BUSN 1300
If a bond is quoted in the newspaper at 105, what is its price?
$1,050
Assume that you purchase a $1,000 bond issued by Harley-Davidson that pays 6% interest each year, paid every 6 months. What is the amount of each interest payment?
$30
Francesca withdrew $7,000 from B shares that she owned in the Already Been Counted mutual fund within one year of her purchase. If she must pay a 5% contingent deferred sales fee, what will her total fee be?
$350.00
Assume that you purchase a $1,000 bond issued by Kohls that pays 8% interest each year, paid every 6 months. What is the amount of each interest payment?
$40
Francesca withdrew $7,000 from B shares that she owned in the Already Been Counted mutual fund within one year of her purchase. If she must pay a 5% contingent deferred sales fee, what amount will she actually receive?
$6,650
A good rule of thumb is to limit installment payments to ________ of your net (after-tax) income.
20%
Many exceptions exist, but the average load charge for mutual funds is
3-5%
An employer may choose to match the contribution made by employees in a(n)
401(k) plan or a salary-reduction plan.
A salary-reduction plan is also known as a
401(k) plan.
According to some financial experts like Suze Orman, how much of an investment program should a 50-year-old have in growth investments?
60%
Employees who were born in 1960 or later can receive full Social Security benefits beginning at age
67
Gwendolyn Francis is interested in buying a bond that pays $70 annually. The current price of the bond is $800. What is her current yield?
8.75%
According to some financial experts like Suze Orman, how much of an investment program should a 30-year-old have in growth investments?
80%
Which of the following investors would mostly prefer speculative investments with higher risks over conservative investments with less risk?
A dual-career couple (with no children) in their 30s whose combined income is $95,000
Which of the following is not correct?
A managed fund will outperform an index fund only 60% of the time.
The letter of last instruction is
A non-legally binding document that provides information regarding your death such as funeral arrangements.
Inflation risk deals with
A reduction in purchasing power.
A valid short-term investment goal is:
Accumulating $3,000 in a savings account over the next 12 months.
If your primary investment objective is to receive investment income, which of the following would NOT be an appropriate investment for you?
Aggressive "Growth" funds
Which of the following investors would mostly prefer conservative investments with less risk to speculative investments with higher risks?
An unemployed single parent who just received a $300,000 divorce settlement
If you have fully funded your 401(k) and profit-sharing plans up to the allowable limits, then you may want to put away more money for retirement in a(n)
Annuity
Thomas wants to invest in a fund that invests in stock, bonds, and money market instruments. Which of the following will meet his needs?
Asset allocation funds
The process of spreading your assets among several different types of investments to lessen risk is called
Asset allocation.
An example of a lifecycle fund is a fund that
Assists investors with planning for retirement by a specific date.
Which class of shares charges a commission when withdrawals are made over the first five years?
B
Which of the following is a problem with taxation of mutual funds?
Being required to report reinvested income dividends and capital gain distributions on your federal tax return as current income.
Estate planning is an essential part of
Both retirement planning and financial planning.
Which of the following risks deals with the possibility that bad management, unsuccessful products, or other factors will cause the business to be less profitable than originally anticipated?
Business failure risk
A no-load mutual fund
Can charge a 12b-1 fee of up to 0.25% of its assets.
Business failure risk
Causes the business to be less profitable than originally anticipated.
Which type of fund has the prices determined by factors of supply and demand like the prices of a stock?
Closed-end fund
Safe investments include all of the following except
Commodities.
Social Security
Covers 97% of all American workers.
This trust is designed to allow married couples to take full advantage of the federal estate tax exemption.
Credit-shelter trust
Gladys wants to set up a trust that is also known as a bypass trust, family trust, "residuary" trust, A/B trust, and exemption equivalent trust. She should set up a(n)
Credit-shelter trust.
How is eligibility determined for receiving Social Security retirement benefits?
Credits.
All of the following are examples of defined contribution plans except
Defined-benefit plan.
Which retirement plan specifies the benefits you'll receive at retirement age based on your total earning and years on the job?
Defined-benefit plan.
Intestate is
Dying without a valid will.
Market risk is associated with fluctuations in the market due to
Economic conditions such as rapid expansion and recession.
Another name for a Coverdell account is a(n)
Education IRA.
If you hold mutual fund shares in your Roth individual retirement account, the taxes on reinvested income will be
Eliminated.
Vesting is the right to receive the
Employer's contributions to a pension plan even if the employee leaves the company before retiring.
An estate consists of
Everything you own.
Candice is updating her estate planning and wants to write a legal document that will allow all of her assets to go to her spouse except for a certain amount that will be set up in a trust. The trust (plus interest) can provide her spouse lifelong income that will not be taxed. She is writing a(n)
Exemption trust will.
William is updating his estate planning and wants to draft a legal document that leaves all of his assets to his wife except a certain amount which goes into a trust. He is writing a(n)
Exemption trust will.
A family of funds is a grouping of funds that all invest in bonds or all invest in stocks.
F
A lower turnover ratio for a mutual fund can result in higher income tax bills.
F
An "A fund" is a mutual fund in which investors may pay a commission as high as 9.5% of the purchase price for investments.
F
For individuals, stocks and bonds are a better investment choice than mutual funds, because money is pooled from many investors for stocks and bonds.
F
If you die intestate, your property will be distributed according to your wishes.
F
Only one will may legally be written during a person's lifetime.
F
Over many years, the majority of managed mutual funds outperform the Standard & Poor's 500 stock index.
F
Retirement means that you will never work again.
F
Social Security covers half of all workers in America.
F
The best time to begin planning for retirement is at age 27.
F
The majority of all mutual funds are closed-end funds offered by investment companies.
F
As of 2017, an individual can give away up to $14,000 per year before paying an inheritance tax to the IRS.
F (An individual can give up to $14, 000 per year (in 2017) before the federal and state governments impose a gift tax.)
Estate planning is important for financial planning but not for retirement planning
F (Estate planning is important for both retirement planning and financial planning.)
Housing and life insurance are so important to your retirement income that other investments can be ignored as you review your assets.
F (Other investments should also be included in the review of assets.)
Only people who are retired can receive a benefit from Social Security.
F (Others can receive a benefit, including widows or widowers and certain dependents of workers.)
If a will is found to be invalid, the result is called in-probate.
F (Probate is the legal process that proves a will valid or invalid.)
A benefit of an employer pension plan is that taxes are eliminated.
F (Taxes on an employer pension plan are tax-deferred until you start to withdraw them in retirement.)
Annabelle works at Acme Cleaning Company. When she retires, her employer's health insurance plan and Medicare should cover all of her medical expenses.
F (This statement is a myth about retirement. All of her medical expenses will likely not be covered by Medicare and her employer's health insurance plan.)
A stated amount will identifies the amount that will not go to your spouse.
F (This will identifies the amount that will go to your spouse.)
When Don retires, his transportation expenses will likely increase.
F (Transportation and clothing expenses may decrease; nevertheless, recreation, health insurance, and medical care costs may increase)
If you are single, you should not have beneficiaries.
F A beneficiary is a person you have named to receive a portion of your estate after your death. If you are married, your beneficiaries might be your spouse and children. If you are single, you still have beneficiaries.
A statutory will is one that is prepared with the help of an attorney.
F A statutory will is prepared on a pre-printed form, available from lawyers, Internet sites, or stationery stores.
A revocable trust cannot be changed or ended.
F This information applies to an irrevocable trust.
Because of the potential effect of inflation, individuals should underestimate the amount of money needed for retirement.
F one should estimate high when calculating how much the prices of goods and services will rise by the time he/she retires because of inflation.
A corporate bond is a written pledge of a government or a municipality to repay a specified sum of money, along with interest.
False
An easy way to determine what percentage of your assets should be invested in growth investments is to take your age and subtract it from 80.
False
Asset allocation is the process of spreading your assets among several different types of investments to increase risk.
False
Considering your role in the investment process, it is important to let the investments manage themselves after you invest.
False
In the event of bankruptcy, stockholders have a claim to assets of the corporation before bondholders.
False
Investments that earn a lower rate of interest will have a higher total dollar return than those that earn a high rate of interest.
False
Municipal bonds generally are only tax-exempt at the federal level.
False
Short-term goals should be completed in 30 or fewer days.
False
The potential return on any investment should be indirectly related to the risk the investor assumes.
False
The value of a bond is not tied to the corporation's ability to repay its bond at maturity.
False
With business failure risk, you face the possibility that good management and successful products will cause the business to be less profitable than originally anticipated.
False
Younger investors tend to invest in more growth-oriented investments, because they do not have time to recover if their investments take a nosedive.
False
A will that is usually prepared with the help of an attorney is known as a(n)
Formal will.
When you retire, you will probably spend more money on
Health insurance.
A handwritten will is known as a(n)
Holographic will.
According to the text, which of the following will probably be your most valuable asset at retirement?
House
All of the following statements are considered to be good advice for a potential investor in performing a financial checkup except
Increase credit purchases and make installment payments in order to increase cash available for investing.
Which of the following features is a benefit for investors of municipal bonds?
Interest may be tax-exempt at the federal level.
Which of the following risks associated with preferred stocks or government or corporate bonds is a result of changes in rates in the economy?
Interest rate risk
Which of the following investments is the most liquid?
Interest-bearing checking account
Which of the following provides up-to-date information that can help investors made decisions quickly without having to make a trip to the library?
Internet
When conducting a financial analysis for retirement planning,
Investments should be evaluated to determine whether their income can help cover living expenses.
A discounted security means that the actual purchase price is
Less than the maturity value.
When investing, in your role as an investor you should not
Let the investments manage themselves.
This is also known as an inter vivos trust.
Living trust
Which of the following risks deals with fluctuations in the economy from a period of rapid expansion followed by a period of recession?
Market risk
Sally wants to invest in a fund that invests only in stock. Which of the following will meet her needs?
Midcap funds
When an employer promises to set aside a certain amount of money for each employee each year, it has set up a
Money-purchase plan.
Which of the following would be considered speculative investments?
Precious metals
An employer's contribution will vary according to the company's profits in a
Profit-sharing plan.
Jill is 45 years old and thinks that her future tax rate will be lower than what she currently pays, so she wants to defer her taxes on her contributions of up to $5,500 in 2017. Which plan would allow her to meet her goals?
Regular IRA
A bond that is repaid from the income generated by the project it is designed to finance is called a(n)
Revenue bond.
Lawrence is self-employed and wants to establish the simplest type of retirement plan. He should set up a
SEP plan.
Which of the following would be considered a safe investment?
Savings account
Speculative investments include all of the following except
Savings accounts.
When planning for retirement, inflation
Should be considered since income received earlier in retirement will buy more than the same amount received later in retirement due to the rising prices of goods and services.
Jacob is updating his estate planning and wants to draft a legal document that leaves everything to his spouse. He is writing a(n)
Simple will.
Generally, interest on corporate bonds is normally paid every
Six months.
A will prepared on a pre-printed form from a stationery store is called a(n)
Statutory will.
When an employer's contribution is used to buy stock in the company for its employees, it has a
Stock bonus plan.
Which of the following is not one of the four components of the risk factor to be considered when evaluating investments?
Stock risk
Which of the following has returned an average of almost 10% per year since 1926?
Stocks
Which of the following investments typically has the most risk?
Stocks
If you can leave your funds alone for 5-10 years or more, which of the following investments would be most appropriate?
Stocks and mutual funds
If you need access to your funds in two years or less, which of the following investments would be least appropriate?
Stocks and mutual funds
About one out of every six Americans currently collects some form of Social Security benefit.
T
An example of a defined-contribution plan is a stock bonus plan.
T
An investment company sponsoring a mutual fund must give potential investors a prospectus.
T
Cindy's net worth should increase each year as she moves closer to her retirement.
T
It is a myth that you will spend less money when you retire.
T
Legal fees for drafting a standard will range between $300 and $400.
T
Mutual funds carry a "real risk" that they can decrease in value.
T
Social Security covers 97% of all workers in America.
T
The SEP IRA is the simplest type of retirement plan if a person is self-employed.
T
The longer money accumulates tax-deferred in an IRA, the bigger the benefit.
T
When Paul leaves his job at Acme Bending Company, he may choose to move his 401(k) balance to a plan called a rollover IRA.
T
When Social Security was established, it was never intended to provide 100% of one's retirement income.
T
A security issued by the U.S. government where the principal increases with inflation and decreases with deflation is called a
TIPS.
Sean's estate planning should
Take the needs of his wife and children into account.
Interest paid to corporate bond owners is
Tax-deductible for the corporation.
The taxable equivalent yield for a municipal bond is calculated using the
Tax-exempt yield and the investor's tax rate.
This is the best option if you or your beneficiaries are inexperienced in financial matters and if your estate taxes will be high.
Testamentary trust
This trust is established by your will and becomes effective upon your death.
Testamentary trust
Which of the following is correct for a closed-end fund?
The price of its shares is determined by supply and demand, by the value of stocks in the portfolio, and by investor expectations.
When thinking about retirement, which of the following is correct?
The sooner you start saving, the better.
Regarding older investors, which of the following holds true for most?
They choose investments with less risk.
Jason is updating his estate planning and wants to set up a legal document that leaves half of the adjusted gross estate to his wife. He is writing a(n)
Traditional marital share will.
A U.S. government security issued in minimum units of $100 with a 30-year maturity is called a
Treasury Bond
A corporation issuing bonds appoints a trustee to represent bondholders, because corporate bond indentures are very difficult for the average person to read and understand.
True
An emergency fund is an amount of money you can obtain quickly in case of immediate need.
True
An unemployed single parent who just received a $300,000 divorce settlement would likely prefer investments with less risk.
True
At the least, you should keep purchase records of the actual dollar cost of your investments plus any commissions or fees paid.
True
At the most, you should keep only purchase records of the actual dollar cost of your investments.
True
Bond ratings range from AAA (the highest) to D (the lowest) for Standard & Poor's Corporation.
True
Eight years ago, Thomas began investing in his Roth IRA. He is now purchasing his first home. He may withdraw some money from his Roth IRA tax-free and penalty-free for this purchase.
True
For many investors, mutual funds have become the investment of choice and are a part of their retirement account.
True
For many people, the easiest way to begin an investment program is to participate in an employer-sponsored retirement account — often referred to as a 401(k) or a 403(b).
True
From both a legal and ethical standpoint, you have an obligation to pay for credit purchases.
True
In the event of bankruptcy, bondholders have a claim to assets of the corporation before stockholders.
True
Investments that earn a higher rate of interest will have a higher total dollar return than those that earn a low rate of interest.
True
Investors can typically find more websites about stocks and mutual funds than they can find for bonds.
True
Market risk is associated with some investments and indicates that periods of economic expansion are followed by periods of recession.
True
Patrick Guitman wants to protect himself against losses in his investments after the purchase. To do this, he should monitor the value of his investments to determine if he should hold, sell, or increase his stake in a specific investment.
True
Shelby purchased 100 shares of ABCD Growth fund and had income dividends of $15, capital gain distributions of $35, and a capital gain of $120 in the year she sold her shares, which resulted in a total dollar return of $170.
True
Since World War II, stocks have earned an average annual return of almost 10%.
True
The potential return on any investment should be directly related to the risk that the investor assumes.
True
The value of a bond is closely tied to the corporation's ability to repay its bond indebtedness at maturity.
True
To investors, liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.
True
Whether you are making your own decisions or have professional help, you must consider the tax consequences of selling your investments.
True
Your estate consists of everything you own.
True
A legal arrangement that helps manage the assets of your estate for your benefit or that of your beneficiaries is called a
Trust.
The financially independent firm or individual that acts as the bondholders' representative is the
Trustee.
Which of the following steps should be completed before making your first investment?
Work to balance your budget.
If you have children and are writing your will, you need to do all of the following except
Write the will with the help of an attorney.
Your will must be signed by
You in front of two witnesses.
A bond backed by the full faith, credit, and unlimited taxing power of the government that issued it is called a ________ bond.
general obligation
A(n) ________ is the creator of a trust.
grantor
Young investors are often more interested in ________ investments than are older investors.
growth-oriented
A(n) ________ cannot be changed or ended.
irrevocable trust
A corporate bond that is secured by various assets of the issuing firm is called a(n) ________ bond.
mortgage
Which of the following types of stock funds invest in stock traded within one specific region of the world?
regional funds
A(n) ________ allows you to end the trust or change its terms during your lifetime.
revocable trust
A(n) ________ administers a trust.
trustee
