CRPC ACTUAL EXAM 2 | COMPLETE QUESTIONS WITH EXPERT
SOLUTIONS | 2026 LATEST UPDATED | GET A+
Which of the following are correct statements about the capital utilization strategy? - (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? - (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)? -
(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? - (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 - (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? - (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 -
(answer)coefficient of determination (R2).
Which of the following are not used in technical analysis? - (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? - (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? - (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? - (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 - (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, - (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).
SOLUTIONS | 2026 LATEST UPDATED | GET A+
Which of the following are correct statements about the capital utilization strategy? - (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? - (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)? -
(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? - (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 - (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? - (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 -
(answer)coefficient of determination (R2).
Which of the following are not used in technical analysis? - (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? - (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? - (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? - (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 - (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, - (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).
