CRPC EXAM PRACTICE EXAM ACTUAL EXAM
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 does Richard need in order to meet his goal?
Explain how you need to input this on the calculator and why. - ANSWER: Step One -
Set the calculator to BEGIN.
Step Two - Calculate the inflation adjusted rate of return (One plus the Rate of
Return divided by One plus the interest rate, minus one, multiplied by 100 = the
inflation adjusted rate of return) Put this number in the I/YR
Step Three - 100,000 goes in as a PMT
Step Four - 30 goes in as N
Step Five -Press PV
Richard needs $1,822,042.88 in today's dollars to meet his needs.
How do you calculate the inflation-adjusted rate of return? - ANSWER: 1 plus the
Rate of Return
Divided by
1 plus the interest rate
minus one
multiplied by 100
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% is
which one of the following amounts? - ANSWER: Step One - The problem says END
in it so you have to set your calculator to the END mode.
Step two - Enter the $40000 as a PMT
Step Three - Enter 25 as the N.
Step Four - Enter 5 as the I/R
Step Six - Hit PV.
, $563,758
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.) - ANSWER: If you know the Rule of 72, and you divide 3.5 into 72, you
arrive at the number 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 = $150,000
What is the second step in the retirement planning process? - ANSWER: The second
step in the retirement planning process is to gather client data, including goals and
expectations
What is the first step in the retirement planning process? - ANSWER: The first step is
to establish and define the client-counselor relationship which includes disclosing
the counselor's compensation arrangement
What is a characteristic of a TIP? - ANSWER: The increase in principal is taxable each
year. Any annual increase in principal is subject to federal taxation (unless in a tax-
deferred account). Returns are tied to the consumer price index. TIPS are sold at
par value and have maturities up to 30 years.
How you calculate the weighted beta of a portfolio? - ANSWER: You multiply the
weight times the beta for each stock, then you add those numbers up together.
What does Jensen's alpha tell you - ANSWER: The percentage a manager over or
underperformed based on the amount of risk taken.
Moving averages, graphs and statistics regarding the supply and demand of stocks
are an example of what kind of analysis? - ANSWER: Technical analysis.
Financial statement ratios are part of what kind of analysis? - ANSWER:
Fundamental analysis.
When performing bond calculations, what general assumptions should be made
unless stated otherwise? - ANSWER: The coupon rate is annualized but paid
semiannually for U.S. bonds. The face value of the bond should be assumed to be
$1,000, not $10,000. The coupon rate is stated on an annual basis but is assumed
to be paid semiannually for U.S. bonds and the coupon payment is always made at
the end of the period, not the beginning.
Which is correct regarding the additional payroll tax for high wage earners that was
brought about by the Patient Protection and Affordable Care Act - ANSWER: The tax
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 does Richard need in order to meet his goal?
Explain how you need to input this on the calculator and why. - ANSWER: Step One -
Set the calculator to BEGIN.
Step Two - Calculate the inflation adjusted rate of return (One plus the Rate of
Return divided by One plus the interest rate, minus one, multiplied by 100 = the
inflation adjusted rate of return) Put this number in the I/YR
Step Three - 100,000 goes in as a PMT
Step Four - 30 goes in as N
Step Five -Press PV
Richard needs $1,822,042.88 in today's dollars to meet his needs.
How do you calculate the inflation-adjusted rate of return? - ANSWER: 1 plus the
Rate of Return
Divided by
1 plus the interest rate
minus one
multiplied by 100
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% is
which one of the following amounts? - ANSWER: Step One - The problem says END
in it so you have to set your calculator to the END mode.
Step two - Enter the $40000 as a PMT
Step Three - Enter 25 as the N.
Step Four - Enter 5 as the I/R
Step Six - Hit PV.
, $563,758
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.) - ANSWER: If you know the Rule of 72, and you divide 3.5 into 72, you
arrive at the number 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 = $150,000
What is the second step in the retirement planning process? - ANSWER: The second
step in the retirement planning process is to gather client data, including goals and
expectations
What is the first step in the retirement planning process? - ANSWER: The first step is
to establish and define the client-counselor relationship which includes disclosing
the counselor's compensation arrangement
What is a characteristic of a TIP? - ANSWER: The increase in principal is taxable each
year. Any annual increase in principal is subject to federal taxation (unless in a tax-
deferred account). Returns are tied to the consumer price index. TIPS are sold at
par value and have maturities up to 30 years.
How you calculate the weighted beta of a portfolio? - ANSWER: You multiply the
weight times the beta for each stock, then you add those numbers up together.
What does Jensen's alpha tell you - ANSWER: The percentage a manager over or
underperformed based on the amount of risk taken.
Moving averages, graphs and statistics regarding the supply and demand of stocks
are an example of what kind of analysis? - ANSWER: Technical analysis.
Financial statement ratios are part of what kind of analysis? - ANSWER:
Fundamental analysis.
When performing bond calculations, what general assumptions should be made
unless stated otherwise? - ANSWER: The coupon rate is annualized but paid
semiannually for U.S. bonds. The face value of the bond should be assumed to be
$1,000, not $10,000. The coupon rate is stated on an annual basis but is assumed
to be paid semiannually for U.S. bonds and the coupon payment is always made at
the end of the period, not the beginning.
Which is correct regarding the additional payroll tax for high wage earners that was
brought about by the Patient Protection and Affordable Care Act - ANSWER: The tax
