3/27/25, 8:55 CRPC Practice Exam 2 |
AM
CRPC PRACTICE EXAM 2 QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS VERIFIED GRADED A++
Terms in this set (74)
I. It produces an annual retirement income over a finite number of years.
II.Assuming the yield remains the same, the larger the retirement income that is
paid, the shorter the number of years over which it will be paid.
Which of the following are correct
III. When the capital utilization approach is used, the planner must be careful
statements about the capital utilization
in making assumptions about the life expectancy of the client.
strategy?
IV.The effect of taxes on retirement savings and distributions should be
considered when the before-tax approach is used to calculate the future value
of retirement assets.
A) a provision for periodic review
B) the acceptable risk tolerance level
C) a target asset allocation
D) names of specific stocks to be in the portfolio
--D
Which one of the following is not a key The key elements in an investment policy are a clear statement of the client's
element of an investment policy? goal, suitable investment vehicles and strategies, the acceptable risk tolerance
level for the client, asset allocation guidelines, and a provision for periodic review.
One way
to remember the essential elements of an investment policy is the acronym "GRASP"
(Goals, Risk, Asset Allocation, Strategies/Suitable Investment-meaning the
investment categories that may or may not be used-and Periodic Review).
Specific investments would be determined after the investment policy is created.
A) They are sold at a discount.
Which one of the following is a
B)The increase in principal is taxable each year.
characteristic of Treasury inflation-
C) Their returns are tied to the producer price index.
protected securities (TIPS)?
D)They are issued with maturities up to 40 years.
1/21
,3/27/25, 8:55 CRPC Practice Exam 2 |
AM
A) 6.5% decrease
B) 9.75% increase
C) 9.75% decrease
D) 6.5% increase
Your client owns a bond fund with a
--C
duration of 6.5. If interest rates increase
1.5% -6.5 = -9.75%. Recall that duration needs to have a negative sign in order to
1.5%, what is the expected change in price
represent the inverse relationship between bond prices and interest rates. In this
for this fund?
case, an increase in rates means the bonds or bond funds will fall in price.
Therefore, this fund will decrease in price about 9.75%. Also, you can remember
that bond prices move opposite to interest rates. An increase in interest rates
means the price of bonds will go down.
Strategic asset allocation.
Strategic asset allocation involves obtaining the best asset mix for a client over
The process of rebalancing is a key factor
a long period. For example, this might be 60% stocks and 40% bonds. When
in
these percentages change due to market movements, this strategic asset
allocation
requires the portfolio to be rebalanced back to the target mix, in this case
60/40 stocks/bonds.
the percentage a manager over- or underperformed based on the amount of risk
What does Jensen's alpha tell you?
taken
The percentage of return that can be coefficient of determination (R2).
attributed to systematic risk is referred to
as the
A) graphs
B) financial statement ratios
C) moving averages
D) supply and demand of stocks
Which of the following are not used in --B
technical analysis?
Moving averages, graphs, and statistics regarding the supply and demand of stocks
are used by technicians.
Financial statement ratios are part of fundamental analysis.
A) The coupon rate is annualized but paid semiannually for U.S. bonds.
B) On a financial calculator, bonds are calculated in the Begin mode.
C) The coupon payment used in bond calculations is the annual amount.
D)The face value of the bond is $10,000.
When performing bond calculations, which
--A
of the following general assumptions
should be made unless stated otherwise?
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. All bonds, even zero coupon bonds, are compounded semiannually
in the End mode. This makes all bond YTM quotes standardized for easy
comparison.
2/21
, 3/27/25, 8:55 CRPC Practice Exam 2 |
AM
A) $1,010
B) $902
C) $925
Assume your client has a 5% bond, par
D) $875
value of $1,000, and 15 years to maturity.
--B
Comparable bonds are yielding 6%. What is
If the calculator is set for 1 P/YR, then all factors, other than FV, need to be
the value of this bond?
adjusted for semiannual payments. The keystrokes would be: 1,000 [FV], 25 [PMT], 3
[I/YR], 30 [N], then solve for [PV] = -902. If the calculator is set at 2 P/YR, then [I/YR]
is 6 and
[N] is entered as 15 [SHIFT] [N].
A) The tax applies to those with an AGI in excess of $500,000.
B)The tax is 1.9%.
Which of the following is correct C) The tax is split between the employer and employee.
regarding the additional payroll tax for D)The tax was designed to provide additional funding for Medicare.
high wage --D
earners that was brought about by the This tax is an additional Medicare tax. The 0.9% tax is employee paid and applies
Affordable Care Act? to high earners only (AGI in excess of $250,000 for joint filers and $200,000 for
single filers, not indexed).
Mark, a financial adviser, has a client his eligibility for Social Security retirement benefits may be reduced due to the
who has worked in two positions during windfall elimination provision (WEP).
his lifetime. The client's first position
was a state or local government position
that was not covered by Social Security.
The client is receiving a pension from that
employment. His second position was
covered by Social Security and he is
eligible for Social Security retirement
benefits. Mark should advise his client
that
If you have a client who has worked in a position that was not covered by
Social Security, and the client is receiving a pension from that employment, his
eligibility for Social Security benefits based on his own work history covered by
Social Security
may be reduced due to the windfall elimination provision (WEP). The government
pension offset provision (GPO) impacts Social Security benefits owed to spouses,
Worked in a position that was not covered
ex-spouses, or to survivor benefits. If he has one or more survivors entitled to a
by Social Security, and the client is
benefit, the Social Security Administration recalculates the benefit to omit the
receiving a pension from that employment,
WEP, which results in a higher survivor benefit. Reductions due to the WEP
are NOT
reflected in Social Security benefit estimates. One way to differentiate between the
two is focusing on the "W" in WEP. The "W" can remind you of "worker." Thus, the
WEP reduces Social Security retirement benefits based on your own work history.
That
leaves the GPO as the one that reduces a spousal Social Security benefit based
on what the spouse is getting from a retirement plan based on employment that did
not pay into Social Security (such as public school teachers in several states).
primary insurance amount (PIA)
Suzy begins her Social Security retirement Workers who begin their Social Security retirement benefits at full retirement age
benefit at full retirement age (FRA). What is will receive their primary insurance amount (PIA). This amount is based their lifetime
the amount that she will receive? average earnings, or AIME. If they delay their benefits until after attaining FRA they
will begin to be credited with DRCs. Those who are only currently insured (not fully
insured) are not eligible for Social Security retirement benefits.
3/21
AM
CRPC PRACTICE EXAM 2 QUESTIONS AND ANSWERS WITH
COMPLETE SOLUTIONS VERIFIED GRADED A++
Terms in this set (74)
I. It produces an annual retirement income over a finite number of years.
II.Assuming the yield remains the same, the larger the retirement income that is
paid, the shorter the number of years over which it will be paid.
Which of the following are correct
III. When the capital utilization approach is used, the planner must be careful
statements about the capital utilization
in making assumptions about the life expectancy of the client.
strategy?
IV.The effect of taxes on retirement savings and distributions should be
considered when the before-tax approach is used to calculate the future value
of retirement assets.
A) a provision for periodic review
B) the acceptable risk tolerance level
C) a target asset allocation
D) names of specific stocks to be in the portfolio
--D
Which one of the following is not a key The key elements in an investment policy are a clear statement of the client's
element of an investment policy? goal, suitable investment vehicles and strategies, the acceptable risk tolerance
level for the client, asset allocation guidelines, and a provision for periodic review.
One way
to remember the essential elements of an investment policy is the acronym "GRASP"
(Goals, Risk, Asset Allocation, Strategies/Suitable Investment-meaning the
investment categories that may or may not be used-and Periodic Review).
Specific investments would be determined after the investment policy is created.
A) They are sold at a discount.
Which one of the following is a
B)The increase in principal is taxable each year.
characteristic of Treasury inflation-
C) Their returns are tied to the producer price index.
protected securities (TIPS)?
D)They are issued with maturities up to 40 years.
1/21
,3/27/25, 8:55 CRPC Practice Exam 2 |
AM
A) 6.5% decrease
B) 9.75% increase
C) 9.75% decrease
D) 6.5% increase
Your client owns a bond fund with a
--C
duration of 6.5. If interest rates increase
1.5% -6.5 = -9.75%. Recall that duration needs to have a negative sign in order to
1.5%, what is the expected change in price
represent the inverse relationship between bond prices and interest rates. In this
for this fund?
case, an increase in rates means the bonds or bond funds will fall in price.
Therefore, this fund will decrease in price about 9.75%. Also, you can remember
that bond prices move opposite to interest rates. An increase in interest rates
means the price of bonds will go down.
Strategic asset allocation.
Strategic asset allocation involves obtaining the best asset mix for a client over
The process of rebalancing is a key factor
a long period. For example, this might be 60% stocks and 40% bonds. When
in
these percentages change due to market movements, this strategic asset
allocation
requires the portfolio to be rebalanced back to the target mix, in this case
60/40 stocks/bonds.
the percentage a manager over- or underperformed based on the amount of risk
What does Jensen's alpha tell you?
taken
The percentage of return that can be coefficient of determination (R2).
attributed to systematic risk is referred to
as the
A) graphs
B) financial statement ratios
C) moving averages
D) supply and demand of stocks
Which of the following are not used in --B
technical analysis?
Moving averages, graphs, and statistics regarding the supply and demand of stocks
are used by technicians.
Financial statement ratios are part of fundamental analysis.
A) The coupon rate is annualized but paid semiannually for U.S. bonds.
B) On a financial calculator, bonds are calculated in the Begin mode.
C) The coupon payment used in bond calculations is the annual amount.
D)The face value of the bond is $10,000.
When performing bond calculations, which
--A
of the following general assumptions
should be made unless stated otherwise?
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. All bonds, even zero coupon bonds, are compounded semiannually
in the End mode. This makes all bond YTM quotes standardized for easy
comparison.
2/21
, 3/27/25, 8:55 CRPC Practice Exam 2 |
AM
A) $1,010
B) $902
C) $925
Assume your client has a 5% bond, par
D) $875
value of $1,000, and 15 years to maturity.
--B
Comparable bonds are yielding 6%. What is
If the calculator is set for 1 P/YR, then all factors, other than FV, need to be
the value of this bond?
adjusted for semiannual payments. The keystrokes would be: 1,000 [FV], 25 [PMT], 3
[I/YR], 30 [N], then solve for [PV] = -902. If the calculator is set at 2 P/YR, then [I/YR]
is 6 and
[N] is entered as 15 [SHIFT] [N].
A) The tax applies to those with an AGI in excess of $500,000.
B)The tax is 1.9%.
Which of the following is correct C) The tax is split between the employer and employee.
regarding the additional payroll tax for D)The tax was designed to provide additional funding for Medicare.
high wage --D
earners that was brought about by the This tax is an additional Medicare tax. The 0.9% tax is employee paid and applies
Affordable Care Act? to high earners only (AGI in excess of $250,000 for joint filers and $200,000 for
single filers, not indexed).
Mark, a financial adviser, has a client his eligibility for Social Security retirement benefits may be reduced due to the
who has worked in two positions during windfall elimination provision (WEP).
his lifetime. The client's first position
was a state or local government position
that was not covered by Social Security.
The client is receiving a pension from that
employment. His second position was
covered by Social Security and he is
eligible for Social Security retirement
benefits. Mark should advise his client
that
If you have a client who has worked in a position that was not covered by
Social Security, and the client is receiving a pension from that employment, his
eligibility for Social Security benefits based on his own work history covered by
Social Security
may be reduced due to the windfall elimination provision (WEP). The government
pension offset provision (GPO) impacts Social Security benefits owed to spouses,
Worked in a position that was not covered
ex-spouses, or to survivor benefits. If he has one or more survivors entitled to a
by Social Security, and the client is
benefit, the Social Security Administration recalculates the benefit to omit the
receiving a pension from that employment,
WEP, which results in a higher survivor benefit. Reductions due to the WEP
are NOT
reflected in Social Security benefit estimates. One way to differentiate between the
two is focusing on the "W" in WEP. The "W" can remind you of "worker." Thus, the
WEP reduces Social Security retirement benefits based on your own work history.
That
leaves the GPO as the one that reduces a spousal Social Security benefit based
on what the spouse is getting from a retirement plan based on employment that did
not pay into Social Security (such as public school teachers in several states).
primary insurance amount (PIA)
Suzy begins her Social Security retirement Workers who begin their Social Security retirement benefits at full retirement age
benefit at full retirement age (FRA). What is will receive their primary insurance amount (PIA). This amount is based their lifetime
the amount that she will receive? average earnings, or AIME. If they delay their benefits until after attaining FRA they
will begin to be credited with DRCs. Those who are only currently insured (not fully
insured) are not eligible for Social Security retirement benefits.
3/21
