CRPC PRACTICE QUESTIONS WITH DETAILED ANSWERS // 100% GUARANTEED PASS A+ GRADED
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CRPC
Diversification - ANS Acquiring assets with low or negative correlations to each other with the goal of lowering overall risk
Correlation - ANS - a relative measure of the degree to which the returns of two assets move together
- range from +1.0 to -1.0
- in practice negative correlatio...
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Diversification - ANS Acquiring assets with low or negative correlations to each other with the
goal of lowering overall risk
,Correlation - ANS - a relative measure of the degree to which the returns of two assets move
together
- range from +1.0 to -1.0
- in practice negative correlations are rare
- the further a correlation is from +1.0, the more diversified
Asset allocation - ANS - the apportioning of available funds among a number of asset classes
in a way that meets the needs of a particular client, dampens the effects of periodic market
fluctuations, and meets investment goals
Four steps in the asset allocation process - ANS 1) select asset classes to be represented
2) determine the percentage that each asset class should represent in the total portfolio
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3) Select individual securities
4) Review and rebalance
Strategic Asset Allocation - ANS - determine asset mix that provides optimal balance of
expected risk and ROR
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- asset classes selected and % weight determined
- Used to develop long-term allocation policy
- utilizes rebalancing to maintain targeted weight
Tactical Asset Allocation - ANS - used to develop short term strategies to exploit changes in
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market conditions
- ofter viewed as a contrarian strategy
- periodic revisions of asset mix; moving funds from over valued investments to undervalued
investments
- market timing strategy
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Core-Satellite asset allocation - ANS 70-80% invested in broad index fund or etfs
- remaining satellite consists of actively managed MF's in niches such as sector funds or alt
investments like hedge funds
Contrarian Strategy - ANS
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Dollar-Cost averaging - ANS - investing regular amounts at regular intervals
- reduce market timing risk, improve cost per share
Low P/E strategy - ANS Ratio of 1= fair value
Ratio > 1= overvalued
Ratio < 1= undervalued
** The long-term average P/E for stocks is 16
,Bond Investment strategies (2) - ANS 1) Ladder: Owning equal amounts of bonds along with
maturities of equal intervals; ex. 50k of bonds with 10k each in 2,4,6,8,10 year maturities
2) Barbell: Owning short-term and long-term bonds, each with a ladder; ex. 100k of bonds with
10k each in 1,2,3,4,5 year maturities and in 16,17,18,19,20 year maturities
Social Security- Fully insured - ANS - having 10 years of employment covered by social
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security; expressed as "40 quarters of coverage"
- Must be fully insured for retirement benefits
- fully insured workers are also eligible for disability if he has earned at least 20 work credits in
last 10 years
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Social Security- currently insured - ANS - individual must has at least 6 quarters of coverage
in the 13-quarter period proceeding the event for which eligibility is sought
- child's benefit, mother/fathers benefits, and lump-sum death benefit are available if a worker is
only currently insured at death
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Components of SS calculation - ANS - age he starts
- earnings history
SS calculation before full retirement age - ANS - Payment reduced by 5/9th of 1% for each
month filed before FRA, up to 36 months
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- Payment is reduced by 5/12ths of 1% for each month filed early in excess of 36 months
SS calculation after full retirement age - ANS - Payment increases by about 8% each year
they delay, until maximum year 70
- actual math is 2/3 for each month
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Social Security milestones - ANS Ages
50: disabled survivors can start receiving benefits
60: nondisabled survivors can start receiving
62: earliest one can start receiving benefits at reduced rate
65-67: FRA, depending on birth year
70: delayed retirement age
Social Security income cap - ANS $15,720
- Those who are under FRA and working will lose $1 SS benefit for every $2 they earn above
$15,720
- At FRA it is reduced to $1 for every $3 earned
, After FRA there is no reduction
Max provisional income for SS - ANS Single or head of househouse:
Tax-free if provisional income is less than 25k
Filing jointly:
Tax free if provisional income is less than 32k
Provisional income - ANS Provisional income=AGI(excluding SS) +Nontaxable interest(muni
bonds) + 1/2(SS benefit)
Single provisional income SS taxable % - ANS 25k-34k: 50%
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34k+: 85%
Jointly provisional income SS taxable % - ANS 32k-44k: 50%
44k+:85%
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maximum taxable SS amount - ANS 85% of Total SS benefit
Spousal benefit - ANS - Pay spouse a maximum of 50% of earners PIA
What tax funds the Social Security Trust Fund - ANS Payroll taxes; FICA
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What is the FICA tax; how is it split up - ANS 15.3%; The employer and employee each pay
6.2% for old-age, survivors and disability insurance (OASDI) and 1.45% each for hospital
insurance
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Social Security Wage Base - ANS $118,500
Covered employment - ANS Any position that participates in social security system
Excluded
- Railroad employees
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- Fed gov employees hired before 1984
Average SS benefit - ANS $1300 pm
Max benefit - ANS $2639 pm
Quarter of Coverage - ANS earned after $1260 of earnings in year
- most you can earn in 1 year is 4 credits in year
= $5040 in year
need 40 quarters of credit
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