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CRPC Practice Exam 1
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents$15,000S
hort-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? - ANS-$122,000
Assets = $263,000; liabilities = $141,000, so net worth is $122,000. Taxes and auto note
payments appear on the cash flow statement.
For the year ending December 31, XXXX, Bill Greer has the following financial
information:
Salaries$70,000Auto payments$5,000Insurance$3,800Food$8,000Credit card
balance$10,000Dividends$1,100Utilities$3,500Mortgage
payments$14,000Taxes$13,000Clothing$9,000Interest income$2,100Checking
account$4,000Vacations$8,400Donations$5,800
What is the cash flow surplus or (deficit) for Bill? - ANS-$2,700
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.
Which of the following are correct statements about income replacement percentages? -
ANS-II, III, and IV
The inverse of Option I is true. Those with a lower preretirement income typically need a
much higher income replacement percentage in retirement.
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? - ANS-$31,621
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Set calculator "End" and "1 P/Yr" Inputs: FV = 2000000, i = 7, N = 25, PV = 0, then Pmt
= $31,621
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.
What is the lump sum needed at the beginning of retirement to fund this income
stream? - ANS-$389,957
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
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
The lump sum needed at the beginning of the Br - ANS-$4,911,256
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This PVAD calculation requires that the calculator be set for beginning-of-period
payments. First, the annual retirement income deficit is expressed in
retirement-year-one dollars, resulting in a $239,925 income deficit in the first retirement
year. This income deficit grows with inflation over the 30-year retirement period, and the
retirement fund earns a 7% return. The calculator inputs are $239,925, [PMT]; 30, [N];
2.8846, [I/YR]. Solve for [PV], to determine the retirement fund that will generate this
income stream. If you enter 2.8846 directly into the calculator, you will get $4,911,265. If
you use the equation to compute I/YR, and then hit the I/YR button you will get
$4,911,256. Either way the answer is clear. The difference is that when you calculate
the I/YR, the calculator takes the interest rate out to nine decimal places. If you enter in
the 2.8846, then the calculator only takes the interest rate to four decimal places.
Assume a client and investment professional have worked together for several years.
Recently, the client's personal and financial circumstances have changed. According to
the course materials, what is the next asset management step that the investment
professional should take? - ANS-A) analyze information
B) gather data
C) make and implement recommendations
D) monitor performance
--B
When the client's circumstances change, the asset management process goes back to
the data gathering step in the process.
When the client's circumstances change, the asset management process goes back to
the data gathering step in the process. - ANS-A) realistic
B) clearly defined
C) long-term perspective
D) fluid
--D
An investment policy provides guidelines that are standards to be followed. If they are
fluid, they are ever-changing and therefore would be difficult to implement and would
provide inconsistency in the management of the portfolio.
An investment policy provides guidelines that are standards to be followed. If they are
fluid, they are ever-changing and therefore would be difficult to implement and would
provide inconsistency in the management of the portfolio. - ANS-A) tactical.
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CRPC Practice Exam 1
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents$15,000S
hort-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? - ANS-$122,000
Assets = $263,000; liabilities = $141,000, so net worth is $122,000. Taxes and auto note
payments appear on the cash flow statement.
For the year ending December 31, XXXX, Bill Greer has the following financial
information:
Salaries$70,000Auto payments$5,000Insurance$3,800Food$8,000Credit card
balance$10,000Dividends$1,100Utilities$3,500Mortgage
payments$14,000Taxes$13,000Clothing$9,000Interest income$2,100Checking
account$4,000Vacations$8,400Donations$5,800
What is the cash flow surplus or (deficit) for Bill? - ANS-$2,700
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.
Which of the following are correct statements about income replacement percentages? -
ANS-II, III, and IV
The inverse of Option I is true. Those with a lower preretirement income typically need a
much higher income replacement percentage in retirement.
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? - ANS-$31,621
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Set calculator "End" and "1 P/Yr" Inputs: FV = 2000000, i = 7, N = 25, PV = 0, then Pmt
= $31,621
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.
What is the lump sum needed at the beginning of retirement to fund this income
stream? - ANS-$389,957
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
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
The lump sum needed at the beginning of the Br - ANS-$4,911,256
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This PVAD calculation requires that the calculator be set for beginning-of-period
payments. First, the annual retirement income deficit is expressed in
retirement-year-one dollars, resulting in a $239,925 income deficit in the first retirement
year. This income deficit grows with inflation over the 30-year retirement period, and the
retirement fund earns a 7% return. The calculator inputs are $239,925, [PMT]; 30, [N];
2.8846, [I/YR]. Solve for [PV], to determine the retirement fund that will generate this
income stream. If you enter 2.8846 directly into the calculator, you will get $4,911,265. If
you use the equation to compute I/YR, and then hit the I/YR button you will get
$4,911,256. Either way the answer is clear. The difference is that when you calculate
the I/YR, the calculator takes the interest rate out to nine decimal places. If you enter in
the 2.8846, then the calculator only takes the interest rate to four decimal places.
Assume a client and investment professional have worked together for several years.
Recently, the client's personal and financial circumstances have changed. According to
the course materials, what is the next asset management step that the investment
professional should take? - ANS-A) analyze information
B) gather data
C) make and implement recommendations
D) monitor performance
--B
When the client's circumstances change, the asset management process goes back to
the data gathering step in the process.
When the client's circumstances change, the asset management process goes back to
the data gathering step in the process. - ANS-A) realistic
B) clearly defined
C) long-term perspective
D) fluid
--D
An investment policy provides guidelines that are standards to be followed. If they are
fluid, they are ever-changing and therefore would be difficult to implement and would
provide inconsistency in the management of the portfolio.
An investment policy provides guidelines that are standards to be followed. If they are
fluid, they are ever-changing and therefore would be difficult to implement and would
provide inconsistency in the management of the portfolio. - ANS-A) tactical.
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