CRPC PRACTICE EXAM WITH QUESTIONS AND CORRECT VERIFIED ANSWERS
WITH RATIONALE |ALREADY GRADED A+
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
#$
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)
,CRPC PRACTICE EXAM WITH QUESTIONS AND CORRECT VERIFIED ANSWERS
WITH RATIONALE |ALREADY GRADED A+
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 +
Systematic Risk - (ANSWER)P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
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
,CRPC PRACTICE EXAM WITH QUESTIONS AND CORRECT VERIFIED ANSWERS
WITH RATIONALE |ALREADY GRADED A+
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
Provisional income - (ANSWER)Provisional income=AGI(excluding SS) +Nontaxable
interest(muni bonds) + 1/2(SS benefit)
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
, CRPC PRACTICE EXAM WITH QUESTIONS AND CORRECT VERIFIED ANSWERS
WITH RATIONALE |ALREADY GRADED A+
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
Social Security Wage Base - (ANSWER)$118,500
Covered employment - (ANSWER)Any position that participates in social security system
#$
Excluded %
- Railroad employees ^
- Fed gov employees hired before 1984 &*
()_
Average SS benefit - (ANSWER)$1300 pm +
Max benefit - (ANSWER)$2639 pm
Quarter of Coverage - (ANSWER)earned after $1260 of earnings in year
- most you can earn in 1 year is 4 credits in year
= $5040 in year
need 40 quarters of credit
Fully insured - (ANSWER)Eligible for all SS benefits
- credits needed increase with age, up to max of 40
Currently insured - (ANSWER)have earned at least 6 credits during previous 13 quarters
before death/disability
- eligible for some survivor benefits
Average indexed monthly earnings - (ANSWER)used to determine the amount of ss you will
receive
- TOP 35 years of earnings/420 (months in 35 years) =AIME
** if client doesn't have 35 years, any missed years will be factored as 0's
Full Retirement Age (FRA) - (ANSWER)born 1960 or later: 67
born 1937 or earlier: 65
born 1943-1954: 66
WITH RATIONALE |ALREADY GRADED A+
Diversification - (ANSWER)Acquiring assets with low or negative correlations to each other
with the goal of lowering overall risk
Correlation - (ANSWER)- a relative measure of the degree to which the returns of two
assets move together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
#$
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)
,CRPC PRACTICE EXAM WITH QUESTIONS AND CORRECT VERIFIED ANSWERS
WITH RATIONALE |ALREADY GRADED A+
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 +
Systematic Risk - (ANSWER)P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
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
,CRPC PRACTICE EXAM WITH QUESTIONS AND CORRECT VERIFIED ANSWERS
WITH RATIONALE |ALREADY GRADED A+
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
Provisional income - (ANSWER)Provisional income=AGI(excluding SS) +Nontaxable
interest(muni bonds) + 1/2(SS benefit)
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
, CRPC PRACTICE EXAM WITH QUESTIONS AND CORRECT VERIFIED ANSWERS
WITH RATIONALE |ALREADY GRADED A+
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
Social Security Wage Base - (ANSWER)$118,500
Covered employment - (ANSWER)Any position that participates in social security system
#$
Excluded %
- Railroad employees ^
- Fed gov employees hired before 1984 &*
()_
Average SS benefit - (ANSWER)$1300 pm +
Max benefit - (ANSWER)$2639 pm
Quarter of Coverage - (ANSWER)earned after $1260 of earnings in year
- most you can earn in 1 year is 4 credits in year
= $5040 in year
need 40 quarters of credit
Fully insured - (ANSWER)Eligible for all SS benefits
- credits needed increase with age, up to max of 40
Currently insured - (ANSWER)have earned at least 6 credits during previous 13 quarters
before death/disability
- eligible for some survivor benefits
Average indexed monthly earnings - (ANSWER)used to determine the amount of ss you will
receive
- TOP 35 years of earnings/420 (months in 35 years) =AIME
** if client doesn't have 35 years, any missed years will be factored as 0's
Full Retirement Age (FRA) - (ANSWER)born 1960 or later: 67
born 1937 or earlier: 65
born 1943-1954: 66
