CRPC EXAM II QUESTIONS WITH COMPLETE SOLUTIONS
GUARANTEED PASS BRAND NEW 2025
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? -ANSWER ->Assets = $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? -ANSWER -
>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.
LO 1-3
correct statements about income replacement percentages -
ANSWER ->Income 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? -
ANSWER ->Set 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? -ANSWER ->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
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
GUARANTEED PASS BRAND NEW 2025
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? -ANSWER ->Assets = $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? -ANSWER -
>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.
LO 1-3
correct statements about income replacement percentages -
ANSWER ->Income 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? -
ANSWER ->Set 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? -ANSWER ->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
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
