CRPC EXAM ACTUAL EXAM 180 QUESTIONS AND
CORRECT DETAILED ANSWERS WITH
RATIONALES (VERIFIED ANSWERS) |ALREADY
GRADED A+
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents$15,000
Short-term debts$8,000
Long-term debts$133,000
Tax expense $7,000
Auto note payments $4,000
Invested assets $60,000
Use assets $188,000
What is her net worth? - ANSWERAssets = $263,000; liabilities = $141,000, so net
worth is $122,000. Taxes and auto note payments appear on the cash flow statement.
1-3
Salaries$70,000
Auto payments$5,000
Insurance payments$3,800
Food$8,000
Credit card balance$10,000
Dividends$1,100
Utilities$3,500
Mortgage payments$14,000
Taxes$13,000
Clothing$9,000
Interest income$2,100
Checking account$4,000
Vacations$8,400
Donations$5,800
What is the cash flow surplus or (deficit) for Bill? - ANSWERIncome = $70,000 + $1,100
+ $2,100 = $73,200. Expenses = $5,000 + $3,800 + $8,000 + $3,500 + $14,000 +
$13,000 + $9,000 + $8,400 + $5,800 = $70,500, so there is a surplus of $2,700. The
checking account and credit card balances would be on the statement of financial
position.
,LO 1-3
correct statements about income replacement percentages - ANSWERIncome
replacement percentages are typically much higher for those with lower preretirement
incomes.
Income replacement percentages vary between low-income and high-income retirees.
Income replacement ratios should not be used as the only basis for planning.
Income replacement ratios are useful for younger clients as a guide to their long-range
planning and investing.
The inverse of Option I is true. Those with a lower preretirement income typically need a
much higher income replacement percentage in retirement.
LO 1-4
If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by
their retirement date in 25 years (rather than an amount that grows with inflation each
year), what level annual end-of-year savings amount will they need to deposit each
year, assuming their savings earn 7% annually? - ANSWERSet your calculator to the
"End" mode and "1 P/Yr." Inputs: FV = 2000000, I/YR = 7, N = 25, PV = 0, then PMT =
$31,621
1-4
Bill and Lisa Hahn have determined that they will need a monthly income of $6,000
during retirement. They expect to receive Social Security retirement benefits amounting
to $3,500 per month at the beginning of each month. Over the 12 remaining years of
their preretirement period, they expect to generate an average annual after-tax
investment return of 8%; during their 25-year retirement period, they want to assume a
6% annual after-tax investment return compounded monthly. They want to start their
monthly retirement withdrawals on the first day they retire.
What is the lump sum needed at the beginning of retirement to fund this income
stream? - ANSWERThe monthly retirement income need is not specified as "today's
dollars," and no inflation rate specified; therefore, it must be assumed that the $2,500
net monthly income need represents retirement dollars, and the retirement period
income stream is level. To calculate the lump sum needed at the beginning of
retirement, discount the stream of monthly income payments at the investment return
rate:
10BII+ PVAD calculation:
Set calculator on BEG and 12 periods per year, then input the following:
2,500 [PMT]
25 [SHIFT] [N]
,6 [I/YR]
0 [FV]
Solve for PV = $389,957
LO 1-4
Chris and Eve Bronson have analyzed their current living expenses and estimated their
retirement income need, net of expected Social Security benefits, to be $90,000 in
today's dollars. They are confident that they can earn a 7% after-tax return on their
investments, and they expect inflation to average 4% over the long term.
Determine the lump sum amount the Bronsons will need at the beginning of retirement
to fund their retirement income needs, using the worksheet below.
(1) Adjust income deficit for inflation over the preretirement period:$ 90,000present
value of retirement income deficit25number of periods until retirement4%% inflation
rateFuture value of income deficit in first retirement year$239,925
(2) Determine retirement fund needed to meet income deficit:$239,925payment (future
value of income deficit in first retirement year)30number of periods in retirement
The lump sum needed at the beginning of the - ANSWERThis PVAD calculation
requires that the calculator be set for beginning-of-period payments. First, the annual
retirement income deficit is expressed in retirement-year-one dollars, resulting in a
$239,925 income deficit in the first retirement year. This income deficit grows with
inflation over the 30-year retirement period, and the retirement fund earns a 7% return.
The calculator inputs are
$239,925, [PMT];
30, [N];
2.8846, [I/YR]. (1.07/1.04)-1 x100
Solve for [PV],
to determine the retirement fund that will generate this income stream. If you enter
2.8846 directly into the calculator, you will get $4,911,265. If you use the equation to
compute I/YR, and then hit the I/YR button you will get $4,911,256. Either way the
answer is clear. The difference is that when you calculate the I/YR, the calculator takes
the interest rate out to nine decimal places. If you enter in the 2.8846, then the
calculator only takes the interest rate to four decimal places.
LO 1-4
Assume a client and investment professional have worked together for several years.
Recently, the client's personal and financial circumstances have changed. According to
the course materials, what is the next asset management step that the investment
professional should take?
A)
gather data
B)
, analyze information
C)
make and implement recommendations
D)
monitor performance - ANSWERWhen the client's circumstances change, the asset
management process goes back to the data gathering step in the process. A
LO 1-2
Which one of the following is not a key attribute of an investment policy?
A)
clearly defined
B)
fluid
C)
realistic
D)
long-term perspective - ANSWERAn investment policy provides guidelines that are
standards to be followed. If they are fluid, they are ever-changing and therefore would
be difficult to implement and would provide inconsistency in the management of the
portfolio.
LO 2-1
Fluid
All of these are examples of asset allocation strategies except
A)
alpha.
B)
tactical.
C)
core/satellite.
D)
strategic. - ANSWERAlpha is not an asset allocation strategy, but a way to measure a
portfolio manager's return relative to the amount of risk that has been taken. alpha
LO 2-5
Assume the following asset classes have the correlations to long-term government
bonds shown below:
Treasury bills:.12
Gold:-.25
Large stocks:.22
Small stocks:.17
Which one of the following best exemplifies the impact of diversification on long-term
government bonds? - ANSWERThe asset with the lowest correlation provides the most
diversification. Therefore, gold provides more diversification than any of the other
assets. Small stocks do provide more diversification than Treasury bills, but
