CRPC UPDATED ACTUAL QUESTIONS AND
CORRECT ANSWERS COMPREHENSIVE
STUDY GUIDE
●● 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:
,●● 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
CORRECT ANSWERS COMPREHENSIVE
STUDY GUIDE
●● 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:
,●● 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
