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Time value of money question

Bring your own formula sheet one page, both sides.

(1-2-3-4)

Time value of money, Government Sponsored Retirement Plans, Employer Sponsored Pension Plans, PDSP, TFSA, 

CHAPTER 2

Assuming Tammy earns pensionable employment income of $65,000 and the year’s maximum pensionable earnings are $55,300. How much does Tammy have in contributory earnings for purposes of the CPP?

  1. 51,800 (55300-3500=51800)
  2. 55,300
  3. 61,500
  4. 65,000

Jamie owns and operates a seafood restaurant that generates net business income of $109,000. Based on a YMPE of $55,300. How much must Jamie contribute to the CPP?

  1. 2,465.10
  2. 2,737.35
  3. 20 (55300-3500)x9.9%
  4. 70

Even at 68 years of age, John has no intention of retiring or commencing his Canada Pension Plan retirement benefits. If his employment income is $68,000, the YMPE is $55,300 and John continues to work, how much will he have to pay in CPP premiums this year?

  1. 0
  2. 2,564.10 (55300-3500)x4.95%
  3. 2,737.35
  4. 3,192.75

Candice, who will be celebrating her 63rd birthday this year, is considering her retirement options. Assuming the maximum monthly CPP retirement benefit payable at age 65 is $1000, what statement is true?

  1. If Candice chooses to retire on her birthday this year, her maximum monthly CPP retirement benefit would be $856 in current year dollars. 2Y = 0.6% x 24 =14.4%

1000 x (100%-14.4%) = $856.00 

  1. If Candice retires when she is 75 years of age, her max monthly CPP retirement benefit would be $1,120 in current year dollars.
  2. If Candice decided to work until she was 70 years of age, her monthly CPP benefit would be $1,300 in current year dollars.
  3. If Candice decided to wait until she was 72 years of age before applying to receive a CPP retirement pension, her monthly benefit would be $1,588 in current year dollars.

Sunita, who is 52 years old, applied for a CPP survivor’s pension following the death of her husband. At the time of his death, Sunita’s husband would have been entitled to a CPP retirement benefit of $925 per month. If the flat rate portion of the survivor’s pension is 186.51 and the max survivors benefit is $604.32, how much will Sunita receive in CPP survivor benefits?

  1. $186.51
  2. 88
  3. 39 186.52 + (925 x 0.375) = 533.39
  4. 00

Katrina is 48 years old. She has a son, who is 19 years old, who works full-time as a mechanic. Katrina’s husband, who had made CPP contributions for over 20 years passed away last week. He had significant coverage under a private life insurance contract. What benefit will Katrina NOT be able to collect?

  1. CPP death benefit
  2. CPP survivors pension
  3. CPP orphans benefit
  4. Proceeds from the private life insurance contract

Following a skiing accident, Michael suffered a severe head injury that has left him in a coma for several months. According to Michaels doctor, assuming Michael were to survive this incident, it will take several years before Michael will be able to function normally under even the most optimistic prognosis.

Michael, who is 46 years of age, has contributed to the CPP for 18 years without interruption. At the time of his accident, Michael would have been entitled to a CPP retirement benefit of $485. Assuming a flat rate amount of $478.03 and a max monthly CPP disability amount of $1,13.66, how much is Michael eligible to receive in monthly CPP disability benefits as a result of his injuries?

  1. 03
  2. 78
  3. 1,313.66
  4. Michael is not eligible to receive

478.03 + (0.75 * 485)

Felicity expects to have a net income this year of $85,500, including OAS benefits. Based on an OAS threshold of $74,488 and a max OAS benefit in the amount of $6,942.36, what amount of Felicity’s OAS benefits would be subject to the clawback?

  1. 80
  2. 80
  3. 1,606.80 (85500-74788)*15% = 1606.80
  4. 5,335.56

CHAPTER 3

James belongs to a defined benefit pension plan that provides a benefit of 1.3% of final average earning up to the final average YMPE and 2% on final average earnings above the final average YMPE, for each year of service. The maximum pension benefit for the year is $2,914.44. If James has projected his final average earnings to be $125,000 and the final average YMPE to be $55,300, what will his annual pension benefit be when he retires after 15 years of service?

  1. $24,375
  2. $31,694 (55,300 x 1.3%) + (69,700 x 2%) = 718.9 +1,394 = 2,112.9 x 15
  3. $37,500
  4. $43,717

Reese had met the vesting and locking-in requirements of his employer’s registered pension plan when his employment was terminated. The plan is governed by the federal PBSA. His new employer has an RPP. What option is NOT available Reese?

  1. A rollover of his vested benefits into his new employer’s RPP
  2. A transfer of the vested benefits into a locked-in retirement account
  3. Leaving the funds in the pension plan and accepting a deferred pension
  4. Receiving a cash refund of his own contributions plus interest

Sumaki is a member of a pension plan with an NRA of 65. The plan has a qualifying factor of 80. Sumaki was hired by the company when he was 30 years old and he joined the company pension plan two years later. What is the EARLIEST age Sumaki can receive an unreduced retirement pension?

  1. 55
  2. 56 (31+80)/2
  3. 58
  4. 65

Aina transferred her investments from her RRSP into a non-qualifying RRIF when she was 71 years old. She does not need any income yet from the RRIF, so she decides to base the RRIF on her husband’s age. He is 60 years old. What statement is FALSE?

  1. Aina remains the annuitant of the RRIF
  2. Based on her husband’s age, the annual minimum withdrawal will be less than it would be if it was based on Aina’s age. This gives Aina greater tax deferral
  3. The RIFF will be based on Aina’s age in the event her husband predeceases her.
  4. Income from the RRIF is taxable to Aina

Kamil is 67 years old and he wants to convert the $200,000 that he has invested in his RRSP into a regular income by purchasing a $200,000 unregistered annuity. What obstacle would prevent Kamil from achieving his goal?

  1. There is a limit on the amount of money that he can withdraw from his RRSP in any one year.
  2. He would have to pay income tax on the $200,00 meaning he would not have $200,000 after-taxes to purchase an annuity.
  3. If Kamil converts his RRSP funds directly into an annuity, it must take the form of a prescribed annuity.
  4. Annuities can only be purchased by married couples.

Li Chen purchased an unregistered term annuity and received payments for nine months this year. Her monthly payments of $439.29 were made up to 50% interest and 50% principal. What amount of her total annuity payments will Li Chen have to include in her taxable income for this year?

  1. $439.29
  2. $1,976.81
  3. $2,635.74
  4. $3,953.61

George’s retirement plan assumes that he will live to age 90, will earn 7% on his savings and will receive a before-tax income of $42,000 at the beginning of the year during his retirement if he draws on his capital. He had originally planned on retiring at the age of 65. So, he when he turned 65 years of age, he was in excellent health and enjoying his work. So, he continued working until he was 70 years old. When George retired, how much less did he need in savings to meet his retirement objectives?

  1. $42,412
  2. $44,502
  3. $47,617
  4. $49,702

After Victoria retired at age 65, her investments provided her with an annual income of $45,000 received at the beginning of every year. Her investments earned a return of 8% per year that compounded annually and it was projected that her capital would be depleted by the time that she reached age 90. Victoria had named her grandson, Nathaniel, as sole beneficiary of her investment in the event she died before age 90. Victoria died at the age of 83. Disregarding inflation and taxes and assuming Victoria did not save any portion of her retirement income, how much did Nathaniel inherit?

  1. $0
  2. $194,045
  3. $234,286
  4. $253,030 PMT= 45,000 FV= 0 I/Y=8%   N=90-83= 7 PV=234,286

 

Jan and Tim want to retire when Jan turns 61 years of age and Tim turns 65 years of age. That want an income of $66,000 at the beginning of each year and they want to be able to maintain that level of spending until Jan turns 90 years of age. They are willing to draw on their capital.

Assuming an interest rate of 7.5% compounding annually throughout their retirement, how much must Jan and Tim save by the time they retire in order to achieve their objective? Ignore inflation.

  1. $711,947
  2. $801,698
  3. $821,131
  4. $829,843

During their retirement, if, Jan and Tim’s investments only earn a return of 6.75% instead of the anticipated 7.5% return, how much more must the couple save by their retirement date in order to achieve their desired retirement income? Ignore inflation.

  1. $849
  2. $23,745
  3. $47,362
  4. $56,920

Jack is currently 59 years old and he belongs to a defined benefit pension plan that will provide him with a benefit of 2% of final average earnings for each year of service. He currently has 20 years of service and the plan has a qualifying factor of 85. His plan also allows for retirement at any age after age 60 with an actuarial adjustment of 5% per year. If he retires at age 60 and his average final earnings are $70,000, what will Jack’s pension be?

  1. $26,460
  2. $27,720
  3. $29,400
  4. $30,800

(39+85)/ 2 = 62

70,000 x 0.02 = 1,400

1,400 x 21 = 29,400 x 0.9 = 26,460

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