CRPC Practice Exam questions with correct answers

CRPC Practice Exam #2 questions with
correct answers


Richard wants to have an annual retirement income of $100,000 (payable at the
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beginning of each year) protected against 3% inflation.
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Assuming a 7% after-tax rate of return and a retirement period of 30 years, how much
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money does Richard need in order to meet his goal?
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Explain how you need to input this on the calculator and why. - answer-Step One - Set
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the calculator to BEGIN.
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Step Two - Calculate the inflation adjusted rate of return (One plus the Rate of Return
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divided by One plus the interest rate, minus one, multiplied by 100 = the inflation
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adjusted rate of return) Put this number in the I/YR
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Step Three - 100,000 goes in as a PMT
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Step Four - 30 goes in as N
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Step Five -Press PV v v v




Richard needs $1,822,042.88 in today's dollars to meet his needs.
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How do you calculate the inflation-adjusted rate of return? - answer-1 plus the Rate of
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Return
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Divided by v




1 plus the interest rate
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minus one v




multiplied by 100 v v




Tom has been promised a stream of $40,000 annual payments at the end of each year
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for 25 years. The present value of these payments discounted at a rate of 5% is which
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one of the following amounts? - answer-Step One - The problem says END in it so you
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have to set your calculator to the END mode.
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, Step two - Enter the $40000 as a PMT
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Step Three - Enter 25 as the N.
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Step Four - Enter 5 as the I/R
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Step Six - Hit PV.
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$563,758

Nick wants to maintain the purchasing power of $75,000 (in today's dollars) in
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retirement. If inflation continues to average 3.5%, approximately what amount will Nick
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need in 20 years to equal the purchasing power of $75,000 today? (Round your
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answer.) - answer-If you know the Rule of 72, and you divide 3.5 into 72, you arrive at
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the number 20, which is the number of years it will take for a sum to double. With a
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calculator, you can solve for the future value of $75,000 over 20 years at 3.5%.
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Keystrokes: 20 N, 3.5 I/YR, 75,000 PV, FV = $149,234; rounded = $150,000
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What is the second step in the retirement planning process? - answer-The second step
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in the retirement planning process is to gather client data, including goals and
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expectations
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What is the first step in the retirement planning process? - answer-The first step is to
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establish and define the client-counselor relationship which includes disclosing the
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counselor's compensation arrangement
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What is a characteristic of a TIP? - answer-The increase in principal is taxable each
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year. Any annual increase in principal is subject to federal taxation (unless in a tax-
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deferred account). Returns are tied to the consumer price index. TIPS are sold at par
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value and have maturities up to 30 years.
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How you calculate the weighted beta of a portfolio? - answer-You multiply the weight
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times the beta for each stock, then you add those numbers up together.
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What does Jensen's alpha tell you - answer-The percentage a manager over or
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underperformed based on the amount of risk taken.
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Moving averages, graphs and statistics regarding the supply and demand of stocks are
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an example of what kind of analysis? - answer-Technical analysis.
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Financial statement ratios are part of what kind of analysis? - answer-Fundamental
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analysis.
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When performing bond calculations, what general assumptions should be made unless
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stated otherwise? - answer-The coupon rate is annualized but paid semiannually for
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U.S. bonds. The face value of the bond should be assumed to be $1,000, not $10,000.
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