. II and III only

General Feedback:

Business investment and non-capital losses can be carried back three years and forward for up to 20 years. Reference: Module 3, Section 1

Henry, age 45, contributes $7,000 annually to his RRSP which is 60% invested in equity mutual funds and 40% in fixed-income products. He is planning to retire at age 60. Which tax planning techniques is Henry using?

A. Trading across taxpayers.

B. Trading across investment vehicles.

C. Trading over time.

D. Trading over organizational forms. --- correct answer --- C. Trading over time.

Henry is deferring the payment of income tax on funds held in his RRSP for at least 15 years until his retirement at age 60. Henry is using the "trading over time" technique. Reference: Module 3, Section 1.

At the federal level, when more than one person supports a child, who can claim the childcare expense deduction?

A. The lower income earner must claim the deduction, subject to some exceptions.

B. The lower income earner must always claim the deduction, with no exception.

C. The higher income earner must always claim the deduction, with no exception.

D. The deduction can be split between the two supporting individuals. --- correct answer --- A. The lower income earner must claim the deduction, subject to some exceptions.

General Feedback:

If more than one person supports the child, the deduction must be claimed by the person with the lower amount of net income, subject to some exceptions. Reference: Module 3, Section 1.

Yasmin faces a 22% marginal tax rate and an 18% effective tax rate at the federal level. Calculate the amount by which a tax credit of $200 will decrease her income taxes payable.

A. $200

B. $100

C. $44

D. $31 --- correct answer --- A. $200

General Feedback:

Tax credits reduce tax by the same amount, irrespective of the individual's marginal tax rate. Reference: Module 3, Section 1.

On February 10 of this year, Angus received a $25,000 loan from his employer. The interest rate on the loan was 1.25% lower than the then-

current prescribed rate of 5.50% (this rate did not change for the rest of the year). Calculate Angus' interest benefit from this low-interest loan for the year.

A. $943.14

B. $312.50

C. $277.40

D. $221.92 --- correct answer --- C. $277.40

General Feedback:

Interest rate imputed on loan = 5.50% - 1.25% = 4.25%; Interest benefit = $25,000 x (5.50% - 4.25%) x 324/365 days = $277.40. Reference: Module 3, Section 1.

Which is correct regarding the amount of taxable employee benefits?

A. The benefit amount is included in the employee's income.

B. The benefit amount is included in the employee's pension adjustment calculation.

C. The employee receives a tax credit for the amount of taxable employee benefits.

D. A two-year vesting period is required to qualify for taxable employee benefits. --- correct answer --- A. The benefit amount is included in the employee's income.

General Feedback:

All taxable employee benefits must be included as income on an employee's annual tax return. Reference: Module 3, Section 1.

Select the correct statement(s) about tax deductions.

[1] Capital losses can be deducted from employment income.

[2] Spousal support payments are deductible by the payer.

[3] Child support payments are deductible by the payer.

A. I only.

B. II only.

C. I and II only.

D. II and III only. --- correct answer --- B. II only.

General Feedback:

While spousal support payments are deductible by the payer, child support payments are not. Reference: Module 3, Section 1.

Which statement correctly captures the process of determining an individual's Registered Retirement Savings Plan (RRSP) contribution limit for the current year (where PA represents Pension Adjustment)?

A. The lesser of 18% of the current year's earned income and the RRSP dollar limit for the current year.

B. The lesser of 18% of the current year's earned income and the RRSP dollar limit for the current year plus the previous year's PA plus the taxpayer's unused RRSP contribution room at the end of the immediately preceding taxation year.

C. The lesser of 18% of the previous year's earned income and the RRSP dollar limit for the current year minus the current year's PA.

D. The lesser of 18% of the previous year's earned income and the RRSP dollar limit for the current year minus the previous year's PA plus the taxpayer's unused RRSP contribution room at the end of the immediately preceding taxation year. --- correct answer --- D. The lesser of 18% of the previous year's earned income and the RRSP dollar limit for the current year minus the previous year's PA plus the taxpayer's unused RRSP contribution room at the end of the immediately preceding taxation year.

General Feedback:

The maximum annual tax-deductible contribution to an RRSP is determined by: The lesser of 18% of the previous year's earned income and the RRSP dollar limit for the current year minus the previous year's PA + the taxpayer's unused RRSP contribution room at the end of the immediately preceding tax year. Reference: Module 3, Section 1.

Which statement about personal income taxation is correct?

A. Tuition fees are deductible when calculating net income.

B. Spousal support payments received during the year are not taxable.

C. Academic post-secondary scholarships are no longer taxable.

D. Only the first $10,000 of moving costs incurred to move 40 km. closer to work are not taxable. --- correct answer --- C. Academic post-secondary scholarships are no longer taxable.

General Feedback:

Scholarships are not included in income. Reference: Module 3, Section 1.

On which of the basic sources of revenue does Canada rely?

[1] Income

[2] Transfers

[3] Wealth

A. I only.

B. I and II only.

C. II and III only.

D. I and III only. --- correct answer --- D. I and III only.

General Feedback: Canada relies on income, consumption and wealth as sources of tax revenue.. Reference: Module 3, Section 1.

Which benefit is considered a non-taxable fringe benefit?