CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRE
DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREA
GRAD ED A+
1. 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?: 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
2. 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?: 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. LO 1-3
,CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRE
DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREA
GRAD ED A+
3. correct statements about income replacement percentages: 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
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?:
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
5. 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. 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?: The monthly retirement income need is not specified as
,CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRE
DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREA
GRAD ED A+
"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
6. 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: This PVAD calculation requires
that the calculator be set for beginning-of-period payments. First, the annual
, CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRE
DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREA
GRAD ED A+
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
7. 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) monitor performance: When the client's circumstances
change, the asset man-
agement process goes back to the data gathering step in the process. A LO
1-2
8. Which one of the following is not a key attribute of an investment
policy? A) clearly defined B)
DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREA
GRAD ED A+
1. 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?: 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
2. 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?: 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. LO 1-3
,CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRE
DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREA
GRAD ED A+
3. correct statements about income replacement percentages: 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
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?:
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
5. 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. 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?: The monthly retirement income need is not specified as
,CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRE
DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREA
GRAD ED A+
"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
6. 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: This PVAD calculation requires
that the calculator be set for beginning-of-period payments. First, the annual
, CRPC EXAM 2024-2025 ACTUAL EXAM 180 QUESTIONS AND CORRE
DETAILED ANSWERS WITH RATIONALES (VERIFIED ANSWERS) |ALREA
GRAD ED A+
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
7. 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) monitor performance: When the client's circumstances
change, the asset man-
agement process goes back to the data gathering step in the process. A LO
1-2
8. Which one of the following is not a key attribute of an investment
policy? A) clearly defined B)
