CRPC Exam Study Guide | Questions And Answers Latest {2024- 2025} A+ Graded | 100%
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Cindy wants to have an annual retirement income of $50,000 protected against 3% inflation. Assuming
an 8% after-tax rate of return and a retirement period of 25 years, how much money does Cindy need in
order to provide the inflation-protected $50,000 at the beginning of each retirement year? - BEG Mode
# of Periods (1 P/YR in this example)
C ALL
50000, PMT
4.8544, I/YR [(1.08 ÷ 1.03) - 1] × 100 = 4.8544 I/YR
25, N
PV
Solution: $749,812.61
Frank will retire in 14 years, and he needs to save an additional $380,000 to provide the retirement
income that he wants. Assume that inflation is 4% and after-tax earnings are 10%. How much will Frank
need to save at the end of each year to reach his goal? - END Mode
# of Periods (1 P/YR in this example)
C ALL
380000, FV
10, I/YR
14, N
PMT
Solution: $13,583.56 (The answer is actually -$13,583.56, as this represents an outflow to savings.)
In this case, we do not need to make the inflation adjustment. This problem asks how much Frank needs
to save at the end of each year, so the savings will be level. Remember, when the payment is level, the
inflation adjustment is not called for. Inflation should have already been taken into account to calculate
the need for an additional $380,000.
Dan and Barbara have saved $850,000. Assume that inflation is 3% and after-tax earnings are 9%. Also
assume that their retirement will last 26 years. How much annual retirement income, protected against
,inflation, can the $850,000 provide for 26 years with payments made at the beginning of each year? -
BEG Mode
# of Periods (1 P/YR in this example)
C ALL
850000, PV
5.8252, I/YR [(1.09 ÷ 1.03) - 1] × 100 = 5.8252 I/YR
26, N
PMT
Solution: $60,721.17
The Smiths are a 50-year-old couple with an annual retirement budget of $75,000 (in today's dollars).
They want to plan for a retirement life expectancy of 25 years (starting at age 65), and assume a 3.5%
average inflation rate and a 7% long-term rate of return. How much money will they need at age 65 to
fund their retirement? - Step #1: Find the inflated value of $75,000 in 15 years # of Periods (1 P/YR in
this example)
C ALL
75000, PV
3.5, I/YR
15, N
FV
Solution: $125,651.16 (This becomes our starting income payment in Step #2.)
Step #2: Calculate the PVAD of 25 years of payments, using a first payment amount of $125,651, and
factoring both inflation (3.5%) and the rate of return (7%) (i.e., a serial payment).
BEG Mode
# of Periods (1 P/YR in this example)
C ALL
125651, PMT
3.3816, I/YR [(1.07 ÷ 1.035) - 1] × 100 = 3.3816 I/YR
25, N
PV
Solution: $2,168,715.58
,John Bennett wants to receive the equivalent of $40,000 in today's dollars at the beginning of each year
for the next nine years. He assumes that inflation will average 5% over the long run and that he can earn
a 10% compound annual after-tax return on investments.
What lump sum does John need to invest today to fund his needs? - BEG Mode# of Periods (1 P/YR in
this example)
C ALL
40000, PMT
9, N
4.7619, I/YR [(1.10 ÷ 1.05) - 1] x 100 = 4.7619
PV
Solution: $301,035.15
Karen Troy, age 51, wants to quit working in six years. In terms of today's dollars, she needs an
additional $400,000 in six years to have sufficient funds to finance this goal. She assumes that inflation
will average 5% over the long run and that she can earn an 8% compound annual after-tax return on
investments.
What serial payment should Karen invest at the end of the first year to fund this goal? - END Mode
# of Periods (1 P/YR, in this example)
C ALL
400000, FV
6, N
2.8571,
I/YR [(1.08 ÷ 1.05) - 1] x 100 = 2.8571 I/YR
PMT = $62,061.19X 1.05= $65,164.25
Solution: $65,164.25 (This answer is actually -$65,164.25 as it represents an outflow to savings.)
Sean Kelley wants to save $50,000 in today's dollars for a future goal. He will need that sum by the end
of 10 years. He plans to fund this goal by investing a serial payment at the end of each year. Sean
believes that his after-tax earnings on investments will be 7% annually and that inflation will average 4%
over the long term.
What will be the dollar amount of Sean's first payment, to be made at the end of this year? - FV, 50000
, 10, N
2.8846, I/YR
PMT = $4,384.75x 1.04 = $4,560.14
Solution: $4,560.14 (The answer is actually -$4,560.14, as it represents an outflow to savings.)
Cheryl Cooper wants to receive the equivalent of $30,000 in today's dollars at the beginning of each year
for the next seven years. She assumes that inflation will average 4% over the long run and that she can
earn a 9% compound annual after-tax return on investments.
What lump sum does Cheryl need to invest today to achieve her goal? - BEG Mode
30000, PMT
4.8077, I/YR [(1.09 ÷ 1.04) - 1] x 100 = 4.8077 I/YR
7, N
PV
Solution: $183,211.73
Laurie and Sam Simpson are ready to retire. They want to receive the equivalent of $25,000 in today's
dollars at the beginning of each year for the next 20 years. They assume that inflation will average 6%
over the long run and that they can earn a 9% compound annual after-tax return on investments.
What lump sum would Laurie and Sam need to have to fund this retirement benefit? - BEG Mode
25000, PMT
20, N
2.8302, I/YR
Solution: $388,537.73 (This answer is actually -$388,537.73 as it represents an outflow, or deposit to
savings.)
Joanna Kopps, age 45, wants to quit working in three years. In terms of today's dollars, she needs an
additional $500,000 in three years to have sufficient funds to finance this objective. She assumes that
inflation will average 3% over the long run and that she can earn a 9% compound annual after-tax return
on investments.
What serial payment should Joanna invest at the end of the first year? - END Mode
500000, FV
5.8252, I/YR
Verified
Cindy wants to have an annual retirement income of $50,000 protected against 3% inflation. Assuming
an 8% after-tax rate of return and a retirement period of 25 years, how much money does Cindy need in
order to provide the inflation-protected $50,000 at the beginning of each retirement year? - BEG Mode
# of Periods (1 P/YR in this example)
C ALL
50000, PMT
4.8544, I/YR [(1.08 ÷ 1.03) - 1] × 100 = 4.8544 I/YR
25, N
PV
Solution: $749,812.61
Frank will retire in 14 years, and he needs to save an additional $380,000 to provide the retirement
income that he wants. Assume that inflation is 4% and after-tax earnings are 10%. How much will Frank
need to save at the end of each year to reach his goal? - END Mode
# of Periods (1 P/YR in this example)
C ALL
380000, FV
10, I/YR
14, N
PMT
Solution: $13,583.56 (The answer is actually -$13,583.56, as this represents an outflow to savings.)
In this case, we do not need to make the inflation adjustment. This problem asks how much Frank needs
to save at the end of each year, so the savings will be level. Remember, when the payment is level, the
inflation adjustment is not called for. Inflation should have already been taken into account to calculate
the need for an additional $380,000.
Dan and Barbara have saved $850,000. Assume that inflation is 3% and after-tax earnings are 9%. Also
assume that their retirement will last 26 years. How much annual retirement income, protected against
,inflation, can the $850,000 provide for 26 years with payments made at the beginning of each year? -
BEG Mode
# of Periods (1 P/YR in this example)
C ALL
850000, PV
5.8252, I/YR [(1.09 ÷ 1.03) - 1] × 100 = 5.8252 I/YR
26, N
PMT
Solution: $60,721.17
The Smiths are a 50-year-old couple with an annual retirement budget of $75,000 (in today's dollars).
They want to plan for a retirement life expectancy of 25 years (starting at age 65), and assume a 3.5%
average inflation rate and a 7% long-term rate of return. How much money will they need at age 65 to
fund their retirement? - Step #1: Find the inflated value of $75,000 in 15 years # of Periods (1 P/YR in
this example)
C ALL
75000, PV
3.5, I/YR
15, N
FV
Solution: $125,651.16 (This becomes our starting income payment in Step #2.)
Step #2: Calculate the PVAD of 25 years of payments, using a first payment amount of $125,651, and
factoring both inflation (3.5%) and the rate of return (7%) (i.e., a serial payment).
BEG Mode
# of Periods (1 P/YR in this example)
C ALL
125651, PMT
3.3816, I/YR [(1.07 ÷ 1.035) - 1] × 100 = 3.3816 I/YR
25, N
PV
Solution: $2,168,715.58
,John Bennett wants to receive the equivalent of $40,000 in today's dollars at the beginning of each year
for the next nine years. He assumes that inflation will average 5% over the long run and that he can earn
a 10% compound annual after-tax return on investments.
What lump sum does John need to invest today to fund his needs? - BEG Mode# of Periods (1 P/YR in
this example)
C ALL
40000, PMT
9, N
4.7619, I/YR [(1.10 ÷ 1.05) - 1] x 100 = 4.7619
PV
Solution: $301,035.15
Karen Troy, age 51, wants to quit working in six years. In terms of today's dollars, she needs an
additional $400,000 in six years to have sufficient funds to finance this goal. She assumes that inflation
will average 5% over the long run and that she can earn an 8% compound annual after-tax return on
investments.
What serial payment should Karen invest at the end of the first year to fund this goal? - END Mode
# of Periods (1 P/YR, in this example)
C ALL
400000, FV
6, N
2.8571,
I/YR [(1.08 ÷ 1.05) - 1] x 100 = 2.8571 I/YR
PMT = $62,061.19X 1.05= $65,164.25
Solution: $65,164.25 (This answer is actually -$65,164.25 as it represents an outflow to savings.)
Sean Kelley wants to save $50,000 in today's dollars for a future goal. He will need that sum by the end
of 10 years. He plans to fund this goal by investing a serial payment at the end of each year. Sean
believes that his after-tax earnings on investments will be 7% annually and that inflation will average 4%
over the long term.
What will be the dollar amount of Sean's first payment, to be made at the end of this year? - FV, 50000
, 10, N
2.8846, I/YR
PMT = $4,384.75x 1.04 = $4,560.14
Solution: $4,560.14 (The answer is actually -$4,560.14, as it represents an outflow to savings.)
Cheryl Cooper wants to receive the equivalent of $30,000 in today's dollars at the beginning of each year
for the next seven years. She assumes that inflation will average 4% over the long run and that she can
earn a 9% compound annual after-tax return on investments.
What lump sum does Cheryl need to invest today to achieve her goal? - BEG Mode
30000, PMT
4.8077, I/YR [(1.09 ÷ 1.04) - 1] x 100 = 4.8077 I/YR
7, N
PV
Solution: $183,211.73
Laurie and Sam Simpson are ready to retire. They want to receive the equivalent of $25,000 in today's
dollars at the beginning of each year for the next 20 years. They assume that inflation will average 6%
over the long run and that they can earn a 9% compound annual after-tax return on investments.
What lump sum would Laurie and Sam need to have to fund this retirement benefit? - BEG Mode
25000, PMT
20, N
2.8302, I/YR
Solution: $388,537.73 (This answer is actually -$388,537.73 as it represents an outflow, or deposit to
savings.)
Joanna Kopps, age 45, wants to quit working in three years. In terms of today's dollars, she needs an
additional $500,000 in three years to have sufficient funds to finance this objective. She assumes that
inflation will average 3% over the long run and that she can earn a 9% compound annual after-tax return
on investments.
What serial payment should Joanna invest at the end of the first year? - END Mode
500000, FV
5.8252, I/YR
