Crpc Practice Exam 2 With Complete Solutions

CRPC PRACTICE EXAM 2 WITH COMPLETE SOLUTIONS 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 to the nearest $5,000.) A) $100,000 B) $175,000 C) $150,000 D) $225,000 - C) $150,000 If inflation continues at a 3.5% level, Nick will need approximately double his original $75,000 to maintain purchasing power. This can be determined in two ways. If you know the Rule of 72, and you divide 3.5 into 72, you arrive at approximately 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 to the nearest $5,000 = $150,000 Which of the following are examples of the second step of the retirement planning process? prioritize goals disclose compensation arrangements examine a person's tax situation determine important time horizons - B) I, III, and IV The second step in the retirement planning process is to gather client data, including goals and expectations. The first step is to establish and define the client-counselor relationship, which includes disclosing the counselor's compensation arrangement. Which of the following personal expenses are likely to decrease following an individual's retirement? travel education utilities income taxes home repairs - A) II and IV 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 (rounded) does Richard need in order to meet his goal? - B) $1,822,043 To determine how much money Richard needs, calculate the inflation-adjusted rate of return: (1.07 1.03) - 1 100 = 3.8835. Next, clear your calculator and set it to begin mode. Enter the following known values in any order: 100,000, +/-, PMT; 3.8835 I/YR; 30, N; and request the unknown PV (PVAD). This will give you the correct answer, $1,822,043 (rounded). 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% equals which one of the following amounts? A) $563,758 B) $666,542 C) $610,224 D) $591,946 - A) $563,758 Tom has been promised a stream of annual payments. To determine the present value of the annual payments to Tom, clear your calculator and set it to the end mode. Next, enter the following unknown values in any order: 40,000, PMT; 5, I/YR; 25, N; and request the known present value of an annuity (PVOA). This will show the correct answer, $563,758. If you got $591,946, you did everything correctly except you were in the begin mode. Travel and recreation costs escalate for many retirees. Even if retirees have their mortgage paid off, they will still be faced with the following expenses: real estate taxes, utilities, insurance, and repairs. Retirees tend to spend less on education than do nonretirees. Total income taxes are likely to diminish as earned income declines