CRPC PRACTICE EXAM 1 COMPLETE
QUESTIONS WITH DETAILED VERIFIED
ANSWERS /ALREADY GRADED A+
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents$15,000S
hort-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? - CORRECT ANSWER ✔✔- $122,000
Assets = $263,000; liabilities = $141,000, so net worth is $122,000. Taxes and auto
note payments appear on the cash flow statement.
For the year ending December 31, XXXX, Bill Greer has the following financial
information:
Salaries$70,000Auto payments$5,000Insurance$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? - CORRECT ANSWER ✔✔-
$2,700
1
,Income = $70,000 + $1,100 + $2,100 = $73,200. Expenses = $5,000 + $3,800 +
$8,000 + $3,500 + $14,000 + $13,000 + $9,000 + $8,400 + $5,800 = $70,500, so
there is a surplus of $2,700. The checking account and credit card balances would
be on the statement of financial position.
Which of the following are correct statements about income replacement
percentages? - CORRECT ANSWER ✔✔- II, III, and IV
The inverse of Option I is true. Those with a lower preretirement income typically
need a much higher income replacement percentage in retirement.
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? - CORRECT
ANSWER ✔✔- $31,621
Set calculator "End" and "1 P/Yr" Inputs: FV = 2000000, i = 7, N = 25, PV = 0,
then Pmt = $31,621
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.
What is the lump sum needed at the beginning of retirement to fund this income
stream? - CORRECT ANSWER ✔✔- $389,957
2
,The monthly retirement income need is not specified as "today's dollars," and no
inflation rate specified; therefore, it must be assumed that the $2,500 net monthly
income need represents retirement dollars, and the retirement period income stream
is level. To calculate the lump sum needed at the beginning of retirement, discount
the stream of monthly income payments at the investment return rate:
10BII+ PVAD calculation:
Set calculator on BEG and 12 periods per year, then input the following:
2,500 [PMT]
25 [SHIFT] [N]
6 [I/YR]
0 [FV]
Solve for PV = $389,957
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
The lump sum needed at the beginning of the Br - CORRECT ANSWER ✔✔-
$4,911,256
3
, This PVAD calculation requires that the calculator be set for beginning-of-period
payments. First, the annual retirement income deficit is expressed in retirement-
year-one dollars, resulting in a $239,925 income deficit in the first retirement year.
This income deficit grows with inflation over the 30-year retirement period, and
the retirement fund earns a 7% return. The calculator inputs are $239,925, [PMT];
30, [N]; 2.8846, [I/YR]. Solve for [PV], to determine the retirement fund that will
generate this income stream. If you enter 2.8846 directly into the calculator, you
will get $4,911,265. If you use the equation to compute I/YR, and then hit the I/YR
button you will get $4,911,256. Either way the answer is clear. The difference is
that when you calculate the I/YR, the calculator takes the interest rate out to nine
decimal places. If you enter in the 2.8846, then the calculator only takes the
interest rate to four decimal places.
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? - CORRECT ANSWER ✔✔- A) analyze
information
B) gather data
C) make and implement recommendations
D) monitor performance
--B
When the client's circumstances change, the asset management process goes back
to the data gathering step in the process.
When the client's circumstances change, the asset management process goes back
to the data gathering step in the process. - CORRECT ANSWER ✔✔- A) realistic
B) clearly defined
4
QUESTIONS WITH DETAILED VERIFIED
ANSWERS /ALREADY GRADED A+
Mary Goodwin's financial situation is as follows:
Cash/cash equivalents$15,000S
hort-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? - CORRECT ANSWER ✔✔- $122,000
Assets = $263,000; liabilities = $141,000, so net worth is $122,000. Taxes and auto
note payments appear on the cash flow statement.
For the year ending December 31, XXXX, Bill Greer has the following financial
information:
Salaries$70,000Auto payments$5,000Insurance$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? - CORRECT ANSWER ✔✔-
$2,700
1
,Income = $70,000 + $1,100 + $2,100 = $73,200. Expenses = $5,000 + $3,800 +
$8,000 + $3,500 + $14,000 + $13,000 + $9,000 + $8,400 + $5,800 = $70,500, so
there is a surplus of $2,700. The checking account and credit card balances would
be on the statement of financial position.
Which of the following are correct statements about income replacement
percentages? - CORRECT ANSWER ✔✔- II, III, and IV
The inverse of Option I is true. Those with a lower preretirement income typically
need a much higher income replacement percentage in retirement.
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? - CORRECT
ANSWER ✔✔- $31,621
Set calculator "End" and "1 P/Yr" Inputs: FV = 2000000, i = 7, N = 25, PV = 0,
then Pmt = $31,621
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.
What is the lump sum needed at the beginning of retirement to fund this income
stream? - CORRECT ANSWER ✔✔- $389,957
2
,The monthly retirement income need is not specified as "today's dollars," and no
inflation rate specified; therefore, it must be assumed that the $2,500 net monthly
income need represents retirement dollars, and the retirement period income stream
is level. To calculate the lump sum needed at the beginning of retirement, discount
the stream of monthly income payments at the investment return rate:
10BII+ PVAD calculation:
Set calculator on BEG and 12 periods per year, then input the following:
2,500 [PMT]
25 [SHIFT] [N]
6 [I/YR]
0 [FV]
Solve for PV = $389,957
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
The lump sum needed at the beginning of the Br - CORRECT ANSWER ✔✔-
$4,911,256
3
, This PVAD calculation requires that the calculator be set for beginning-of-period
payments. First, the annual retirement income deficit is expressed in retirement-
year-one dollars, resulting in a $239,925 income deficit in the first retirement year.
This income deficit grows with inflation over the 30-year retirement period, and
the retirement fund earns a 7% return. The calculator inputs are $239,925, [PMT];
30, [N]; 2.8846, [I/YR]. Solve for [PV], to determine the retirement fund that will
generate this income stream. If you enter 2.8846 directly into the calculator, you
will get $4,911,265. If you use the equation to compute I/YR, and then hit the I/YR
button you will get $4,911,256. Either way the answer is clear. The difference is
that when you calculate the I/YR, the calculator takes the interest rate out to nine
decimal places. If you enter in the 2.8846, then the calculator only takes the
interest rate to four decimal places.
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? - CORRECT ANSWER ✔✔- A) analyze
information
B) gather data
C) make and implement recommendations
D) monitor performance
--B
When the client's circumstances change, the asset management process goes back
to the data gathering step in the process.
When the client's circumstances change, the asset management process goes back
to the data gathering step in the process. - CORRECT ANSWER ✔✔- A) realistic
B) clearly defined
4
