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CRPC Practice Exam 1 Questions with Verified Answers
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CRPC Practice Exam 1 Questions with Verified Answers
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CRPC Practice Exam 1 Questions withVerified Answers
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents$15,000S
hort-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? CORRECT ANSWERS $122,000
Assets = $263,000; liabilities = $141,000, so net worth is $122,000. Taxes and auto
note payments appear on the cash flow statement.
For the year ending December 31, XXXX, Bill Greer has the following financial information:
Salaries$70,000Auto payments$5,000Insurance$3,800Food$8,000Credit card balance$10,000Dividends$1,100Utilities$3,500Mortgage payments$14,000Taxes$13,000Clothing$9,000Interest income$2,100Checking account$4,000Vacations$8,400Donations$5,800
What is the cash flow surplus or (deficit) for Bill? CORRECT ANSWERS $2,700
Income = $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.
Which of the following are correct statements about income replacement percentages? CORRECT ANSWERS II, III, and IV
The inverse of Option I is true. Those with a lower preretirement income typically need a much higher income replacement percentage in retirement. 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? CORRECT ANSWERS $31,621
Set calculator "End" and "1 P/Yr" Inputs: FV = 2000000, i = 7, N = 25, PV = 0, then Pmt = $31,621
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.
What is the lump sum needed at the beginning of retirement to fund this income stream? CORRECT ANSWERS $389,957
The 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
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 Bronsons' retirement period is CORRECT ANSWERS $4,911,256
This 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]. 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.
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? CORRECT ANSWERS A) analyze information
B) gather data C) make and implement recommendations
D) monitor performance
--B
When the client's circumstances change, the asset management process goes back to the data gathering step in the process.
When the client's circumstances change, the asset management process goes back to the data gathering step in the process. CORRECT ANSWERS A) realistic
B) clearly defined
C) long-term perspective
D) fluid
--D
An 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.
An 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. CORRECT ANSWERS A) tactical.
B) alpha.
C) core/satellite.
D) strategic.
--B
Alpha 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.
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
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