CPH EXAM REVIEW QUESTIONS EXAM QUESTIONS AND ANSWERS WITH RATIONALES
(VERIFIED ANSWERS) |ALREADY 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? - (answer)Assets = $263,000; liabilities = $141,000, so net worth is $122,000.
Taxes and auto note payments appear on the cash flow statement. 1-3
Salaries$70,000
Auto payments$5,000
Insurance payments$3,800
Food$8,000
Credit card balance$10,000
Dividends$1,100
Utilities$3,500
Mortgage payments$14,000
Taxes$13,000
Clothing$9,000
Interest income$2,100
Checking account$4,000
Vacations$8,400
Donations$5,800
What is the cash flow surplus or (deficit) for Bill? - (answer)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
,CPH EXAM REVIEW QUESTIONS EXAM QUESTIONS AND ANSWERS WITH RATIONALES
(VERIFIED ANSWERS) |ALREADY GRADED A+
= $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.
LO 1-3
correct statements about income replacement percentages - (answer)Income replacement percentages
are typically much higher for those with lower preretirement incomes.
Income replacement percentages vary between low-income and high-income retirees.
Income replacement ratios should not be used as the only basis for planning.
Income replacement ratios are useful for younger clients as a guide to their long-range planning and
investing.
The inverse of Option I is true. Those with a lower preretirement income typically need a much higher
income replacement percentage in retirement.
LO 1-4
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? -
(answer)Set your calculator to the "End" mode and "1 P/Yr." Inputs: FV = 2000000, I/YR = 7, N = 25, PV =
0, then PMT = $31,621
1-4
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
,CPH EXAM REVIEW QUESTIONS EXAM QUESTIONS AND ANSWERS WITH RATIONALES
(VERIFIED ANSWERS) |ALREADY GRADED A+
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? - (answer)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
LO 1-4
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
, CPH EXAM REVIEW QUESTIONS EXAM QUESTIONS AND ANSWERS WITH RATIONALES
(VERIFIED ANSWERS) |ALREADY GRADED A+
The lump sum needed at the beginning of the - (answer)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]. (1.07/1.04)-1 x100
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.
LO 1-4
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)
gather data
B)
analyze information
C)
make and implement recommendations
D)
(VERIFIED ANSWERS) |ALREADY 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? - (answer)Assets = $263,000; liabilities = $141,000, so net worth is $122,000.
Taxes and auto note payments appear on the cash flow statement. 1-3
Salaries$70,000
Auto payments$5,000
Insurance payments$3,800
Food$8,000
Credit card balance$10,000
Dividends$1,100
Utilities$3,500
Mortgage payments$14,000
Taxes$13,000
Clothing$9,000
Interest income$2,100
Checking account$4,000
Vacations$8,400
Donations$5,800
What is the cash flow surplus or (deficit) for Bill? - (answer)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
,CPH EXAM REVIEW QUESTIONS EXAM QUESTIONS AND ANSWERS WITH RATIONALES
(VERIFIED ANSWERS) |ALREADY GRADED A+
= $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.
LO 1-3
correct statements about income replacement percentages - (answer)Income replacement percentages
are typically much higher for those with lower preretirement incomes.
Income replacement percentages vary between low-income and high-income retirees.
Income replacement ratios should not be used as the only basis for planning.
Income replacement ratios are useful for younger clients as a guide to their long-range planning and
investing.
The inverse of Option I is true. Those with a lower preretirement income typically need a much higher
income replacement percentage in retirement.
LO 1-4
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? -
(answer)Set your calculator to the "End" mode and "1 P/Yr." Inputs: FV = 2000000, I/YR = 7, N = 25, PV =
0, then PMT = $31,621
1-4
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
,CPH EXAM REVIEW QUESTIONS EXAM QUESTIONS AND ANSWERS WITH RATIONALES
(VERIFIED ANSWERS) |ALREADY GRADED A+
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? - (answer)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
LO 1-4
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
, CPH EXAM REVIEW QUESTIONS EXAM QUESTIONS AND ANSWERS WITH RATIONALES
(VERIFIED ANSWERS) |ALREADY GRADED A+
The lump sum needed at the beginning of the - (answer)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]. (1.07/1.04)-1 x100
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.
LO 1-4
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)
gather data
B)
analyze information
C)
make and implement recommendations
D)
