CRPC Practice Test Questions and Answers All Correct
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Module
CRPC
Institution
CRPC
CRPC Practice Test Questions and Answers All Correct
Discuss the use of a bucket strategy - Answer-- used to mitigate the sequence of returns risk by creating a bucket of cash or money market instruments for immediate cash flow needs, while also maintaining a diversified portfolio of more volat...
CRPC Practice Test Questions and
Answers All Correct
Discuss the use of a bucket strategy - Answer-- used to mitigate the sequence of
returns risk by creating a bucket of cash or money market instruments for immediate
cash flow needs, while also maintaining a diversified portfolio of more volatile assets
with high potential returns for future needs.
Discus the role that a single premium immediate annuity (SPIA) can plan in a clients
retirement income portfolio - Answer-- the purchase of a lifetime annuity eliminates the
need to manage the investment of those funds, determining which assets should be
used to fund distributions, and the fear of outliving ones assets.
Identify the order in which retirement savings should be withdrawn in order to maximize
ones life time after-tax benefit - Answer-1. taxable accounts
2. partially tax deferred assets
3. tax-deferred accounts (IRAs, annuities, qualified plans)
Immediate Annuities - Answer-- Distribution phase begins immediately after the initial
deposit
- When an individual purchases an annuity with a lump sum and starts receiving
benefits within a year; this is termed an immediate annuity or single premium immediate
annuity (SPIA)
Deferred annuities - Answer-- individual makes an initial deposit(s), but payments from
the annuity back to owner are delayed
Fixed Annuity - Answer-- during accumulation phase, deposits go int insurance
company's general account and earns the current interest rate, but no less than stated
minimum
Some IRAs and qualified plans contain contributions of after-tax dollars. when
distributions from these plans are made through a series of equal installments, how
does one identify which part of each payment is the after tax dollars and which is not? -
Answer-- The nontaxable portion of each payment is determined by dividing the total
contribution of after tax dollars (cost basis), by the number of anticipated monthly
payments, according to the table
(pg. 95 of module 7)
Taxation of mutual fund distribution
1. Qualified Dividend
2. Cap gains
3. non qualified dividend - Answer-1. Taxed at cap gains rate: 0%, 15%, or 20%
,2. LT- held for atleast a year; cap gains rate
3. dividends paid on stock not held for required holding period- ordinary income
Which shares redeemed on mutual fund redemptions - Answer-you select one of three
choices
1. default: FIFO
2. Average basis method
- total all share purchases and divide by number of shares
3. Share Identification: you select which share to sell
Cost basis - Answer-Original price paid for assets + transaction cost + costs associated
with improvements= Basis
Diversification - Answer-Acquiring assets with low or negative correlations to each other
with the goal of lowering overall risk
Correlation - Answer-- a relative measure of the degree to which the returns of two
assets move together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
Discuss what michael Kitces and Wade Pfau mean by a rising equity glidepath -
Answer-- asset allocation path that results from spending down fixed income assets in
early years and letting equity exposure rise over time
Asset allocation - Answer-- the apportioning of available funds among a number of
asset classes in a way that meets the needs of a particular client, dampens the effects
of periodic market fluctuations, and meets investment goals
Four steps in the asset allocation process - Answer-1) select asset classes to be
represented
2) determine the percentage that each asset class should represent in the total portfolio
3) Select individual securities
4) Review and rebalance
Strategic Asset Allocation - Answer-- determine asset mix that provides optimal balance
of expected risk and ROR
- asset classes selected and % weight determined
- Used to develop long-term allocation policy
- utilizes rebalancing to maintain targeted weight
Tactical Asset Allocation - Answer-- used to develop short term strategies to exploit
changes in market conditions
- ofter viewed as a contrarian strategy
,- periodic revisions of asset mix; moving funds from over valued investments to
undervalued investments
- market timing strategy
Core-Satellite asset allocation - Answer-70-80% invested in broad index fund or etfs
- remaining satellite consists of actively managed MF's in niches such as sector funds or
alt investments like hedge funds
Contrarian Strategy - Answer-
Dollar-Cost averaging - Answer-- investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy - Answer-Ratio of 1= fair value
Ratio > 1= overvalued
Ratio < 1= undervalued
** The long-term average P/E for stocks is 16
Bond Investment strategies (2) - Answer-1) Ladder: Owning equal amounts of bonds
along with maturities of equal intervals; ex. 50k of bonds with 10k each in 2,4,6,8,10
year maturities
2) Barbell: Owning short-term and long-term bonds, each with a ladder; ex. 100k of
bonds with 10k each in 1,2,3,4,5 year maturities and in 16,17,18,19,20 year maturities
Social Security- Fully insured - Answer-- having 10 years of employment covered by
social security; expressed as "40 quarters of coverage"
- Must be fully insured for retirement benefits
- fully insured workers are also eligible for disability if he has earned at least 20 work
credits in last 10 years
Social Security- currently insured - Answer-- individual must has at least 6 quarters of
coverage in the 13-quarter period proceeding the event for which eligibility is sought
- child's benefit, mother/fathers benefits, and lump-sum death benefit are available if a
worker is only currently insured at death
Components of SS calculation - Answer-- age he starts
- earnings history
, SS calculation before full retirement age - Answer-- Payment reduced by 5/9th of 1% for
each month filed before FRA, up to 36 months
- Payment is reduced by 5/12ths of 1% for each month filed early in excess of 36
months
SS calculation after full retirement age - Answer-- Payment increases by about 8% each
year they delay, until maximum year 70
- actual math is 2/3 for each month
Social Security milestones - Answer-Ages
50: disabled survivors can start receiving benefits
60: nondisabled survivors can start receiving
62: earliest one can start receiving benefits at reduced rate
65-67: FRA, depending on birth year
70: delayed retirement age
Social Security income cap - Answer-$15,720
- Those who are under FRA and working will lose $1 SS benefit for every $2 they earn
above $15,720
- At FRA it is reduced to $1 for every $3 earned
After FRA there is no reduction
Max provisional income for SS - Answer-Single or head of househouse:
Tax-free if provisional income is less than 25k
Filing jointly:
Tax free if provisional income is less than 32k
Single provisional income SS taxable % - Answer-25k-34k: 50%
34k+: 85%
Jointly provisional income SS taxable % - Answer-32k-44k: 50%
44k+:85%
maximum taxable SS amount - Answer-85% of Total SS benefit
Spousal benefit - Answer-- Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund - Answer-Payroll taxes; FICA
What is the FICA tax; how is it split up - Answer-15.3%; The employer and employee
each pay 6.2% for old-age, survivors and disability insurance (OASDI) and 1.45% each
for hospital insurance
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