CRPC PRACTICE EXAM #2 CORRECT
100%
Richard wants to have an annual retirement income of $100,000 (payable at the
beginning of each year) protected against 3% inflation.
Assuming a 7% after-tax rate of return and a retirement period of 30 years, how much
money does Richard need in order to meet his goal?
Explain how you need to input this on the calculator and why. - ANSWER Step One -
Set the calculator to BEGIN.
Step Two - Calculate the inflation adjusted rate of return (One plus the Rate of Return
divided by One plus the interest rate, minus one, multiplied by 100 = the inflation
adjusted rate of return) Put this number in the I/YR
Step Three - 100,000 goes in as a PMT
Step Four - 30 goes in as N
Step Five -Press PV
Richard needs $1,822,042.88 in today's dollars to meet his needs.
How do you calculate the inflation-adjusted rate of return? - ANSWER 1 plus the Rate
of Return
Divided by
1 plus the interest rate
minus one
multiplied by 100
Tom has been promised a stream of $40,000 annual payments at the end of each year
for 25 years. The present value of these payments discounted at a rate of 5% is which
one of the following amounts? - ANSWER Step One - The problem says END in it so
you have to set your calculator to the END mode.
Step two - Enter the $40000 as a PMT
Step Three - Enter 25 as the N.
, Step Four - Enter 5 as the I/R
Step Six - Hit PV.
$563,758
Nick wants to maintain the purchasing power of $75,000 (in today's dollars) in
retirement. If inflation continues to average 3.5%, approximately what amount will Nick
need in 20 years to equal the purchasing power of $75,000 today? (Round your
answer.) - ANSWER If you know the Rule of 72, and you divide 3.5 into 72, you arrive
at the number 20, which is the number of years it will take for a sum to double. With a
calculator, you can solve for the future value of $75,000 over 20 years at 3.5%.
Keystrokes: 20 N, 3.5 I/YR, 75,000 PV, FV = $149,234; rounded = $150,000
What is the second step in the retirement planning process? - ANSWER The second
step in the retirement planning process is to gather client data, including goals and
expectations
What is the first step in the retirement planning process? - ANSWER The first step is to
establish and define the client-counselor relationship which includes disclosing the
counselor's compensation arrangement
What is a characteristic of a TIP? - ANSWER The increase in principal is taxable each
year. Any annual increase in principal is subject to federal taxation (unless in a tax-
deferred account). Returns are tied to the consumer price index. TIPS are sold at par
value and have maturities up to 30 years.
How you calculate the weighted beta of a portfolio? - ANSWER You multiply the weight
times the beta for each stock, then you add those numbers up together.
What does Jensen's alpha tell you - ANSWER The percentage a manager over or
underperformed based on the amount of risk taken.
Moving averages, graphs and statistics regarding the supply and demand of stocks are
an example of what kind of analysis? - ANSWER Technical analysis.
Financial statement ratios are part of what kind of analysis? - ANSWER Fundamental
analysis.
You have to remember that penalties in a non deductible IRA apply ONLY to the
earnings. So $32000 - $20000 = $12000.
Mike is only 50, so that's a 10% penalty.
Add that to his tax bracket so 35% + 10% = 45%.
100%
Richard wants to have an annual retirement income of $100,000 (payable at the
beginning of each year) protected against 3% inflation.
Assuming a 7% after-tax rate of return and a retirement period of 30 years, how much
money does Richard need in order to meet his goal?
Explain how you need to input this on the calculator and why. - ANSWER Step One -
Set the calculator to BEGIN.
Step Two - Calculate the inflation adjusted rate of return (One plus the Rate of Return
divided by One plus the interest rate, minus one, multiplied by 100 = the inflation
adjusted rate of return) Put this number in the I/YR
Step Three - 100,000 goes in as a PMT
Step Four - 30 goes in as N
Step Five -Press PV
Richard needs $1,822,042.88 in today's dollars to meet his needs.
How do you calculate the inflation-adjusted rate of return? - ANSWER 1 plus the Rate
of Return
Divided by
1 plus the interest rate
minus one
multiplied by 100
Tom has been promised a stream of $40,000 annual payments at the end of each year
for 25 years. The present value of these payments discounted at a rate of 5% is which
one of the following amounts? - ANSWER Step One - The problem says END in it so
you have to set your calculator to the END mode.
Step two - Enter the $40000 as a PMT
Step Three - Enter 25 as the N.
, Step Four - Enter 5 as the I/R
Step Six - Hit PV.
$563,758
Nick wants to maintain the purchasing power of $75,000 (in today's dollars) in
retirement. If inflation continues to average 3.5%, approximately what amount will Nick
need in 20 years to equal the purchasing power of $75,000 today? (Round your
answer.) - ANSWER If you know the Rule of 72, and you divide 3.5 into 72, you arrive
at the number 20, which is the number of years it will take for a sum to double. With a
calculator, you can solve for the future value of $75,000 over 20 years at 3.5%.
Keystrokes: 20 N, 3.5 I/YR, 75,000 PV, FV = $149,234; rounded = $150,000
What is the second step in the retirement planning process? - ANSWER The second
step in the retirement planning process is to gather client data, including goals and
expectations
What is the first step in the retirement planning process? - ANSWER The first step is to
establish and define the client-counselor relationship which includes disclosing the
counselor's compensation arrangement
What is a characteristic of a TIP? - ANSWER The increase in principal is taxable each
year. Any annual increase in principal is subject to federal taxation (unless in a tax-
deferred account). Returns are tied to the consumer price index. TIPS are sold at par
value and have maturities up to 30 years.
How you calculate the weighted beta of a portfolio? - ANSWER You multiply the weight
times the beta for each stock, then you add those numbers up together.
What does Jensen's alpha tell you - ANSWER The percentage a manager over or
underperformed based on the amount of risk taken.
Moving averages, graphs and statistics regarding the supply and demand of stocks are
an example of what kind of analysis? - ANSWER Technical analysis.
Financial statement ratios are part of what kind of analysis? - ANSWER Fundamental
analysis.
You have to remember that penalties in a non deductible IRA apply ONLY to the
earnings. So $32000 - $20000 = $12000.
Mike is only 50, so that's a 10% penalty.
Add that to his tax bracket so 35% + 10% = 45%.
