CRPC PRACTICE EXAM QUESTIONS
AND ANSWERS (GRADED A+)
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents $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?
A)$111,000
B)$137,000
C)$122,000
D)$263,000 - ANSWER-C
At the end of last year, Bill Greer has the following financial information:
Salaries$70,000Auto payments$5,000Insurance payments$3,800Food$8,000Credit
card balance$10,000Dividends$1,100Utilities$3,500Mortgage
payments$14,000Taxes$13,000Clothing$9,000Interest income$2,100Checking
account$4,000Vacations$8,400Donations$5,800
What is the cash flow surplus or (deficit) for Bill?
A)
$2,700
B)
$6,500
C)
$10,700
D)
($500) - ANSWER-A
The lump sum needed at the beginning of the Br - ANSWER-D
Assume a client and investment professional have worked together for several years.
Recently, the client's personal and financial circumstances have changed. According to
the course materials, what is the next asset management step that the investment
professional should take?
A)
make and implement recommendations
B)
gather data
C)
monitor performance
,D)
analyze information - ANSWER-B
Which one of the following is not a key attribute of an investment policy?
A)
clearly defined
B)
realistic
C)
fluid
D)
long-term perspective - ANSWER-C
All of these are examples of asset allocation strategies except
A)
tactical.
B)
core/satellite.
C)
strategic.
D)
alpha. - ANSWER-D
Which of the following are correct statements about income replacement percentages?
I.Income replacement percentages are typically much higher for those with higher
preretirement incomes.
II.Income replacement percentages vary between low-income and high-income retirees.
III.Income replacement ratios should not be used as the only basis for planning.
IV.Income replacement ratios are useful for younger clients as a guide to their long-
range planning and investing.
A)
I and IV
B)
I and II
C)
II and III
D)
II, III, and IV - ANSWER-D
If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by
their retirement date in 25 years (rather than an amount that grows with inflation each
year), what level annual end-of-year savings amount will they need to deposit each
year, assuming their savings earn 7% annually?
A)
$55,692
B)
, $31,621
C)
$29,552
D)
$54,130 - ANSWER-B
Bill and Lisa Hahn have determined that they will need a monthly income of $6,000
during retirement. They expect to receive Social Security retirement benefits amounting
to $3,500 per month at the beginning of each month. Over the 12 remaining years of
their preretirement period, they expect to generate an average annual after-tax
investment return of 8%; during their 25-year retirement period, they want to assume a
6% annual after-tax investment return compounded monthly. They want to start their
monthly retirement withdrawals on the first day they retire.
What is the lump sum needed at the beginning of retirement to fund this income
stream?
A)
$931,241
B)
$388,017
C)
$389,957
D)
$598,504 - ANSWER-C
Chris and Eve Bronson have analyzed their current living expenses and estimated their
retirement income need, net of expected Social Security benefits, to be $90,000 in
today's dollars. They are confident that they can earn a 7% after-tax return on their
investments, and they expect inflation to average 4% over the long term.
Determine the lump sum amount the Bronsons will need at the beginning of retirement
to fund their retirement income needs, using the worksheet below.
(1) Adjust income deficit for inflation over the preretirement period:$ 90,000present
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 (future value of
income deficit in first retirement year)30number of periods in retirement
Assume the following asset classes have the correlations to long-term government
bonds shown below:
Treasury bills:.12Gold:-.25Large stocks:.22Small stocks:.17
Which one of the following best exemplifies the impact of diversification on long-term
government bonds?
A)
Large stocks provide more diversification than small stocks.
B
Small stocks provide more diversification than Treasury bills.
AND ANSWERS (GRADED A+)
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents $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?
A)$111,000
B)$137,000
C)$122,000
D)$263,000 - ANSWER-C
At the end of last year, Bill Greer has the following financial information:
Salaries$70,000Auto payments$5,000Insurance payments$3,800Food$8,000Credit
card balance$10,000Dividends$1,100Utilities$3,500Mortgage
payments$14,000Taxes$13,000Clothing$9,000Interest income$2,100Checking
account$4,000Vacations$8,400Donations$5,800
What is the cash flow surplus or (deficit) for Bill?
A)
$2,700
B)
$6,500
C)
$10,700
D)
($500) - ANSWER-A
The lump sum needed at the beginning of the Br - ANSWER-D
Assume a client and investment professional have worked together for several years.
Recently, the client's personal and financial circumstances have changed. According to
the course materials, what is the next asset management step that the investment
professional should take?
A)
make and implement recommendations
B)
gather data
C)
monitor performance
,D)
analyze information - ANSWER-B
Which one of the following is not a key attribute of an investment policy?
A)
clearly defined
B)
realistic
C)
fluid
D)
long-term perspective - ANSWER-C
All of these are examples of asset allocation strategies except
A)
tactical.
B)
core/satellite.
C)
strategic.
D)
alpha. - ANSWER-D
Which of the following are correct statements about income replacement percentages?
I.Income replacement percentages are typically much higher for those with higher
preretirement incomes.
II.Income replacement percentages vary between low-income and high-income retirees.
III.Income replacement ratios should not be used as the only basis for planning.
IV.Income replacement ratios are useful for younger clients as a guide to their long-
range planning and investing.
A)
I and IV
B)
I and II
C)
II and III
D)
II, III, and IV - ANSWER-D
If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by
their retirement date in 25 years (rather than an amount that grows with inflation each
year), what level annual end-of-year savings amount will they need to deposit each
year, assuming their savings earn 7% annually?
A)
$55,692
B)
, $31,621
C)
$29,552
D)
$54,130 - ANSWER-B
Bill and Lisa Hahn have determined that they will need a monthly income of $6,000
during retirement. They expect to receive Social Security retirement benefits amounting
to $3,500 per month at the beginning of each month. Over the 12 remaining years of
their preretirement period, they expect to generate an average annual after-tax
investment return of 8%; during their 25-year retirement period, they want to assume a
6% annual after-tax investment return compounded monthly. They want to start their
monthly retirement withdrawals on the first day they retire.
What is the lump sum needed at the beginning of retirement to fund this income
stream?
A)
$931,241
B)
$388,017
C)
$389,957
D)
$598,504 - ANSWER-C
Chris and Eve Bronson have analyzed their current living expenses and estimated their
retirement income need, net of expected Social Security benefits, to be $90,000 in
today's dollars. They are confident that they can earn a 7% after-tax return on their
investments, and they expect inflation to average 4% over the long term.
Determine the lump sum amount the Bronsons will need at the beginning of retirement
to fund their retirement income needs, using the worksheet below.
(1) Adjust income deficit for inflation over the preretirement period:$ 90,000present
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 (future value of
income deficit in first retirement year)30number of periods in retirement
Assume the following asset classes have the correlations to long-term government
bonds shown below:
Treasury bills:.12Gold:-.25Large stocks:.22Small stocks:.17
Which one of the following best exemplifies the impact of diversification on long-term
government bonds?
A)
Large stocks provide more diversification than small stocks.
B
Small stocks provide more diversification than Treasury bills.
