CRPC PRACTICE EXAM 1 QUESTIONS
AND ANSWERS
MaryjcGoodwin'sjcfinancialjcsituationjcisjcasjcfollows:
Cash/cashjcequivalents$15,000S
hort-termjcdebts$8,000
Long-termjcdebts$133,000
Taxjcexpense$7,000
Autojcnotejcpayments$4,000
Investedjcassets$60,000
Usejcassets$188,000
Whatjcisjcherjcnetjcworth?jc-jcanswer--$122,000
Assetsjc=jc$263,000;jcliabilitiesjc=jc$141,000,jcsojcnetjcworthjcisjc$122,000.jcTaxesjcandjcaut
ojcnotejcpaymentsjcappearjconjcthejccashjcflowjcstatement.
ForjcthejcyearjcendingjcDecemberjc31,jcXXXX,jcBilljcGreerjchasjcthejcfollowingjcfinancialjcinfo
rmation:
Salaries$70,000Autojcpayments$5,000Insurance$3,800Food$8,000Credit jccardjcbala
nce$10,000Dividends$1,100Utilities$3,500Mortgage jcpayments$14,000Taxes$13,00
0Clothing$9,000Interestjcincome$2,100Checkingjcaccount$4,000Vacations$8,400Do
nations$5,800
Whatjcisjcthejccashjcflowjcsurplusjcorjc(deficit)jcforjcBill?jc-jcanswer--$2,700
Incomejc=jc$70,000jc+jc$1,100jc+jc$2,100jc=jc$73,200.jcExpensesjc=jc$5,000jc+jc$3,800jc+jc$
8,000jc+jc$3,500jc+jc$14,000jc+jc$13,000jc+jc$9,000jc+jc$8,400jc+jc$5,800jc=jc$70,500,jcsojct
herejcisjcajcsurplusjcofjc$2,700.jcThejccheckingjcaccountjcandjccreditjccardjcbalancesjcwouldjc
bejconjcthejcstatementjcofjcfinancialjcposition.
Whichjcofjcthejcfollowingjcarejccorrectjcstatementsjcaboutjcincomejcreplacementjcpercentag
es?jc-jcanswer--II,jcIII,jcandjcIV
ThejcinversejcofjcOptionjcIjcisjctrue.jcThosejcwithjcajclowerjcpreretirementjcincomejctypicallyjcn
eedjcajcmuchjchigherjcincomejcreplacementjcpercentagejcinjcretirement.
IfjcTomjcandjcJennyjcwantjctojcsavejcajcfixedjcamountjcannuallyjctojcaccumulatejc$2jcmillionjcb
yjctheirjcretirementjcdatejcinjc25jcyearsjc(ratherjcthanjcanjcamountjcthatjcgrowsjcwithjcinflationjc
eachjcyear),jcwhatjcleveljcannualjcend-of-
yearjcsavingsjcamountjcwilljctheyjcneedjctojcdepositjceachjcyear,jcassumingjctheirjcsavingsjce
arnjc7%jcannually?jc-jcanswer--$31,621
Setjccalculatorjc"End"jcandjc"1jcP/
Yr"jcInputs:jcFVjc=jc2000000,jcijc=jc7,jcNjc=jc25,jcPVjc=jc0,jcthenjcPmtjc=jc$31,621
BilljcandjcLisajcHahnjchavejcdeterminedjcthatjctheyjcwilljcneedjcajcmonthlyjcincomejcofjc$6,00
0jcduringjcretirement.jcTheyjcexpectjctojcreceivejcSocialjcSecurityjcretirementjcbenefitsjcam
,ountingjctojc$3,500jcperjcmonthjcatjcthejcbeginningjcofjceachjcmonth.jcOverjcthejc12jcremainin
gjcyearsjcofjctheirjcpreretirementjcperiod,jctheyjcexpectjctojcgeneratejcanjcaveragejcannualjca
fter-taxjcinvestmentjcreturnjcofjc8%;jcduringjctheirjc25-
yearjcretirementjcperiod,jctheyjcwantjctojcassumejcajc6%jcannualjcafter-
taxjcinvestmentjcreturnjccompoundedjcmonthly.
Whatjcisjcthejclumpjcsumjcneededjcatjcthejcbeginningjcofjcretirementjctojcfundjcthisjcincomejcst
ream?jc-jcanswer--$389,957
Thejcmonthlyjcretirementjcincomejcneedjcisjcnotjcspecifiedjcasjc"today'sjcdollars,"jcandjcnojci
nflationjcratejcspecified;jctherefore,jcitjcmustjcbejcassumedjcthatjcthejc$2,500jcnetjcmonthlyjci
ncomejcneedjcrepresentsjcretirementjcdollars,jcandjcthejcretirementjcperiodjcincomejcstrea
mjcisjclevel.jcTojccalculatejcthejclumpjcsumjcneededjcatjcthejcbeginningjcofjcretirement,jcdisco
untjcthejcstreamjcofjcmonthlyjcincomejcpaymentsjcatjcthejcinvestmentjcreturnjcrate:
10BII+jcPVADjccalculation:
SetjccalculatorjconjcBEGjcandjc12jcperiodsjcperjcyear,jcthenjcinputjcthejcfollowing:
2,500jc[PMT]
25jc[SHIFT]jc[N]
6jc[I/YR]
0jc[FV]
SolvejcforjcPVjc=jc$389,957
ChrisjcandjcEvejcBronsonjchavejcanalyzedjctheirjccurrentjclivingjcexpensesjcandjcestimatedjc
theirjcretirementjcincomejcneed,jcnetjcofjcexpectedjcSocialjcSecurityjcbenefits,jctojcbejc$90,0
00jcinjctoday'sjcdollars.jcTheyjcarejcconfidentjcthatjctheyjccanjcearnjcajc7%jcafter-
taxjcreturnjconjctheirjcinvestments,jcandjctheyjcexpectjcinflationjctojcaveragejc4%jcoverjcthejcl
ongjcterm.
DeterminejcthejclumpjcsumjcamountjcthejcBronsonsjcwilljcneedjcatjcthejcbeginningjcofjcretire
mentjctojcfundjctheirjcretirementjcincomejcneeds,jcusingjcthejcworksheetjcbelow.
(1)jcAdjustjcincomejcdeficitjcforjcinflationjcoverjcthejcpreretirementjcperiod:
$jc90,000presentjcvaluejcofjcretirementjcincomejcdeficit25numberjcofjcperiodsjcuntiljcretire
ment4%
%jcinflationjcrateFuturejcvaluejcofjcincomejcdeficitjcinjcfirstjcretirementjcyear$239,925(2)jcDe
terminejcretirementjcfundjcneededjctojcmeetjcincomejcdeficit:
$239,925paymentjc(futurejcvaluejcofjcincomejcdeficitjcinjcfirstjcretirementjcyear)30numberjc
ofjcperiodsjcinjcretirement
ThejclumpjcsumjcneededjcatjcthejcbeginningjcofjcthejcBrjc-jcanswer--$4,911,256
ThisjcPVADjccalculationjcrequiresjcthatjcthejccalculatorjcbejcsetjcforjcbeginning-of-
periodjcpayments.jcFirst,jcthejcannualjcretirementjcincomejcdeficitjcisjcexpressedjcinjcretirem
ent-year-
onejcdollars,jcresultingjcinjcajc$239,925jcincomejcdeficitjcinjcthejcfirstjcretirementjcyear.jcThisjc
incomejcdeficitjcgrowsjcwithjcinflationjcoverjcthejc30-
yearjcretirementjcperiod,jcandjcthejcretirementjcfundjcearnsjcajc7%jcreturn.jcThejccalculatorjci
nputsjcarejc$239,925,jc[PMT];jc30,jc[N];jc2.8846,jc[I/
YR].jcSolvejcforjc[PV],jctojcdeterminejcthejcretirementjcfundjcthatjcwilljcgeneratejcthisjcincomej
cstream.jcIfjcyoujcenterjc2.8846jcdirectlyjcintojcthejccalculator,jcyoujcwilljcgetjc$4,911,265.jcIfjc
youjcusejcthejcequationjctojccomputejcI/YR,jcandjcthenjchitjcthejcI/
YRjcbuttonjcyoujcwilljcgetjc$4,911,256.jcEitherjcwayjcthejcanswerjcisjcclear.jcThejcdifferencejci
, sjcthatjcwhenjcyoujccalculatejcthejcI/
YR,jcthejccalculatorjctakesjcthejcinterestjcratejcoutjctojcninejcdecimaljcplaces.jcIfjcyoujcenterjcin
jcthejc2.8846,jcthenjcthejccalculatorjconlyjctakesjcthejcinterestjcratejctojcfourjcdecimaljcplaces.
Assumejcajcclientjcandjcinvestmentjcprofessionaljchavejcworkedjctogetherjcforjcseveraljcyea
rs.jcRecently,jcthejcclient'sjcpersonaljcandjcfinancialjccircumstancesjchavejcchanged.jcAcco
rdingjctojcthejccoursejcmaterials,jcwhatjcisjcthejcnextjcassetjcmanagementjcstepjcthatjcthejcinv
estmentjcprofessionaljcshouldjctake?jc-jcanswer--A)jcanalyzejcinformation
B)jcgatherjcdata
C)jcmakejcandjcimplementjcrecommendations
D)jcmonitorjcperformance
--B
Whenjcthejcclient'sjccircumstancesjcchange,jcthejcassetjcmanagementjcprocessjcgoesjcbac
kjctojcthejcdatajcgatheringjcstepjcinjcthejcprocess.
Whenjcthejcclient'sjccircumstancesjcchange,jcthejcassetjcmanagementjcprocessjcgoesjcbac
kjctojcthejcdatajcgatheringjcstepjcinjcthejcprocess.jc-jcanswer--A)jcrealistic
B)jcclearlyjcdefined
C)jclong-termjcperspective
D)jcfluid
--D
Anjcinvestmentjcpolicyjcprovidesjcguidelinesjcthatjcarejcstandardsjctojcbejcfollowed.jcIfjctheyjc
arejcfluid,jctheyjcarejcever-
changingjcandjcthereforejcwouldjcbejcdifficultjctojcimplementjcandjcwouldjcprovidejcinconsist
encyjcinjcthejcmanagementjcofjcthejcportfolio.
Anjcinvestmentjcpolicyjcprovidesjcguidelinesjcthatjcarejcstandardsjctojcbejcfollowed.jcIfjctheyjc
arejcfluid,jctheyjcarejcever-
changingjcandjcthereforejcwouldjcbejcdifficultjctojcimplementjcandjcwouldjcprovidejcinconsist
encyjcinjcthejcmanagementjcofjcthejcportfolio.jc-jcanswer--A)jctactical.
B)jcalpha.
C)jccore/satellite.
D)jcstrategic.
--B
Alphajcisjcnotjcanjcassetjcallocationjcstrategy,jcbutjcajcwayjctojcmeasurejcajcportfoliojcmanage
r'sjcreturnjcrelativejctojcthejcamountjcofjcriskjcthatjchasjcbeenjctaken.
Assumejcthejcfollowingjcassetjcclassesjchavejcthejccorrelationsjctojclong-
termjcgovernmentjcbondsjcshownjcbelow:
Treasuryjcbills:.12jcGold:-.25jcLargejcstocks:.22jcSmalljcstocks:.17
Whichjconejcofjcthejcfollowingjccorrectlyjcstatesjcthejcimpactjcofjcdiversificationjconjclong-
termjcgovernmentjcbonds?jc-jcanswer--
A)jcGoldjcprovidesjcmorejcdiversificationjcthanjclargejcstocks.
B)jcSmalljcstocksjcprovidejcmorejcdiversificationjcthanjcTreasuryjcbills.
C)jcTreasuryjcbillsjcprovidejcmorejcdiversificationjcthanjcgold.
AND ANSWERS
MaryjcGoodwin'sjcfinancialjcsituationjcisjcasjcfollows:
Cash/cashjcequivalents$15,000S
hort-termjcdebts$8,000
Long-termjcdebts$133,000
Taxjcexpense$7,000
Autojcnotejcpayments$4,000
Investedjcassets$60,000
Usejcassets$188,000
Whatjcisjcherjcnetjcworth?jc-jcanswer--$122,000
Assetsjc=jc$263,000;jcliabilitiesjc=jc$141,000,jcsojcnetjcworthjcisjc$122,000.jcTaxesjcandjcaut
ojcnotejcpaymentsjcappearjconjcthejccashjcflowjcstatement.
ForjcthejcyearjcendingjcDecemberjc31,jcXXXX,jcBilljcGreerjchasjcthejcfollowingjcfinancialjcinfo
rmation:
Salaries$70,000Autojcpayments$5,000Insurance$3,800Food$8,000Credit jccardjcbala
nce$10,000Dividends$1,100Utilities$3,500Mortgage jcpayments$14,000Taxes$13,00
0Clothing$9,000Interestjcincome$2,100Checkingjcaccount$4,000Vacations$8,400Do
nations$5,800
Whatjcisjcthejccashjcflowjcsurplusjcorjc(deficit)jcforjcBill?jc-jcanswer--$2,700
Incomejc=jc$70,000jc+jc$1,100jc+jc$2,100jc=jc$73,200.jcExpensesjc=jc$5,000jc+jc$3,800jc+jc$
8,000jc+jc$3,500jc+jc$14,000jc+jc$13,000jc+jc$9,000jc+jc$8,400jc+jc$5,800jc=jc$70,500,jcsojct
herejcisjcajcsurplusjcofjc$2,700.jcThejccheckingjcaccountjcandjccreditjccardjcbalancesjcwouldjc
bejconjcthejcstatementjcofjcfinancialjcposition.
Whichjcofjcthejcfollowingjcarejccorrectjcstatementsjcaboutjcincomejcreplacementjcpercentag
es?jc-jcanswer--II,jcIII,jcandjcIV
ThejcinversejcofjcOptionjcIjcisjctrue.jcThosejcwithjcajclowerjcpreretirementjcincomejctypicallyjcn
eedjcajcmuchjchigherjcincomejcreplacementjcpercentagejcinjcretirement.
IfjcTomjcandjcJennyjcwantjctojcsavejcajcfixedjcamountjcannuallyjctojcaccumulatejc$2jcmillionjcb
yjctheirjcretirementjcdatejcinjc25jcyearsjc(ratherjcthanjcanjcamountjcthatjcgrowsjcwithjcinflationjc
eachjcyear),jcwhatjcleveljcannualjcend-of-
yearjcsavingsjcamountjcwilljctheyjcneedjctojcdepositjceachjcyear,jcassumingjctheirjcsavingsjce
arnjc7%jcannually?jc-jcanswer--$31,621
Setjccalculatorjc"End"jcandjc"1jcP/
Yr"jcInputs:jcFVjc=jc2000000,jcijc=jc7,jcNjc=jc25,jcPVjc=jc0,jcthenjcPmtjc=jc$31,621
BilljcandjcLisajcHahnjchavejcdeterminedjcthatjctheyjcwilljcneedjcajcmonthlyjcincomejcofjc$6,00
0jcduringjcretirement.jcTheyjcexpectjctojcreceivejcSocialjcSecurityjcretirementjcbenefitsjcam
,ountingjctojc$3,500jcperjcmonthjcatjcthejcbeginningjcofjceachjcmonth.jcOverjcthejc12jcremainin
gjcyearsjcofjctheirjcpreretirementjcperiod,jctheyjcexpectjctojcgeneratejcanjcaveragejcannualjca
fter-taxjcinvestmentjcreturnjcofjc8%;jcduringjctheirjc25-
yearjcretirementjcperiod,jctheyjcwantjctojcassumejcajc6%jcannualjcafter-
taxjcinvestmentjcreturnjccompoundedjcmonthly.
Whatjcisjcthejclumpjcsumjcneededjcatjcthejcbeginningjcofjcretirementjctojcfundjcthisjcincomejcst
ream?jc-jcanswer--$389,957
Thejcmonthlyjcretirementjcincomejcneedjcisjcnotjcspecifiedjcasjc"today'sjcdollars,"jcandjcnojci
nflationjcratejcspecified;jctherefore,jcitjcmustjcbejcassumedjcthatjcthejc$2,500jcnetjcmonthlyjci
ncomejcneedjcrepresentsjcretirementjcdollars,jcandjcthejcretirementjcperiodjcincomejcstrea
mjcisjclevel.jcTojccalculatejcthejclumpjcsumjcneededjcatjcthejcbeginningjcofjcretirement,jcdisco
untjcthejcstreamjcofjcmonthlyjcincomejcpaymentsjcatjcthejcinvestmentjcreturnjcrate:
10BII+jcPVADjccalculation:
SetjccalculatorjconjcBEGjcandjc12jcperiodsjcperjcyear,jcthenjcinputjcthejcfollowing:
2,500jc[PMT]
25jc[SHIFT]jc[N]
6jc[I/YR]
0jc[FV]
SolvejcforjcPVjc=jc$389,957
ChrisjcandjcEvejcBronsonjchavejcanalyzedjctheirjccurrentjclivingjcexpensesjcandjcestimatedjc
theirjcretirementjcincomejcneed,jcnetjcofjcexpectedjcSocialjcSecurityjcbenefits,jctojcbejc$90,0
00jcinjctoday'sjcdollars.jcTheyjcarejcconfidentjcthatjctheyjccanjcearnjcajc7%jcafter-
taxjcreturnjconjctheirjcinvestments,jcandjctheyjcexpectjcinflationjctojcaveragejc4%jcoverjcthejcl
ongjcterm.
DeterminejcthejclumpjcsumjcamountjcthejcBronsonsjcwilljcneedjcatjcthejcbeginningjcofjcretire
mentjctojcfundjctheirjcretirementjcincomejcneeds,jcusingjcthejcworksheetjcbelow.
(1)jcAdjustjcincomejcdeficitjcforjcinflationjcoverjcthejcpreretirementjcperiod:
$jc90,000presentjcvaluejcofjcretirementjcincomejcdeficit25numberjcofjcperiodsjcuntiljcretire
ment4%
%jcinflationjcrateFuturejcvaluejcofjcincomejcdeficitjcinjcfirstjcretirementjcyear$239,925(2)jcDe
terminejcretirementjcfundjcneededjctojcmeetjcincomejcdeficit:
$239,925paymentjc(futurejcvaluejcofjcincomejcdeficitjcinjcfirstjcretirementjcyear)30numberjc
ofjcperiodsjcinjcretirement
ThejclumpjcsumjcneededjcatjcthejcbeginningjcofjcthejcBrjc-jcanswer--$4,911,256
ThisjcPVADjccalculationjcrequiresjcthatjcthejccalculatorjcbejcsetjcforjcbeginning-of-
periodjcpayments.jcFirst,jcthejcannualjcretirementjcincomejcdeficitjcisjcexpressedjcinjcretirem
ent-year-
onejcdollars,jcresultingjcinjcajc$239,925jcincomejcdeficitjcinjcthejcfirstjcretirementjcyear.jcThisjc
incomejcdeficitjcgrowsjcwithjcinflationjcoverjcthejc30-
yearjcretirementjcperiod,jcandjcthejcretirementjcfundjcearnsjcajc7%jcreturn.jcThejccalculatorjci
nputsjcarejc$239,925,jc[PMT];jc30,jc[N];jc2.8846,jc[I/
YR].jcSolvejcforjc[PV],jctojcdeterminejcthejcretirementjcfundjcthatjcwilljcgeneratejcthisjcincomej
cstream.jcIfjcyoujcenterjc2.8846jcdirectlyjcintojcthejccalculator,jcyoujcwilljcgetjc$4,911,265.jcIfjc
youjcusejcthejcequationjctojccomputejcI/YR,jcandjcthenjchitjcthejcI/
YRjcbuttonjcyoujcwilljcgetjc$4,911,256.jcEitherjcwayjcthejcanswerjcisjcclear.jcThejcdifferencejci
, sjcthatjcwhenjcyoujccalculatejcthejcI/
YR,jcthejccalculatorjctakesjcthejcinterestjcratejcoutjctojcninejcdecimaljcplaces.jcIfjcyoujcenterjcin
jcthejc2.8846,jcthenjcthejccalculatorjconlyjctakesjcthejcinterestjcratejctojcfourjcdecimaljcplaces.
Assumejcajcclientjcandjcinvestmentjcprofessionaljchavejcworkedjctogetherjcforjcseveraljcyea
rs.jcRecently,jcthejcclient'sjcpersonaljcandjcfinancialjccircumstancesjchavejcchanged.jcAcco
rdingjctojcthejccoursejcmaterials,jcwhatjcisjcthejcnextjcassetjcmanagementjcstepjcthatjcthejcinv
estmentjcprofessionaljcshouldjctake?jc-jcanswer--A)jcanalyzejcinformation
B)jcgatherjcdata
C)jcmakejcandjcimplementjcrecommendations
D)jcmonitorjcperformance
--B
Whenjcthejcclient'sjccircumstancesjcchange,jcthejcassetjcmanagementjcprocessjcgoesjcbac
kjctojcthejcdatajcgatheringjcstepjcinjcthejcprocess.
Whenjcthejcclient'sjccircumstancesjcchange,jcthejcassetjcmanagementjcprocessjcgoesjcbac
kjctojcthejcdatajcgatheringjcstepjcinjcthejcprocess.jc-jcanswer--A)jcrealistic
B)jcclearlyjcdefined
C)jclong-termjcperspective
D)jcfluid
--D
Anjcinvestmentjcpolicyjcprovidesjcguidelinesjcthatjcarejcstandardsjctojcbejcfollowed.jcIfjctheyjc
arejcfluid,jctheyjcarejcever-
changingjcandjcthereforejcwouldjcbejcdifficultjctojcimplementjcandjcwouldjcprovidejcinconsist
encyjcinjcthejcmanagementjcofjcthejcportfolio.
Anjcinvestmentjcpolicyjcprovidesjcguidelinesjcthatjcarejcstandardsjctojcbejcfollowed.jcIfjctheyjc
arejcfluid,jctheyjcarejcever-
changingjcandjcthereforejcwouldjcbejcdifficultjctojcimplementjcandjcwouldjcprovidejcinconsist
encyjcinjcthejcmanagementjcofjcthejcportfolio.jc-jcanswer--A)jctactical.
B)jcalpha.
C)jccore/satellite.
D)jcstrategic.
--B
Alphajcisjcnotjcanjcassetjcallocationjcstrategy,jcbutjcajcwayjctojcmeasurejcajcportfoliojcmanage
r'sjcreturnjcrelativejctojcthejcamountjcofjcriskjcthatjchasjcbeenjctaken.
Assumejcthejcfollowingjcassetjcclassesjchavejcthejccorrelationsjctojclong-
termjcgovernmentjcbondsjcshownjcbelow:
Treasuryjcbills:.12jcGold:-.25jcLargejcstocks:.22jcSmalljcstocks:.17
Whichjconejcofjcthejcfollowingjccorrectlyjcstatesjcthejcimpactjcofjcdiversificationjconjclong-
termjcgovernmentjcbonds?jc-jcanswer--
A)jcGoldjcprovidesjcmorejcdiversificationjcthanjclargejcstocks.
B)jcSmalljcstocksjcprovidejcmorejcdiversificationjcthanjcTreasuryjcbills.
C)jcTreasuryjcbillsjcprovidejcmorejcdiversificationjcthanjcgold.
