Page | 1
CRPC Questions with Detailed Verified
Answers
Question: Diversification
Answer: Acquiring assets with low or negative correlations to each other with
the goal of lowering overall risk
Question:Correlation
Answer: - a relative measure of the degree to which the returns of two assets
move together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
Question:Asset allocation
Answer: - the apportioning of available funds among a number of asset
classes in a way that meets the needs of a particular client, dampens the
effects of periodic market fluctuations, and meets investment goals
Question:Four steps in the asset allocation process
Answer: 1) select asset classes to be represented
2) determine the percentage that each asset class should represent in the total
portfolio
3) Select individual securities
4) Review and rebalance
, Page | 2
Question:Strategic Asset Allocation
Answer: - determine asset mix that provides optimal balance of expected risk
and ROR
- asset classes selected and % weight determined
- Used to develop long-term allocation policy
- utilizes rebalancing to maintain targeted weight
Question:Tactical Asset Allocation
Answer: - used to develop short term strategies to exploit changes in market
conditions
- ofter viewed as a contrarian strategy
- periodic revisions of asset mix; moving funds from over valued investments
to undervalued investments
- market timing strategy
Question:Core-Satellite asset allocation
Answer: 70-80% invested in broad index fund or etfs
- remaining satellite consists of actively managed MF's in niches such as sector
funds or alt investments like hedge funds
Question:Contrarian Strategy
Answer:
Question:Dollar-Cost averaging
Answer: - investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
, Page | 3
Question:Low P/E strategy
Answer: Ratio of 1= fair value
Ratio > 1= overvalued
Ratio < 1= undervalued
** The long-term average P/E for stocks is 16
Question:Bond Investment strategies (2)
Answer: 1) Ladder: Owning equal amounts of bonds along with maturities of
equal intervals; ex. 50k of bonds with 10k each in 2,4,6,8,10 year maturities
2) Barbell: Owning short-term and long-term bonds, each with a ladder; ex.
100k of bonds with 10k each in 1,2,3,4,5 year maturities and in 16,17,18,19,20
year maturities
Question:Systematic Risk
Answer: P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Question:Social Security- Fully insured
Answer: - having 10 years of employment covered by social security;
expressed as "40 quarters of coverage"
- Must be fully insured for retirement benefits
, Page | 4
- fully insured workers are also eligible for disability if he has earned at least 20
work credits in last 10 years
Question:Social Security- currently insured
Answer: - individual must has at least 6 quarters of coverage in the 13-quarter
period proceeding the event for which eligibility is sought
- child's benefit, mother/fathers benefits, and lump-sum death benefit are
available if a worker is only currently insured at death
Question:Components of SS calculation
Answer: - age he starts
- earnings history
Question:SS calculation before full retirement age
Answer: - Payment reduced by 5/9th of 1% for each month filed before FRA,
up to 36 months
- Payment is reduced by 5/12ths of 1% for each month filed early in excess of
36 months
Question:SS calculation after full retirement age
Answer: - Payment increases by about 8% each year they delay, until
maximum year 70
- actual math is 2/3 for each month
Question:Social Security milestones
Answer: Ages
50: disabled survivors can start receiving benefits
CRPC Questions with Detailed Verified
Answers
Question: Diversification
Answer: Acquiring assets with low or negative correlations to each other with
the goal of lowering overall risk
Question:Correlation
Answer: - a relative measure of the degree to which the returns of two assets
move together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
Question:Asset allocation
Answer: - the apportioning of available funds among a number of asset
classes in a way that meets the needs of a particular client, dampens the
effects of periodic market fluctuations, and meets investment goals
Question:Four steps in the asset allocation process
Answer: 1) select asset classes to be represented
2) determine the percentage that each asset class should represent in the total
portfolio
3) Select individual securities
4) Review and rebalance
, Page | 2
Question:Strategic Asset Allocation
Answer: - determine asset mix that provides optimal balance of expected risk
and ROR
- asset classes selected and % weight determined
- Used to develop long-term allocation policy
- utilizes rebalancing to maintain targeted weight
Question:Tactical Asset Allocation
Answer: - used to develop short term strategies to exploit changes in market
conditions
- ofter viewed as a contrarian strategy
- periodic revisions of asset mix; moving funds from over valued investments
to undervalued investments
- market timing strategy
Question:Core-Satellite asset allocation
Answer: 70-80% invested in broad index fund or etfs
- remaining satellite consists of actively managed MF's in niches such as sector
funds or alt investments like hedge funds
Question:Contrarian Strategy
Answer:
Question:Dollar-Cost averaging
Answer: - investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
, Page | 3
Question:Low P/E strategy
Answer: Ratio of 1= fair value
Ratio > 1= overvalued
Ratio < 1= undervalued
** The long-term average P/E for stocks is 16
Question:Bond Investment strategies (2)
Answer: 1) Ladder: Owning equal amounts of bonds along with maturities of
equal intervals; ex. 50k of bonds with 10k each in 2,4,6,8,10 year maturities
2) Barbell: Owning short-term and long-term bonds, each with a ladder; ex.
100k of bonds with 10k each in 1,2,3,4,5 year maturities and in 16,17,18,19,20
year maturities
Question:Systematic Risk
Answer: P-purchasing power risk
R- reinvestment risk
I- interest rate risk
M- market risk
E- exchange rate risk
Question:Social Security- Fully insured
Answer: - having 10 years of employment covered by social security;
expressed as "40 quarters of coverage"
- Must be fully insured for retirement benefits
, Page | 4
- fully insured workers are also eligible for disability if he has earned at least 20
work credits in last 10 years
Question:Social Security- currently insured
Answer: - individual must has at least 6 quarters of coverage in the 13-quarter
period proceeding the event for which eligibility is sought
- child's benefit, mother/fathers benefits, and lump-sum death benefit are
available if a worker is only currently insured at death
Question:Components of SS calculation
Answer: - age he starts
- earnings history
Question:SS calculation before full retirement age
Answer: - Payment reduced by 5/9th of 1% for each month filed before FRA,
up to 36 months
- Payment is reduced by 5/12ths of 1% for each month filed early in excess of
36 months
Question:SS calculation after full retirement age
Answer: - Payment increases by about 8% each year they delay, until
maximum year 70
- actual math is 2/3 for each month
Question:Social Security milestones
Answer: Ages
50: disabled survivors can start receiving benefits
