Exam (elaborations)
CRPC Practice Exam 2 2024/2025 Questions with Completed & Verified Solutions.
- Course
- Institution
CRPC Practice Exam 2 2024/2025 Questions with Completed & Verified Solutions.
[Show more]
Seller
Follow
Content preview
CRPC Practice Exam 2Which of the following are correct statements about the capital utilization strategy? -
ANS 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.
III. When the capital utilization approach is used, the planner must be careful in making
assumptions about the life expectancy of the client.
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.
Which one of the following is not a key element of an investment policy? - ANS 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
The key elements in an investment policy are a clear statement of the client's 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.
Which one of the following is a characteristic of Treasury inflation-protected securities
(TIPS)? - ANS A) They are sold at a discount.
B) The increase in principal is taxable each year.
C) Their returns are tied to the producer price index.
D) They are issued with maturities up to 40 years.
Your client owns a bond fund with a duration of 6.5. If interest rates increase 1.5%, what
is the expected change in price for this fund? - ANS A) 6.5% decrease
B) 9.75% increase
C) 9.75% decrease
D) 6.5% increase
--C
,1.5% -6.5 = -9.75%. Recall that duration needs to have a negative sign in order to
represent the inverse relationship between bond prices and interest rates. In this 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.
The process of rebalancing is a key factor in - ANS Strategic asset allocation.
Strategic asset allocation involves obtaining the best asset mix for a client over a long
period. For example, this might be 60% stocks and 40% bonds. When 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.
What does Jensen's alpha tell you? - ANS the percentage a manager over- or
underperformed based on the amount of risk taken
The percentage of return that can be attributed to systematic risk is referred to as the -
ANS coefficient of determination (R2).
Which of the following are not used in technical analysis? - ANS A) graphs
B) financial statement ratios
C) moving averages
D) supply and demand of stocks
--B
Moving averages, graphs, and statistics regarding the supply and demand of stocks are
used by technicians.
Financial statement ratios are part of fundamental analysis.
When performing bond calculations, which of the following general assumptions should
be made unless stated otherwise? - ANS 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.
--A
, 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.
Assume your client has a 5% bond, par value of $1,000, and 15 years to maturity.
Comparable bonds are yielding 6%. What is the value of this bond? - ANS A) $1,010
B) $902
C) $925
D) $875
--B
If the calculator is set for 1 P/YR, then all factors, other than FV, need to be 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].
Which of the following is correct regarding the additional payroll tax for high wage
earners that was brought about by the Affordable Care Act? - ANS A) The tax applies to
those with an AGI in excess of $500,000.
B) The tax is 1.9%.
C) The tax is split between the employer and employee.
D) The tax was designed to provide additional funding for Medicare.
--D
This tax is an additional Medicare tax. The 0.9% tax is employee paid and applies 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 who has worked in two positions during 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 - ANS his eligibility for Social
Security retirement benefits may be reduced due to the windfall elimination provision
(WEP).
Worked in a position that was not covered by Social Security, and the client is receiving
a pension from that employment, - ANS 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
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller LEWIS12. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $9.99. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
77764 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now