CRPC STUDY EXAMS GUIDE QUESTIONS AND
ANSWERS SURE A+
✔✔Tactical asset allocation - ✔✔an active approach that tries to position a portfolio into
those assets, sectors, and individual securities showing the most promise for above
average gains; changes are then made as the prospects for these assets, sectors and
securities change; can use sector rotation, market timing, and contrarian approaches, or
it can incorporate momentum investing, whereby money is moved from areas with
below-average performance to areas that are performing above average
✔✔What does Jensen's alpha tell you?
A)
the percentage of return that can be attributed to unsystematic risk
B)
the percentage of return that can be attributed to systematic risk
C)
the percentage a manager over- or underperformed based on the amount of risk taken
D)
the percentage by which a manager beat the market - ✔✔C
Alpha is the percentage a manager over- or underperformed based on the amount of
risk taken. The percentage of return that can be attributed to systematic risk is referred
to as the coefficient of determination (R2).
LO 2
✔✔Mark, a financial adviser, has a client who has worked in two positions during his
lifetime. The client's first position was a state or local government position that was not
covered by Social Security. The client is receiving a pension from that employment. His
second position was covered by Social Security and he is eligible for Social Security
retirement benefits. Mark should advise his client that
,A)
any reduction in benefits resulting from his pension from his "uncovered position" will be
reflected in his Social Security benefits estimate.
B)
his eligibility for Social Security retirement benefits may be reduced due to the windfall
elimination provision (WEP).
C)
his eligibility for Social Security benefits based on his work history may be reduced, or
even eliminated, through the government pension offset provision (GPO).
D)
any reduction in benefits resulting from his pension from his "uncovered position" wil -
✔✔B
If you have a client who has worked in a position that was not covered by Social
Security, and the client is receiving a pension from that employment, his eligibility for
Social Security benefits based on his own work history covered by Social Security may
be reduced due to the windfall elimination provision (WEP). The government pension
offset provision (GPO) impacts Social Security benefits owed to spouses, ex-spouses,
or to survivor benefits. If he has one or more survivors entitled to a benefit, the Social
Security Administration recalculates the benefit to omit the WEP, which results in a
higher survivor benefit. Reductions due to the WEP are NOT reflected in Social Security
benefit estimates. One way to differentiate between the two is focusing on the "W" in
WEP. The "W" can remind you of "worker." Thus, the WEP reduces Social Security
retirement benefits based on your own work history. That leaves the GPO as the one
that reduces a spousal Social Security benefit based on what the spouse is getting from
a retirement plan based on employment that did not pay into Social Security (such as
public school teachers in several states).
LO 3-4
✔✔Which of the following are not used in technical analysis?
A)
graphs
B)
moving averages
C)
financial statement ratios
D)
supply and demand of stocks - ✔✔C
Moving averages, graphs, and statistics regarding the supply and demand of stocks are
used by technicians. Financial statement ratios are part of fundamental analysis.
LO 2-6
✔✔When performing bond calculations, which of the following general assumptions
should be made unless stated otherwise?
,A)
The face value of the bond is $10,000.
B)
The coupon payment used in bond calculations is the annual amount.
C)
On a financial calculator, bonds are calculated in the Begin mode.
D)
The coupon rate is annualized but paid semiannually for U.S. bonds. - ✔✔D
The face value of the bond should be assumed to be $1,000, not $10,000. The coupon
rate is stated on an annual basis but is assumed to be paid semiannually for U.S. bonds
and the coupon payment is always made at the end of the period, not the beginning. All
bonds, even zero coupon bonds, are compounded semiannually in the End mode. This
makes all bond YTM quotes standardized for easy comparison.
LO 2-8
✔✔Assume your client has a 5% bond, par value of $1,000, and 15 years to maturity.
Comparable bonds are yielding 6%. What is the value of this bond?
A)
$925
B)
$875
C)
$902
D)
$1,010 - ✔✔C
If the calculator is set for 1 P/YR, then all factors, other than FV, need to be adjusted for
semiannual payments. The keystrokes would be: END
1,000 [FV],
25 [PMT], 5%=50/2=25
3 [I/YR],
30 [N], 15*2
then solve for [PV] = -902. If the calculator is set at 2 P/YR, then [I/YR] is 6 and [N] is
entered as 15 [SHIFT] [N].
LO 2-8
✔✔Which of the following is correct regarding the additional payroll tax for high wage
earners that was brought about by the Affordable Care Act?
, A)
The tax was designed to provide additional funding for Medicare.
B)
The tax applies to those with an AGI in excess of $500,000.
C)
The tax is split between the employer and employee.
D)
The tax is 1.9%. - ✔✔A
This tax is an additional Medicare tax. The 0.9% tax is employee paid and applies to
high earners only (AGI in excess of $250,000 for joint filers and $200,000 for single
filers, not indexed).
LO 3-1
✔✔Suzy begins her Social Security retirement benefit at full retirement age (FRA). What
is the amount that she will receive?
A)
average indexed monthly earnings (AIME)
B)
primary insurance amount (PIA)
C)
delayed retirement credit (DRC)
D)
currently insured amount - ✔✔B
Workers who begin their Social Security retirement benefits at full retirement age will
receive their primary insurance amount (PIA). This amount is based their lifetime
average earnings, or AIME. If they delay their benefits until after attaining FRA they will
begin to be credited with DRCs. Those who are only currently insured (not fully insured)
are not eligible for Social Security retirement benefits.
LO 3-2
✔✔Which of the following are factors to consider when making the decision on when to
receive Social Security benefits?
Earnings of dependents
Income benefit provided
Additional sources of income
Condition of health - ✔✔ALL OF THESE
Each of these is a worthwhile consideration. What children or other dependents earn
usually has no impact on the decision of when to receive Social Security benefits
because most retirees do not have children under 18 in their home. However, many
grandparents today have grandchildren who are their dependents. Also, second
ANSWERS SURE A+
✔✔Tactical asset allocation - ✔✔an active approach that tries to position a portfolio into
those assets, sectors, and individual securities showing the most promise for above
average gains; changes are then made as the prospects for these assets, sectors and
securities change; can use sector rotation, market timing, and contrarian approaches, or
it can incorporate momentum investing, whereby money is moved from areas with
below-average performance to areas that are performing above average
✔✔What does Jensen's alpha tell you?
A)
the percentage of return that can be attributed to unsystematic risk
B)
the percentage of return that can be attributed to systematic risk
C)
the percentage a manager over- or underperformed based on the amount of risk taken
D)
the percentage by which a manager beat the market - ✔✔C
Alpha is the percentage a manager over- or underperformed based on the amount of
risk taken. The percentage of return that can be attributed to systematic risk is referred
to as the coefficient of determination (R2).
LO 2
✔✔Mark, a financial adviser, has a client who has worked in two positions during his
lifetime. The client's first position was a state or local government position that was not
covered by Social Security. The client is receiving a pension from that employment. His
second position was covered by Social Security and he is eligible for Social Security
retirement benefits. Mark should advise his client that
,A)
any reduction in benefits resulting from his pension from his "uncovered position" will be
reflected in his Social Security benefits estimate.
B)
his eligibility for Social Security retirement benefits may be reduced due to the windfall
elimination provision (WEP).
C)
his eligibility for Social Security benefits based on his work history may be reduced, or
even eliminated, through the government pension offset provision (GPO).
D)
any reduction in benefits resulting from his pension from his "uncovered position" wil -
✔✔B
If you have a client who has worked in a position that was not covered by Social
Security, and the client is receiving a pension from that employment, his eligibility for
Social Security benefits based on his own work history covered by Social Security may
be reduced due to the windfall elimination provision (WEP). The government pension
offset provision (GPO) impacts Social Security benefits owed to spouses, ex-spouses,
or to survivor benefits. If he has one or more survivors entitled to a benefit, the Social
Security Administration recalculates the benefit to omit the WEP, which results in a
higher survivor benefit. Reductions due to the WEP are NOT reflected in Social Security
benefit estimates. One way to differentiate between the two is focusing on the "W" in
WEP. The "W" can remind you of "worker." Thus, the WEP reduces Social Security
retirement benefits based on your own work history. That leaves the GPO as the one
that reduces a spousal Social Security benefit based on what the spouse is getting from
a retirement plan based on employment that did not pay into Social Security (such as
public school teachers in several states).
LO 3-4
✔✔Which of the following are not used in technical analysis?
A)
graphs
B)
moving averages
C)
financial statement ratios
D)
supply and demand of stocks - ✔✔C
Moving averages, graphs, and statistics regarding the supply and demand of stocks are
used by technicians. Financial statement ratios are part of fundamental analysis.
LO 2-6
✔✔When performing bond calculations, which of the following general assumptions
should be made unless stated otherwise?
,A)
The face value of the bond is $10,000.
B)
The coupon payment used in bond calculations is the annual amount.
C)
On a financial calculator, bonds are calculated in the Begin mode.
D)
The coupon rate is annualized but paid semiannually for U.S. bonds. - ✔✔D
The face value of the bond should be assumed to be $1,000, not $10,000. The coupon
rate is stated on an annual basis but is assumed to be paid semiannually for U.S. bonds
and the coupon payment is always made at the end of the period, not the beginning. All
bonds, even zero coupon bonds, are compounded semiannually in the End mode. This
makes all bond YTM quotes standardized for easy comparison.
LO 2-8
✔✔Assume your client has a 5% bond, par value of $1,000, and 15 years to maturity.
Comparable bonds are yielding 6%. What is the value of this bond?
A)
$925
B)
$875
C)
$902
D)
$1,010 - ✔✔C
If the calculator is set for 1 P/YR, then all factors, other than FV, need to be adjusted for
semiannual payments. The keystrokes would be: END
1,000 [FV],
25 [PMT], 5%=50/2=25
3 [I/YR],
30 [N], 15*2
then solve for [PV] = -902. If the calculator is set at 2 P/YR, then [I/YR] is 6 and [N] is
entered as 15 [SHIFT] [N].
LO 2-8
✔✔Which of the following is correct regarding the additional payroll tax for high wage
earners that was brought about by the Affordable Care Act?
, A)
The tax was designed to provide additional funding for Medicare.
B)
The tax applies to those with an AGI in excess of $500,000.
C)
The tax is split between the employer and employee.
D)
The tax is 1.9%. - ✔✔A
This tax is an additional Medicare tax. The 0.9% tax is employee paid and applies to
high earners only (AGI in excess of $250,000 for joint filers and $200,000 for single
filers, not indexed).
LO 3-1
✔✔Suzy begins her Social Security retirement benefit at full retirement age (FRA). What
is the amount that she will receive?
A)
average indexed monthly earnings (AIME)
B)
primary insurance amount (PIA)
C)
delayed retirement credit (DRC)
D)
currently insured amount - ✔✔B
Workers who begin their Social Security retirement benefits at full retirement age will
receive their primary insurance amount (PIA). This amount is based their lifetime
average earnings, or AIME. If they delay their benefits until after attaining FRA they will
begin to be credited with DRCs. Those who are only currently insured (not fully insured)
are not eligible for Social Security retirement benefits.
LO 3-2
✔✔Which of the following are factors to consider when making the decision on when to
receive Social Security benefits?
Earnings of dependents
Income benefit provided
Additional sources of income
Condition of health - ✔✔ALL OF THESE
Each of these is a worthwhile consideration. What children or other dependents earn
usually has no impact on the decision of when to receive Social Security benefits
because most retirees do not have children under 18 in their home. However, many
grandparents today have grandchildren who are their dependents. Also, second
