10 free CFP practice questions in the real exam format, covering the official content areas, with an explanation for every answer.
CFP Practice Test 15Tutor mode
Question 1 of 10
Investment Planning
Scenario: Floyd
Floyd, 55, wants to set aside $400,000 of Treasury securities to cover living expenses during his first years of retirement, which begins in 10 years. His CFP® professional presents two alternatives.
Alternative 1 is a ladder of ten Treasury notes with equal face amounts maturing in years 1 through 10; each maturing note would be reinvested at the end of the ladder. Alternative 2 is a bullet: a single 10-year zero-coupon Treasury STRIP with a yield to maturity of 5.0% (annual compounding).
Floyd has read forecasts that interest rates will rise over the next several years, and he is unsure which structure would serve him better if they do.
If interest rates rise over the next several years, which statement BEST describes the ladder's advantage over the bullet?