BEST CRPC EXAM UPDATE ACTUAL EXAM 90
QUESTIONS AND CORRECT COMPREHENSIVE
DETAILED ANSWERS WITH RATIONALES
FEATURES INCLUDE
❖ VERIFIED ANSWERS
❖ MOST RECENT UPDATE
❖ WITH RATIONALES
❖ GRADED A+
,QUESTIONS ANSWERS
Mary Goodwin's financial situation is as Assets = $263,000; liabilities =
follows: $141,000, so net worth is $122,000.
Cash/cash equivalents$15,000 Taxes and auto note payments appear on
Short-term debts$8,000 the cash flow statement. 1-3
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?
Salaries$70,000 Income = $70,000 + $1,100 + $2,100 =
Auto payments$5,000 $73,200. Expenses = $5,000 + $3,800 +
Insurance payments$3,800 $8,000 + $3,500 + $14,000 + $13,000 +
Food$8,000 $9,000 + $8,400 + $5,800 = $70,500, so
Credit card balance$10,000 there is a surplus of $2,700. The
Dividends$1,100 checking account and credit card
Utilities$3,500 balances would be on the statement of
Mortgage payments$14,000 financial position.
Taxes$13,000 LO 1-3
Clothing$9,000
Interest income$2,100
Checking account$4,000
Vacations$8,400
Donations$5,800
What is the cash flow surplus or (deficit) for
Bill?
correct statements about income replacement Income replacement percentages are
percentages typically much higher for those with
lower preretirement incomes.
Income replacement percentages vary
between low-income and high-income
retirees.
Income replacement ratios should not be
used as the only basis for planning.
Income replacement ratios are useful for
younger clients as a guide to their long-
range planning and investing.
The inverse of Option I is true. Those
with a lower preretirement income
typically need a much higher income
replacement percentage in retirement.
LO 1-4
,If Tom and Jenny want to save a fixed amount Set your calculator to the "End" mode
annually to accumulate $2 million by their and "1 P/Yr." Inputs: FV = 2000000,
retirement date in 25 years (rather than an I/YR = 7, N = 25, PV = 0, then PMT =
amount that grows with inflation each year), $31,621
what level annual end-of-year savings amount
will they need to deposit each year, assuming 1-4
their savings earn 7% annually?
Bill and Lisa Hahn have determined that they The monthly retirement income need is
will need a monthly income of $6,000 during not specified as "today's dollars," and no
retirement. They expect to receive Social inflation rate specified; therefore, it must
Security retirement benefits amounting to be assumed that the $2,500 net monthly
$3,500 per month at the beginning of each income need represents retirement
month. Over the 12 remaining years of their dollars, and the retirement period
preretirement period, they expect to generate income stream is level. To calculate the
an average annual after-tax investment return lump sum needed at the beginning of
of 8%; during their 25-year retirement period, retirement, discount the stream of
they want to assume a 6% annual after-tax monthly income payments at the
investment return compounded monthly. investment return rate:
They want to start their monthly retirement 10BII+ PVAD calculation:
withdrawals on the first day they retire. Set calculator on BEG and 12 periods
per year, then input the following:
What is the lump sum needed at the 2,500 [PMT]
beginning of retirement to fund this income 25 [SHIFT] [N]
stream? 6 [I/YR]
0 [FV]
Solve for PV = $389,957
LO 1-4
Chris and Eve Bronson have analyzed their This PVAD calculation requires that the
current living expenses and estimated their calculator be set for beginning-of-period
retirement income need, net of expected Social payments. First, the annual retirement
Security benefits, to be $90,000 in today's income deficit is expressed in
dollars. They are confident that they can earn retirement-year-one dollars, resulting in
a 7% after-tax return on their investments, a $239,925 income deficit in the first
and they expect inflation to average 4% over retirement year. This income deficit
the long term. grows with inflation over the 30-year
Determine the lump sum amount the retirement period, and the retirement
Bronsons will need at the beginning of fund earns a 7% return.
retirement to fund their retirement income The calculator inputs are
needs, using the worksheet below.
$239,925, [PMT];
(1) Adjust income deficit for inflation over the 30, [N];
preretirement period:$ 90,000present value of 2.8846, [I/YR]. (1.07/1.04)-1 x100
retirement income deficit25number of periods Solve for [PV],
until retirement4%% inflation rateFuture
value of income deficit in first retirement to determine the retirement fund that
year$239,925 will generate this income stream. If you
enter 2.8846 directly into the calculator,
(2) Determine retirement fund needed to meet you will get $4,911,265. If you use the
income deficit:$239,925payment (future value equation to compute I/YR, and then hit
of income deficit in first retirement the I/YR button you will get
, year)30number of periods in retirement $4,911,256. Either way the answer is
clear. The difference is that when you
The lump sum needed at the beginning of the 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.
LO 1-4
Assume a client and investment professional When the client's circumstances change,
have worked together for several years. the asset management process goes back
Recently, the client's personal and financial to the data gathering step in the process.
circumstances have changed. According to the A
course materials, what is the next asset LO 1-2
management step that the investment
professional should take?
A)
gather data
B)
analyze information
C)
make and implement recommendations
D)
monitor performance
Which one of the following is not a key An investment policy provides
attribute of an investment policy? guidelines that are standards to be
A) followed. If they are fluid, they are ever-
clearly defined changing and therefore would be
B) difficult to implement and would provide
fluid inconsistency in the management of the
C) portfolio.
realistic LO 2-1
D)
long-term perspective Fluid
All of these are examples of asset allocation Alpha is not an asset allocation strategy,
strategies except but a way to measure a portfolio
A) manager's return relative to the amount
alpha. of risk that has been taken. alpha
B) LO 2-5
tactical.
C)
core/satellite.
D)
strategic.
Assume the following asset classes have the The asset with the lowest correlation
correlations to long-term government bonds provides the most diversification.
shown below: Therefore, gold provides more
Treasury bills:.12 diversification than any of the other
Gold:-.25 assets. Small stocks do provide more
Large stocks:.22 diversification than Treasury bills, but
Small stocks:.17
QUESTIONS AND CORRECT COMPREHENSIVE
DETAILED ANSWERS WITH RATIONALES
FEATURES INCLUDE
❖ VERIFIED ANSWERS
❖ MOST RECENT UPDATE
❖ WITH RATIONALES
❖ GRADED A+
,QUESTIONS ANSWERS
Mary Goodwin's financial situation is as Assets = $263,000; liabilities =
follows: $141,000, so net worth is $122,000.
Cash/cash equivalents$15,000 Taxes and auto note payments appear on
Short-term debts$8,000 the cash flow statement. 1-3
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?
Salaries$70,000 Income = $70,000 + $1,100 + $2,100 =
Auto payments$5,000 $73,200. Expenses = $5,000 + $3,800 +
Insurance payments$3,800 $8,000 + $3,500 + $14,000 + $13,000 +
Food$8,000 $9,000 + $8,400 + $5,800 = $70,500, so
Credit card balance$10,000 there is a surplus of $2,700. The
Dividends$1,100 checking account and credit card
Utilities$3,500 balances would be on the statement of
Mortgage payments$14,000 financial position.
Taxes$13,000 LO 1-3
Clothing$9,000
Interest income$2,100
Checking account$4,000
Vacations$8,400
Donations$5,800
What is the cash flow surplus or (deficit) for
Bill?
correct statements about income replacement Income replacement percentages are
percentages typically much higher for those with
lower preretirement incomes.
Income replacement percentages vary
between low-income and high-income
retirees.
Income replacement ratios should not be
used as the only basis for planning.
Income replacement ratios are useful for
younger clients as a guide to their long-
range planning and investing.
The inverse of Option I is true. Those
with a lower preretirement income
typically need a much higher income
replacement percentage in retirement.
LO 1-4
,If Tom and Jenny want to save a fixed amount Set your calculator to the "End" mode
annually to accumulate $2 million by their and "1 P/Yr." Inputs: FV = 2000000,
retirement date in 25 years (rather than an I/YR = 7, N = 25, PV = 0, then PMT =
amount that grows with inflation each year), $31,621
what level annual end-of-year savings amount
will they need to deposit each year, assuming 1-4
their savings earn 7% annually?
Bill and Lisa Hahn have determined that they The monthly retirement income need is
will need a monthly income of $6,000 during not specified as "today's dollars," and no
retirement. They expect to receive Social inflation rate specified; therefore, it must
Security retirement benefits amounting to be assumed that the $2,500 net monthly
$3,500 per month at the beginning of each income need represents retirement
month. Over the 12 remaining years of their dollars, and the retirement period
preretirement period, they expect to generate income stream is level. To calculate the
an average annual after-tax investment return lump sum needed at the beginning of
of 8%; during their 25-year retirement period, retirement, discount the stream of
they want to assume a 6% annual after-tax monthly income payments at the
investment return compounded monthly. investment return rate:
They want to start their monthly retirement 10BII+ PVAD calculation:
withdrawals on the first day they retire. Set calculator on BEG and 12 periods
per year, then input the following:
What is the lump sum needed at the 2,500 [PMT]
beginning of retirement to fund this income 25 [SHIFT] [N]
stream? 6 [I/YR]
0 [FV]
Solve for PV = $389,957
LO 1-4
Chris and Eve Bronson have analyzed their This PVAD calculation requires that the
current living expenses and estimated their calculator be set for beginning-of-period
retirement income need, net of expected Social payments. First, the annual retirement
Security benefits, to be $90,000 in today's income deficit is expressed in
dollars. They are confident that they can earn retirement-year-one dollars, resulting in
a 7% after-tax return on their investments, a $239,925 income deficit in the first
and they expect inflation to average 4% over retirement year. This income deficit
the long term. grows with inflation over the 30-year
Determine the lump sum amount the retirement period, and the retirement
Bronsons will need at the beginning of fund earns a 7% return.
retirement to fund their retirement income The calculator inputs are
needs, using the worksheet below.
$239,925, [PMT];
(1) Adjust income deficit for inflation over the 30, [N];
preretirement period:$ 90,000present value of 2.8846, [I/YR]. (1.07/1.04)-1 x100
retirement income deficit25number of periods Solve for [PV],
until retirement4%% inflation rateFuture
value of income deficit in first retirement to determine the retirement fund that
year$239,925 will generate this income stream. If you
enter 2.8846 directly into the calculator,
(2) Determine retirement fund needed to meet you will get $4,911,265. If you use the
income deficit:$239,925payment (future value equation to compute I/YR, and then hit
of income deficit in first retirement the I/YR button you will get
, year)30number of periods in retirement $4,911,256. Either way the answer is
clear. The difference is that when you
The lump sum needed at the beginning of the 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.
LO 1-4
Assume a client and investment professional When the client's circumstances change,
have worked together for several years. the asset management process goes back
Recently, the client's personal and financial to the data gathering step in the process.
circumstances have changed. According to the A
course materials, what is the next asset LO 1-2
management step that the investment
professional should take?
A)
gather data
B)
analyze information
C)
make and implement recommendations
D)
monitor performance
Which one of the following is not a key An investment policy provides
attribute of an investment policy? guidelines that are standards to be
A) followed. If they are fluid, they are ever-
clearly defined changing and therefore would be
B) difficult to implement and would provide
fluid inconsistency in the management of the
C) portfolio.
realistic LO 2-1
D)
long-term perspective Fluid
All of these are examples of asset allocation Alpha is not an asset allocation strategy,
strategies except but a way to measure a portfolio
A) manager's return relative to the amount
alpha. of risk that has been taken. alpha
B) LO 2-5
tactical.
C)
core/satellite.
D)
strategic.
Assume the following asset classes have the The asset with the lowest correlation
correlations to long-term government bonds provides the most diversification.
shown below: Therefore, gold provides more
Treasury bills:.12 diversification than any of the other
Gold:-.25 assets. Small stocks do provide more
Large stocks:.22 diversification than Treasury bills, but
Small stocks:.17
