Chapter 3 & 4
If you are an unmarried taxpayer, with at least one child or dependent living with you, your filing status should be A. married filing separately. B. head of household. C. surviving spouse. D. single.
B.
Income on which the payment of taxes is postponed until some future date is called A. tax−delayed. B. tax−postponed. C. tax−tardy. D. tax−deferred.
D
A source of tax-free income is A.inheritances B. foreign income incurred by U.S. citizens living and working abroad C. interest on municipal bonds D. All of the above are sources of tax-free income
D.
Expenditures that are subtracted in an effort to calculate the lowest possible taxable income are called A. capital expenses. B. exemptions. C. fixed expenses. D. deductions.
D.
The movement into a higher tax bracket as a result of inflation increasing wages is called A. bracket climbing. B. bracket shifting. C. bracket migration. D. bracket creep.
D.
Which of the following is the "enemy" of compound interest and makes it very difficult to reach your financial goals? A. compound frequency B. Simple Interest C. annuity factor D. Inflation E. none of the above
D.
Allowing the interest that you earn on an investment to stay in the investment and to earn interest on the interest you have already earned is called what? A. The power of simple interest B. The power of time C. The power of future value D. The power of of present value E. The power of compound interest
E
Which financial planning concepts should be helpful to a couple planning for how much money to start saving for their retirement? A. Present values B. Compound interest C. Future values D. Reinvesting E. All of the above
E.
Which of the following are permissible itemized tax deductions? A. Gifts to charity B. Home mortgage interest C. casuality and theft losses D. Medical and dental expenses E. all of the above
E.
Which of the following is a reason or reasons for the IRS to audit your tax return? A. you earn a lot of money. B. there is something suspicious on your return C. you were randomly selected as a matter of routine audits. D. You were audited in the past. E. any or all of the above
E.
Which of the following is a source of tax- free income? A. federal income tax refunds B. earnings on your IRA C. child support payments D. Welfare benefits E. All of the above
E.
Why should you care about the power of compounding and the time value of money? A. It is possible to build a large estate for yourself, spouse, and children. B. You may outlive your Social Security and employer's retirement plan. C. It is critical to obtaining your future financial goals. D. The sooner you start saving for retirement, the less you have each year. E. All of the above
E.
T/F An investment earning 12 percent interest per year should double in value in approximately four years.
FALSE
T/F Currently, the highest tax bracket for taxpayers is 37.5 percent.
FALSE
T/F Your deductions as a single person have reduced your taxable income to $38,950, bringing you into the 25 percent tax bracket. As such, your taxes will amount to 25 percent of your taxable income of $38,950.
FALSE
T/F The present value interest factor is the inverse of the corresponding future value interest factor.
TRUE
T/F Compounding is when the interest you have already earned on an investment earns interest.
TRUE
T/F If you set your calculator to the "end" mode your calculator will assume cash flows occur at the end of each time period.
TRUE
T/F Tax credits reduce your taxes on a dollar-for-dollar basis.
TRUE
T/F The earlier you begin saving for your retirement, the easier it will be to reach your financial goals for retirement.
TRUE
T/F You pay taxes only when you sell stock and realize the gain.
TRUE
T/F A perpetuity is an annuity that continues forever.
True
A method by which one can compare cash flows across time—either as what a future cash flow is worth today (present value) or what an investment made today will be worth in the future (future value)—is called A. opportunity cost. B. compounding. C. time−value of money. D. simple interest.
C.
An IRS−allowed reduction in your income for yourself, your spouse, and any dependents that is subtracted before you compute your taxes is called a(n) A. itemized exemptions. B. standard exemptions. C. personal exemptions. D. marital exemptions.
C.
The dollar value of an investment at some future point in time is also known as A. calculated value. B. present value. C. future value. D. the time value of money. E. compounded annuity
C.
Your money will grow or compound ________ as the number of compounding periods per year becomes ________.
D. faster;larger
A compound annuity uses the principles of A. reinvesting and compound interest B. amortization and reinvesting. C. compound interest and future value D. compound interest and present value E. reinvesting and present value
A.
The ________ Principle states that a dollar today is worth more than a dollar in the future. A. Time value of money B. Adjusted value of money C. Discounted value of money D. Annuity value of money E. Future value of money
A.
The deadline to file your income tax is ______ although an automatic extension may be filed.
April 15
Deductions calculated using the federal tax form "Schedule A" which are totaled and then subtracted from taxable income are called A. personal expenditures. B. itemized deductions. C. standard deductions. D. personal exemptions.
B
The percentage of the last dollar you earn that goes toward your taxes is your A. tax deferral rate. B. marginal tax rate. Your answer is correct. C. average tax rate. D. base tax rate.
B.
This helpful investment rule−of−thumb tells you approximately how many years it takes for a sum of money to double in size. A. Rule of 100 B. Rule of 72 C. Rule of future value D. Rule of compound interest E. Rule of annuity doubling
B.
What form did the Taylors have to use because they won a car?
B. 1040 long
A series of equal dollar payments at the end of each period for "x" number of time periods is
B. annuity
