CRPC EXAM REVIEW
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1. Mary Goodwin's financial situ- Assets = $263,000; liabilities = $141,000, so net worth is
ation is as follows: $122,000. Taxes and auto note payments appear on the cash
Cash/cash equiva- flow statement. 1-3
lents$15,000
Short-term debts$8,000
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?
2. Salaries$70,000 Income = $70,000 + $1,100 + $2,100 = $73,200. Expenses =
Auto payments$5,000 $5,000 + $3,800 + $8,000 + $3,500 + $14,000 + $13,000 +
Insurance payments$3,800 $9,000 + $8,400 + $5,800 = $70,500, so there is a surplus of
Food$8,000 $2,700. The checking account and credit card balances would
Credit card balance$10,000 be on the statement of financial position.
Dividends$1,100 LO 1-3
Utilities$3,500
Mortgage payments$14,000
Taxes$13,000
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?
3. correct statements about in- Income replacement percentages are typically much higher
come replacement percent- for those with lower preretirement incomes.
ages
, CRPC EXAM REVIEW
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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 preretire-
ment income typically need a much higher income replace-
ment percentage in retirement.
LO 1-4
4. If Tom and Jenny want to Set your calculator to the "End" mode and "1 P/Yr." Inputs: FV
save a fixed amount annu- = 2000000, I/YR = 7, N = 25, PV = 0, then PMT = $31,621
ally to accumulate $2 mil-
lion by their retirement date 1-4
in 25 years (rather than an
amount that grows with in-
flation each year), what lev-
el annual end-of-year savings
amount will they need to
deposit each year, assuming
their savings earn 7% annual-
ly?
5. Bill and Lisa Hahn have de- The monthly retirement income need is not specified as "to-
termined that they will need day's dollars," and no inflation rate specified; therefore, it
a monthly income of $6,000 must be assumed that the $2,500 net monthly income need
during retirement. They ex- represents retirement dollars, and the retirement period in-
pect to receive Social Security come stream is level. To calculate the lump sum needed at
, CRPC EXAM REVIEW
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retirement benefits amount- the beginning of retirement, discount the stream of monthly
ing to $3,500 per month at income payments at the investment return rate:
the beginning of each month. 10BII+ PVAD calculation:
Over the 12 remaining years Set calculator on BEG and 12 periods per year, then input the
of their preretirement peri- following:
od, they expect to gener- 2,500 [PMT]
ate an average annual af- 25 [SHIFT] [N]
ter-tax investment return of 6 [I/YR]
8%; during their 25-year re- 0 [FV]
tirement period, they want to Solve for PV = $389,957
assume a 6% annual after-tax LO 1-4
investment return compound-
ed monthly. They want to start
their monthly retirement with-
drawals on the first day they
retire.
What is the lump sum needed
at the beginning of retirement
to fund this income stream?
6. Chris and Eve Bronson have This PVAD calculation requires that the calculator be set for
analyzed their current living beginning-of-period payments. First, the annual retirement
expenses and estimated their income deficit is expressed in retirement-year-one dollars,
retirement income need, net resulting in a $239,925 income deficit in the first retirement
of expected Social Security year. This income deficit grows with inflation over the 30-year
benefits, to be $90,000 in to- retirement period, and the retirement fund earns a 7% return.
day's dollars. They are confi- The calculator inputs are
dent that they can earn a 7%
after-tax return on their in- $239,925, [PMT];
vestments, and they expect in- 30, [N];
flation to average 4% over the 2.8846, [I/YR]. (1.07/1.04)-1 x100
, CRPC EXAM REVIEW
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long term. Solve for [PV],
Determine the lump sum
amount the Bronsons will to determine the retirement fund that will generate this in-
need at the beginning of re- come stream. If you enter 2.8846 directly into the calculator,
tirement to fund their retire-you will get $4,911,265. If you use the equation to compute
ment income needs, using the I/YR, and then hit the I/YR button you will get $4,911,256.
worksheet below. Either way the answer is clear. The difference is that when
you calculate the I/YR, the calculator takes the interest rate out
(1) Adjust income deficit for to nine decimal places. If you enter in the 2.8846, then the
inflation over the preretire- calculator only takes the interest rate to four decimal places.
ment period:$ 90,000present LO 1-4
value of retirement income
deficit25number of periods
until retirement4%% inflation
rateFuture value of income
deficit in first retirement
year$239,925
(2) Determine retirement fund
needed to meet income
deficit:$239,925payment (fu-
ture value of income deficit in
first retirement year)30num-
ber of periods in retirement
The lump sum needed at the
beginning of the
7. Assume a client and in- When the client's circumstances change, the asset manage-
vestment professional have ment process goes back to the data gathering step in the
worked together for sever- process. A
al years. Recently, the client's LO 1-2
Study online at https://quizlet.com/_hwrfj4
1. Mary Goodwin's financial situ- Assets = $263,000; liabilities = $141,000, so net worth is
ation is as follows: $122,000. Taxes and auto note payments appear on the cash
Cash/cash equiva- flow statement. 1-3
lents$15,000
Short-term debts$8,000
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?
2. Salaries$70,000 Income = $70,000 + $1,100 + $2,100 = $73,200. Expenses =
Auto payments$5,000 $5,000 + $3,800 + $8,000 + $3,500 + $14,000 + $13,000 +
Insurance payments$3,800 $9,000 + $8,400 + $5,800 = $70,500, so there is a surplus of
Food$8,000 $2,700. The checking account and credit card balances would
Credit card balance$10,000 be on the statement of financial position.
Dividends$1,100 LO 1-3
Utilities$3,500
Mortgage payments$14,000
Taxes$13,000
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?
3. correct statements about in- Income replacement percentages are typically much higher
come replacement percent- for those with lower preretirement incomes.
ages
, CRPC EXAM REVIEW
Study online at https://quizlet.com/_hwrfj4
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 preretire-
ment income typically need a much higher income replace-
ment percentage in retirement.
LO 1-4
4. If Tom and Jenny want to Set your calculator to the "End" mode and "1 P/Yr." Inputs: FV
save a fixed amount annu- = 2000000, I/YR = 7, N = 25, PV = 0, then PMT = $31,621
ally to accumulate $2 mil-
lion by their retirement date 1-4
in 25 years (rather than an
amount that grows with in-
flation each year), what lev-
el annual end-of-year savings
amount will they need to
deposit each year, assuming
their savings earn 7% annual-
ly?
5. Bill and Lisa Hahn have de- The monthly retirement income need is not specified as "to-
termined that they will need day's dollars," and no inflation rate specified; therefore, it
a monthly income of $6,000 must be assumed that the $2,500 net monthly income need
during retirement. They ex- represents retirement dollars, and the retirement period in-
pect to receive Social Security come stream is level. To calculate the lump sum needed at
, CRPC EXAM REVIEW
Study online at https://quizlet.com/_hwrfj4
retirement benefits amount- the beginning of retirement, discount the stream of monthly
ing to $3,500 per month at income payments at the investment return rate:
the beginning of each month. 10BII+ PVAD calculation:
Over the 12 remaining years Set calculator on BEG and 12 periods per year, then input the
of their preretirement peri- following:
od, they expect to gener- 2,500 [PMT]
ate an average annual af- 25 [SHIFT] [N]
ter-tax investment return of 6 [I/YR]
8%; during their 25-year re- 0 [FV]
tirement period, they want to Solve for PV = $389,957
assume a 6% annual after-tax LO 1-4
investment return compound-
ed monthly. They want to start
their monthly retirement with-
drawals on the first day they
retire.
What is the lump sum needed
at the beginning of retirement
to fund this income stream?
6. Chris and Eve Bronson have This PVAD calculation requires that the calculator be set for
analyzed their current living beginning-of-period payments. First, the annual retirement
expenses and estimated their income deficit is expressed in retirement-year-one dollars,
retirement income need, net resulting in a $239,925 income deficit in the first retirement
of expected Social Security year. This income deficit grows with inflation over the 30-year
benefits, to be $90,000 in to- retirement period, and the retirement fund earns a 7% return.
day's dollars. They are confi- The calculator inputs are
dent that they can earn a 7%
after-tax return on their in- $239,925, [PMT];
vestments, and they expect in- 30, [N];
flation to average 4% over the 2.8846, [I/YR]. (1.07/1.04)-1 x100
, CRPC EXAM REVIEW
Study online at https://quizlet.com/_hwrfj4
long term. Solve for [PV],
Determine the lump sum
amount the Bronsons will to determine the retirement fund that will generate this in-
need at the beginning of re- come stream. If you enter 2.8846 directly into the calculator,
tirement to fund their retire-you will get $4,911,265. If you use the equation to compute
ment income needs, using the I/YR, and then hit the I/YR button you will get $4,911,256.
worksheet below. Either way the answer is clear. The difference is that when
you calculate the I/YR, the calculator takes the interest rate out
(1) Adjust income deficit for to nine decimal places. If you enter in the 2.8846, then the
inflation over the preretire- calculator only takes the interest rate to four decimal places.
ment period:$ 90,000present LO 1-4
value of retirement income
deficit25number of periods
until retirement4%% inflation
rateFuture value of income
deficit in first retirement
year$239,925
(2) Determine retirement fund
needed to meet income
deficit:$239,925payment (fu-
ture value of income deficit in
first retirement year)30num-
ber of periods in retirement
The lump sum needed at the
beginning of the
7. Assume a client and in- When the client's circumstances change, the asset manage-
vestment professional have ment process goes back to the data gathering step in the
worked together for sever- process. A
al years. Recently, the client's LO 1-2
