CRPC EXAM 1 2024 NEWEST ACTUAL EXAM
QUESTIONS AND DETAILED CORRECT
ANSWERS WITH RATIONALES ALREADY
GRADED A+
Cindy wants to have an annual retirement income of $50,000 protected against 3% inflation.
Assuming an 8% after-tax rate of return and a retirement period of 25 years, how much money
does Cindy need in order to provide the inflation-protected $50,000 at the beginning of each
retirement year? - ANSWER>>BEG Mode
# of Periods (1 P/YR in this example)
C ALL
50000, PMT
4.8544, I/YR [(1.08 ÷ 1.03) - 1] × 100 = 4.8544 I/YR
25, N
PV
Solution: $749,812.61
Frank will retire in 14 years, and he needs to save an additional $380,000 to provide the
retirement income that he wants. Assume that inflation is 4% and after-tax earnings are 10%.
How much will Frank need to save at the end of each year to reach his goal? - ANSWER>>END
Mode
# of Periods (1 P/YR in this example)
C ALL
380000, FV
10, I/YR
14, N
PMT
Solution: $13,583.56 (The ANSWER is actually -$13,583.56, as this represents an outflow to
savings.)
In this case, we do not need to make the inflation adjustment. This problem asks how much
Frank needs to save at the end of each year, so the savings will be level. Remember, when the
payment is level, the inflation adjustment is not called for. Inflation should have already been
taken into account to calculate the need for an additional $380,000.
Dan and Barbara have saved $850,000. Assume that inflation is 3% and after-tax earnings are
9%. Also assume that their retirement will last 26 years. How much annual retirement income,
protected against inflation, can the $850,000 provide for 26 years with payments made at the
beginning of each year? - ANSWER>>BEG Mode
# of Periods (1 P/YR in this example)
C ALL
,850000, PV
5.8252, I/YR [(1.09 ÷ 1.03) - 1] × 100 = 5.8252 I/YR
26, N
PMT
Solution: $60,721.17
The Smiths are a 50-year-old couple with an annual retirement budget of $75,000 (in today's
dollars). They want to plan for a retirement life expectancy of 25 years (starting at age 65), and
assume a 3.5% average inflation rate and a 7% long-term rate of return. How much money will
they need at age 65 to fund their retirement? - ANSWER>>Step #1: Find the inflated value of
$75,000 in 15 years # of Periods (1 P/YR in this example)
C ALL
75000, PV
3.5, I/YR
15, N
FV
Solution: $125,651.16 (This becomes our starting income payment in Step #2.)
Step #2: Calculate the PVAD of 25 years of payments, using a first payment amount of
$125,651, and factoring both inflation (3.5%) and the rate of return (7%) (i.e., a serial payment).
BEG Mode
# of Periods (1 P/YR in this example)
C ALL
125651, PMT
3.3816, I/YR [(1.07 ÷ 1.035) - 1] × 100 = 3.3816 I/YR
25, N
PV
Solution: $2,168,715.58
John Bennett wants to receive the equivalent of $40,000 in today's dollars at the beginning of
each year for the next nine years. He assumes that inflation will average 5% over the long run
and that he can earn a 10% compound annual after-tax return on investments.
What lump sum does John need to invest today to fund his needs? - ANSWER>>BEG Mode# of
Periods (1 P/YR in this example)
C ALL
40000, PMT
9, N
4.7619, I/YR [(1.10 ÷ 1.05) - 1] x 100 = 4.7619
PV
Solution: $301,035.15
Karen Troy, age 51, wants to quit working in six years. In terms of today's dollars, she needs an
additional $400,000 in six years to have sufficient funds to finance this goal. She assumes that
inflation will average 5% over the long run and that she can earn an 8% compound annual after-
tax return on investments.
,What serial payment should Karen invest at the end of the first year to fund this goal? -
ANSWER>>END Mode
# of Periods (1 P/YR, in this example)
C ALL
400000, FV
6, N
2.8571,
I/YR [(1.08 ÷ 1.05) - 1] x 100 = 2.8571 I/YR
PMT = $62,061.19X 1.05= $65,164.25
Solution: $65,164.25 (This ANSWER is actually -$65,164.25 as it represents an outflow to
savings.)
Sean Kelley wants to save $50,000 in today's dollars for a future goal. He will need that sum by
the end of 10 years. He plans to fund this goal by investing a serial payment at the end of each
year. Sean believes that his after-tax earnings on investments will be 7% annually and that
inflation will average 4% over the long term.
What will be the dollar amount of Sean's first payment, to be made at the end of this year? -
ANSWER>>FV, 50000
10, N
2.8846, I/YR
PMT = $4,384.75x 1.04 = $4,560.14
Solution: $4,560.14 (The ANSWER is actually -$4,560.14, as it represents an outflow to savings.)
Cheryl Cooper wants to receive the equivalent of $30,000 in today's dollars at the beginning of
each year for the next seven years. She assumes that inflation will average 4% over the long run
and that she can earn a 9% compound annual after-tax return on investments.
What lump sum does Cheryl need to invest today to achieve her goal? - ANSWER>>BEG Mode
30000, PMT
4.8077, I/YR [(1.09 ÷ 1.04) - 1] x 100 = 4.8077 I/YR
7, N
PV
Solution: $183,211.73
Laurie and Sam Simpson are ready to retire. They want to receive the equivalent of $25,000 in
today's dollars at the beginning of each year for the next 20 years. They assume that inflation
will average 6% over the long run and that they can earn a 9% compound annual after-tax
return on investments.
What lump sum would Laurie and Sam need to have to fund this retirement benefit? -
ANSWER>>BEG Mode
25000, PMT
20, N
2.8302, I/YR
Solution: $388,537.73 (This ANSWER is actually -$388,537.73 as it represents an outflow, or
deposit to savings.)
, Joanna Kopps, age 45, wants to quit working in three years. In terms of today's dollars, she
needs an additional $500,000 in three years to have sufficient funds to finance this objective.
She assumes that inflation will average 3% over the long run and that she can earn a 9%
compound annual after-tax return on investments.
What serial payment should Joanna invest at the end of the first year? - ANSWER>>END Mode
500000, FV
5.8252, I/YR
3, N
PMT = $157,324.20
Solution: $157,324.20 x 1.03 = $162,043.92
Identify three current trends in retirement planning. - ANSWER>>businesses today are less
likely to offer defined benefit (DB) plans
increased focus on planning for longevity
expansion of employer sponsored financial wellness initiatives
expansion of plan distribution options
Discuss challenges associated with the shift from defined benefit to defined contribution plans.
- ANSWER>>With defined contribution plans, risks are borne by plan participants/employees
rather than by plan sponsors/employers (as with defined benefit plans). Many of these
employees have little or no financial expertise.
Identify the six steps of the retirement planning process. - ANSWER>>The six steps of the
retirement planning process are as follows:
establish and define the client-counselor relationship
gather client data and determine goals and expectations
determine the client's financial status by analyzing and evaluating
develop and present the retirement plan
implement the plan
monitor the plan
Identify and describe the three key components of a statement of financial position. -
ANSWER>>The three key components of a statement of financial position are:
Assets. Assets are what the client owns: cash, securities, property, and other resources.
Liabilities. Liabilities are what the client owes: credit card debts, mortgages, auto note
balances, etc.
Net worth. Net worth is defined as assets minus liabilities. It represents what the client would
have left over if he liquidated all assets at fair market value and used the proceeds to pay off all
liabilities.
Describe the cash flow statement and the equation that defines it. - ANSWER>>The cash flow
statement is a financial statement that describes cash inflows (from salaries, investment
QUESTIONS AND DETAILED CORRECT
ANSWERS WITH RATIONALES ALREADY
GRADED A+
Cindy wants to have an annual retirement income of $50,000 protected against 3% inflation.
Assuming an 8% after-tax rate of return and a retirement period of 25 years, how much money
does Cindy need in order to provide the inflation-protected $50,000 at the beginning of each
retirement year? - ANSWER>>BEG Mode
# of Periods (1 P/YR in this example)
C ALL
50000, PMT
4.8544, I/YR [(1.08 ÷ 1.03) - 1] × 100 = 4.8544 I/YR
25, N
PV
Solution: $749,812.61
Frank will retire in 14 years, and he needs to save an additional $380,000 to provide the
retirement income that he wants. Assume that inflation is 4% and after-tax earnings are 10%.
How much will Frank need to save at the end of each year to reach his goal? - ANSWER>>END
Mode
# of Periods (1 P/YR in this example)
C ALL
380000, FV
10, I/YR
14, N
PMT
Solution: $13,583.56 (The ANSWER is actually -$13,583.56, as this represents an outflow to
savings.)
In this case, we do not need to make the inflation adjustment. This problem asks how much
Frank needs to save at the end of each year, so the savings will be level. Remember, when the
payment is level, the inflation adjustment is not called for. Inflation should have already been
taken into account to calculate the need for an additional $380,000.
Dan and Barbara have saved $850,000. Assume that inflation is 3% and after-tax earnings are
9%. Also assume that their retirement will last 26 years. How much annual retirement income,
protected against inflation, can the $850,000 provide for 26 years with payments made at the
beginning of each year? - ANSWER>>BEG Mode
# of Periods (1 P/YR in this example)
C ALL
,850000, PV
5.8252, I/YR [(1.09 ÷ 1.03) - 1] × 100 = 5.8252 I/YR
26, N
PMT
Solution: $60,721.17
The Smiths are a 50-year-old couple with an annual retirement budget of $75,000 (in today's
dollars). They want to plan for a retirement life expectancy of 25 years (starting at age 65), and
assume a 3.5% average inflation rate and a 7% long-term rate of return. How much money will
they need at age 65 to fund their retirement? - ANSWER>>Step #1: Find the inflated value of
$75,000 in 15 years # of Periods (1 P/YR in this example)
C ALL
75000, PV
3.5, I/YR
15, N
FV
Solution: $125,651.16 (This becomes our starting income payment in Step #2.)
Step #2: Calculate the PVAD of 25 years of payments, using a first payment amount of
$125,651, and factoring both inflation (3.5%) and the rate of return (7%) (i.e., a serial payment).
BEG Mode
# of Periods (1 P/YR in this example)
C ALL
125651, PMT
3.3816, I/YR [(1.07 ÷ 1.035) - 1] × 100 = 3.3816 I/YR
25, N
PV
Solution: $2,168,715.58
John Bennett wants to receive the equivalent of $40,000 in today's dollars at the beginning of
each year for the next nine years. He assumes that inflation will average 5% over the long run
and that he can earn a 10% compound annual after-tax return on investments.
What lump sum does John need to invest today to fund his needs? - ANSWER>>BEG Mode# of
Periods (1 P/YR in this example)
C ALL
40000, PMT
9, N
4.7619, I/YR [(1.10 ÷ 1.05) - 1] x 100 = 4.7619
PV
Solution: $301,035.15
Karen Troy, age 51, wants to quit working in six years. In terms of today's dollars, she needs an
additional $400,000 in six years to have sufficient funds to finance this goal. She assumes that
inflation will average 5% over the long run and that she can earn an 8% compound annual after-
tax return on investments.
,What serial payment should Karen invest at the end of the first year to fund this goal? -
ANSWER>>END Mode
# of Periods (1 P/YR, in this example)
C ALL
400000, FV
6, N
2.8571,
I/YR [(1.08 ÷ 1.05) - 1] x 100 = 2.8571 I/YR
PMT = $62,061.19X 1.05= $65,164.25
Solution: $65,164.25 (This ANSWER is actually -$65,164.25 as it represents an outflow to
savings.)
Sean Kelley wants to save $50,000 in today's dollars for a future goal. He will need that sum by
the end of 10 years. He plans to fund this goal by investing a serial payment at the end of each
year. Sean believes that his after-tax earnings on investments will be 7% annually and that
inflation will average 4% over the long term.
What will be the dollar amount of Sean's first payment, to be made at the end of this year? -
ANSWER>>FV, 50000
10, N
2.8846, I/YR
PMT = $4,384.75x 1.04 = $4,560.14
Solution: $4,560.14 (The ANSWER is actually -$4,560.14, as it represents an outflow to savings.)
Cheryl Cooper wants to receive the equivalent of $30,000 in today's dollars at the beginning of
each year for the next seven years. She assumes that inflation will average 4% over the long run
and that she can earn a 9% compound annual after-tax return on investments.
What lump sum does Cheryl need to invest today to achieve her goal? - ANSWER>>BEG Mode
30000, PMT
4.8077, I/YR [(1.09 ÷ 1.04) - 1] x 100 = 4.8077 I/YR
7, N
PV
Solution: $183,211.73
Laurie and Sam Simpson are ready to retire. They want to receive the equivalent of $25,000 in
today's dollars at the beginning of each year for the next 20 years. They assume that inflation
will average 6% over the long run and that they can earn a 9% compound annual after-tax
return on investments.
What lump sum would Laurie and Sam need to have to fund this retirement benefit? -
ANSWER>>BEG Mode
25000, PMT
20, N
2.8302, I/YR
Solution: $388,537.73 (This ANSWER is actually -$388,537.73 as it represents an outflow, or
deposit to savings.)
, Joanna Kopps, age 45, wants to quit working in three years. In terms of today's dollars, she
needs an additional $500,000 in three years to have sufficient funds to finance this objective.
She assumes that inflation will average 3% over the long run and that she can earn a 9%
compound annual after-tax return on investments.
What serial payment should Joanna invest at the end of the first year? - ANSWER>>END Mode
500000, FV
5.8252, I/YR
3, N
PMT = $157,324.20
Solution: $157,324.20 x 1.03 = $162,043.92
Identify three current trends in retirement planning. - ANSWER>>businesses today are less
likely to offer defined benefit (DB) plans
increased focus on planning for longevity
expansion of employer sponsored financial wellness initiatives
expansion of plan distribution options
Discuss challenges associated with the shift from defined benefit to defined contribution plans.
- ANSWER>>With defined contribution plans, risks are borne by plan participants/employees
rather than by plan sponsors/employers (as with defined benefit plans). Many of these
employees have little or no financial expertise.
Identify the six steps of the retirement planning process. - ANSWER>>The six steps of the
retirement planning process are as follows:
establish and define the client-counselor relationship
gather client data and determine goals and expectations
determine the client's financial status by analyzing and evaluating
develop and present the retirement plan
implement the plan
monitor the plan
Identify and describe the three key components of a statement of financial position. -
ANSWER>>The three key components of a statement of financial position are:
Assets. Assets are what the client owns: cash, securities, property, and other resources.
Liabilities. Liabilities are what the client owes: credit card debts, mortgages, auto note
balances, etc.
Net worth. Net worth is defined as assets minus liabilities. It represents what the client would
have left over if he liquidated all assets at fair market value and used the proceeds to pay off all
liabilities.
Describe the cash flow statement and the equation that defines it. - ANSWER>>The cash flow
statement is a financial statement that describes cash inflows (from salaries, investment
