CRPC Practice Exam 2 Questions And Verified Correct Answers Guaranteed Pass.

Which of the following are correct statements about the capital utilization strategy? - correct answer I. It produces an annual retirement income over a finite number of years. II. Assuming the yield remains the same, the larger the retirement income that is paid, the shorter the number of years over which it will be paid. III. When the capital utilization approach is used, the planner must be careful in making assumptions about the life expectancy of the client. IV. The effect of taxes on retirement savings and distributions should be considered when the before-tax approach is used to calculate the future value of retirement assets. Which one of the following is not a key element of an investment policy? - correct answer A) a provision for periodic review B) the acceptable risk tolerance level C) a target asset allocation D) names of specific stocks to be in the portfolio --D The key elements in an investment policy are a clear statement of the client's goal, suitable investment vehicles and strategies, the acceptable risk tolerance level for the client, asset allocation guidelines, and a provision for periodic review. One way to remember the essential elements of an investment policy is the acronym "GRASP" (Goals, Risk, Asset Allocation, Strategies/Suitable Investment-meaning the investment categories that may or may not be used-and Periodic Review). Specific investments would be determined after the investment policy is created. Which one of the following is a characteristic of Treasury inflation-protected securities (TIPS)? - correct answer A) They are sold at a discount. B) The increase in principal is taxable each year. C) Their returns are tied to the producer price index. D) They are issued with maturities up to 40 years. Your client owns a bond fund with a duration of 6.5. If interest rates increase 1.5%, what is the expected change in price for this fund? - correct answer A) 6.5% decrease B) 9.75% increase C) 9.75% decrease D) 6.5% increase --C 1.5% -6.5 = -9.75%. Recall that duration needs to have a negative sign in order to represent the inverse relationship between bond prices and interest rates. In this case, an increase in rates means the bonds or bond funds will fall in price. Therefore, this fund will decrease in price about 9.75%. Also, you can remember that bond prices move opposite to interest rates. An increase in interest rates means the price of bonds will go down. The process of rebalancing is a key factor in - correct answer Strategic asset allocation. Strategic asset allocation involves obtaining the best asset mix for a client over a long period. For example, this might be 60% stocks and 40% bonds. When these percentages change due to market movements, this strategic asset allocation requires the portfolio to be rebalanced back to the target mix, in this case 60/40 stocks/bonds. What does Jensen's alpha tell you? - correct answer 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 - correct answer coefficient of determination (R2). Which of the following are not used in technical analysis? - correct answer A) graphs B) financial statement ratios C) moving averages D) supply and demand of stocks --B Moving averages, graphs, and statistics regarding the supply and demand of stocks are used by technicians. Financial statement ratios are part of fundamental analysis. When performing bond calculations, which of the following general assumptions should be made unless stated otherwise? - correct answer A) The coupon rate is annualized but paid semiannually for U.S. bonds. B) On a financial calculator, bonds are calculated in the Begin mode. C) The coupon payment used in bond calculations is the annual amount. D) The face value of the bond is $10,000. --A 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. 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? - correct answer A) $1,010 B) $902 C) $925 D) $875 --B 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: 1,000 [FV], 25 [PMT], 3 [I/YR], 30 [N], 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]. Which of the following is correct regarding the additional payroll tax for high wage earners that was brought about by the Affordable Care Act? - correct answer A) The tax applies to those with an AGI in excess of $500,000. B) The tax is 1.9%. C) The tax is split between the employer and employee. D) The tax was designed to provide additional funding for Medicare. --D 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). 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 - correct answer his eligibility for Social Security retirement benefits may be reduced due to the windfall elimination provision (WEP). Worked in a position that was not covered by Social Security, and the client is receiving a pension from that employment, - correct answer 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). Suzy begins her Social Security retirement benefit at full retirement age (FRA). What is the amount that she will receive? - correct answer primary insurance amount (PIA) 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. Henry, a fully insured worker for Social Security purposes, will retire next month at the age of 62. Henry is concerned that he may lose some of his Social Security benefits because of the earnings limitation test. Which of the following sources of Henry's income are counted for purposes of the earnings limitation test? I. IRA withdrawals II. self-employment earnings III. pension annuity payments IV. inheritance payments V. dividend income - correct answer -- II only "Excess" earned income by Social Security beneficiaries who are under Social Security's full retirement age results in a partial or full loss of benefits, depending on the age of the person, the amount of Social Security benefit, and the amount of earned income. "Earned income" generally includes wages, salary, and self-employment earnings; investment income is not included in this definition. The following non-work sources of income do not count as wages for the earnings test: IRA withdrawals, pension annuity payments, inheritance payments, and dividend income. Assume that a worker's Social Security full retirement age is 66. What percentage of the worker's full retirement age benefits will be paid to her at age 62? - correct answer -- 75% A worker can begin receiving Social Security retirement benefits at age 62, but at a 25% reduction from the full amount that would be received at full retirement age 66. The percentage of this worker's full retirement age benefits that will be paid to her at age 62 is 75% [(5/9 of 1% per month for each of the first 36 months prior to full retirement age = 20%) + (5/12 of 1% 12 months = 5%); 20% + 5% = 25%]. What is the maximum percentage of Social Security benefits that may be taxed? - correct answer 85%