fin test 4

Inflation risk deals with

A reduction in purchasing power.

All of the following can be factors that influence business failure risk except

All of the these can affect business failure risk (Bad management. Unsuccessful products. Competition.)

Corporations use bonds

All of these are correct. (For financing ongoing business activities. When it is difficult to sell stock. To improve financial leverage.)

If you start a new job and are offered the opportunity to participate in the company's 401(k) or 403(b) retirement plan, which of the following decisions can affect your financial future?

All of these decisions can affect your financial future.

Which of the following is some of the information found on a financial website such as Yahoo! Finance?

All of this information is included.

Twelve months ago, you purchased 10-year Treasury notes with a face value of $1,000. The interest rate is 4.00 percent. What is the dollar amount of interest you will receive each year for each note?

Amount of annual interest=Face value × Interest rate =$1,000 × 0.04 =$40.00

Mary Canfield purchased shares in the New Dimensions Global Growth Fund. This fund doesn't charge a front-end load, but it does charge a contingent deferred sales load of 4.5 percent for any withdrawals during the first year. If Mary withdraws $8,800 during the first year, how much is the contingent deferred sales load?

Contingent deferred sales load=Amount of withdrawal × Fee stated as a percentage =$8,800 × 4.5% =$8,800 × 0.045 =$396

After you purchase an investment, you should

Continually evaluate your investment.

Assume that you purchased a $1,000 convertible corporate bond. Also assume the bond can be converted to 22.2222 shares of the firm's stock. What is the dollar value that the stock must reach before investors would consider converting to common stock?

Conversion price=Face value / Conversion ratio =$1,000 / 22.2222 =$45

Which of the following are major reasons that investors purchase mutual funds

Diversification and professional management.

Which of the following types of stock funds invests in the same companies included in the Standard & Poor's 500 stock index?

Index funds

Which of the following statements is FALSE?

Individual investors who purchase U.S. government securities must hold the investments until maturity.

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 provides up-to-date information that can help investors made decisions quickly without having to make a trip to the library?

Internet

Which of the following is true about mutual funds and taxes?

Investment companies are required to send each shareholder a year-end statement that specifies how much each received in income dividends and capital gain distributions.

When investing, in your role as an investor you should not

Let the investments manage themselves.

Devin wants to purchase DEF stock for a specified price of $40.00 or less, and he understands this request will be executed after all previously received orders have been fulfilled. He should use a

Limit order.

If your main focus is to be able to buy or sell an investment quickly without substantially affecting the investment's value, you are most concerned with

Liquidity

Annual reports

May be sent to all stockholders on an annual basis.

Sally wants to invest in a fund that invests only in stock. Which of the following will meet her needs?

Midcap funds

Jane and Bill Collins have total take-home pay of $9,750 a month. Their monthly expenses total $9,000. Calculate the minimum amount this couple needs to establish an emergency fund.

Minimum emergency fund=Monthly expenses × 3 months =$9,000 × 3 =$27,000

Which of the following contains a letter from the president of the investment company, detailed financial information, a schedule of investments, and a letter from the fund's independent auditors?

Mutual fund annual report

Earnings per share equals the

None of these.

Whose shares are issued and redeemed by the investment company at the request of investors?

Open-end fund

In September, the board of directors of Chaparral Steel approved a stock split of 2-for-1. After the split, how many shares of Chaparral Steel stock will an investor have if he or she owned 450 shares before the split?

Post-split shares=Pre-split shares × Split ratio =450 × (2/1) =900

After researching Valero Energy common stock, Sandra Pearson is convinced the stock is overpriced. She contacts her account executive and arranges to sell short 800 shares of Valero Energy. At the time of the sale, a share of common stock had a value of $79. Three months later, Valero Energy is selling for $29 a share, and Sandra instructs her broker to cover her short transaction. Total commissions to buy and sell the stock were $80. What is her profit for this short transaction?

Profit=[(Selling price − Purchase price) × Number of shares] − Commissions =[($79 - $29) × 800] - $80 =$39,920

Which of the following describes a growth company?

Profits are reinvested in the company for future growth.

Jamie and Peter Dawson own 240 shares of Duke Energy common stock. Duke Energy's quarterly dividend is $0.65 per share. What is the amount of the dividend check the Dawson couple will receive for this quarter?

Quarterly dividend check amount=Quarterly dividend per share × Number of shares =$0.65 × 240 =$156

Which of the following types of stock funds invest in stock traded within one specific region of the world?

Regional funds

The NYSE is an example of a(n)

Securities exchange.

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

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

Gavin has owned MNOP stock for several years and has seen the stock increase in value from $20 to $35. He wants to "lock in" his gains, so he needs to place an order that will sell his stock at the next available opportunity after its market price drops to $33. What kind of order should he use?

Stop-loss order.

Interest paid to corporate bond owners is

Tax-deductible for the corporation.

Assume you are in the 33 percent tax bracket and purchase a municipal bond with a yield of 6.50 percent. Use the formula presented in chapter 11 of your textbook to calculate the taxable equivalent yield for this investment.

Taxable equivalent yield=Tax-exempt yield / (1 − Your tax rate) =0.065 / (1 - 0.33) =0.097, or 9.70%

Assume you are in the 35 percent tax bracket and purchase a municipal bond with a yield of 7.75 percent. Use the formula presented in chapter 11 of your textbook to calculate the taxable equivalent yield for this investment.

Taxable equivalent yield=Tax-exempt yield / (1 − Your tax rate) =0.0775 / (1 - 0.35) =0.1192, or 11.92%

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.

Jim Johansen noticed that a corporation he is considering investing in is about to pay a quarterly dividend. The record date is Friday, February 10. In order for Jim to receive this quarterly dividend, what is the last date that he could purchase stock in this corporation and receive this quarter's dividend payment?

The stock went ex-dividend on February 8, Wednesday—two business days before the February 10 date. Thus, he would have to purchase the stock no later than Tuesday, February 7, to receive this quarter's dividend.

Wanda Sotheby purchased 185 shares of Home Depot stock at $72 a share. One year later, she sold the stock for $82 a share. She paid her broker a commision of $47 when she purchased the stock and a commision of $54 when she sold it. During the 12 months she owned the stock, she received $144 in dividends. Calculate Wanda's total return on this investment.

Total cost of purchase=(Price per share × Number of shares) + Commission =($72 × 185) + $47 =$13,367 Total sale proceeds=(Price per share × Number of shares) - Commission =($82 × 185) - $54 =$15,116 Total return=Dividends + Capital gain =$144 + ($15,116 - $13,367) =$1,893

During the four quarters for 2017, the Browns received two quarterly dividend payments of $0.33, one quarterly payment of $0.58, and one quarterly payment of $0.61. If they owned 440 shares of stock, what was their total dividend income for 2017?

Total dividend income=Total quarterly dividends per share × Number of shares =($0.33 + $0.33 + $0.58 + $0.61) × 440 =$814

If you bought a stock on July 1, 2016, and sold it on July 15, 2016, you may be a(n)

Two of these are correct.

Ford Motor Company has a beta of 1.55. If the overall stock market increases by 8 percent, based on this information, how much should investors assume that Ford will increase?

Volatility for a stock=Increase in overall market × Beta for a specific stock =8% × 1.55 =12.40%

Melinda wants to withdraw some money from her mutual fund. She has a minimum required asset value of $10,000. Which of the following is not an option available for her to systematically withdraw some money?

Withdraw all principal and leave interest dividends and capital gain distributions in the account

During one three-month period, Matt Roundtop's mutual fund grew by $5,900. If he withdraws 30 percent of the growth, how much will he receive?

Withdrawal amount=Investment growth × Percentage of growth withdrawn =$5,900 × 30% =$5,900 × 0.30 =$1,770

Which of the following steps should be completed before making your first investment?

Work to balance your budget.

Total return equals

Yearly dividends in dollars plus capital gains.

Over a four-year period, LaKeisha Thompson purchased shares in the Oakmark I Fund. Using the information below, answer the questions that follow. You may want to review the concept of dollar cost averaging in Chapter 12 before completing this problem.

a. Total investment=Annual investment × Number of years =$3,700 × 4 =$14,800 c. Average cost per share=Total investment / Total shares =$14,800 / 339.4 =$43.61

For four years, Marty Campbell invested $8,500 each year in Harley-Davidson. The stock was selling for $72 in 2014, $74 in 2015, $56 in 2016, and $74 in 2017.

a.Total investment=Annual investment × Number of years =$8,500 × 4 =$34,000 c.Average cost per share=Total investment / Total shares =$34,000 / 499.6 =$68.05

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.

Which of the following is not an important document associated with estate planning?

Spending plan or budget.

Robert's wife Fiona does not work, and they file a joint tax return. Robert can contribute on behalf of Fiona into a

Spousal IRA.

Darlene is updating her estate planning and wants to set up a legal document that leaves $5. 34 million to her husband. She is writing a(n)

Stated amount will.

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.

Sean's estate planning should

Take the needs of his wife and children into account.

The date of death for a widow was 2017. If the estate was valued at $7.24 million and the estate was taxed at 40 percent, what was the heir's tax liability? (Enter your answer in dollars not in millions.) A filing is required for estates with combined gross assets and prior taxable gifts exceeding $5,490,000 in 2017, $11,180,000 in 2018, and $11,400,000 in 2019.

Taxable estate=Estate value - Exemption =$7,240,000 - $5,490,000 =$1,750,000 Heir's taxable liability=Taxable estate × Tax rate =$1,750,000 × 0.40 =$700,000

If a bond is quoted in the newspaper at 105, what is its price?

$1,050.00

The investments in the Alamo Basics Contingency Fund have a current market value of $800 million. The fund also has liabilities that total $60 million. If this mutual fund has 20 million shares, what is the net asset value per share?

$37.00

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?

$40.00

Book value equals

(Assets − Liabilities)/Number of shares outstanding.

A _____________ is an employer-sponsored retirement account, and participating in one is one of the easiest ways to begin an investment program.

401(k) account

Investors who earn larger returns because they borrow part of the money needed to by a particular stock are using which of the following techniques?

Buying on margin

The opportunity, but not the obligation, to buy a security within a specified period of time at a guaranteed price is

A call option.

The best definition of estate planning is

A definite plan for managing property during one's lifetime and at one's death.

A codicil is

A document that explains, adds, or deletes provisions in an existing will.

The letter of last instruction is

A non-legally binding document that provides information regarding your death such as funeral arrangements.

The opportunity, but not the obligation, to sell a security within a specified period of time at a guaranteed price is

A put option.

How is an ETF similar to a closed-end fund?

All of these are correct.

How do mutual funds provide returns to their shareholders?

All of these.

Three years ago, you purchased a corporate bond that pays 4.4 percent. The purchase price was $1,000. What is the annual dollar amount of interest that you receive from your bond investment?

Amount of annual interest=Face value × Interest rate =$1,000 × 0.044 =$44

Five years ago, you purchased fourteen corporate bonds that each pay 4.80 percent annual interest. Each bond has a face value of $1,000. How much interest do you earn on the fourteen bonds each year?

Amount of annual interest=Face value × Interest rate =$1,000 × 0.048 =$48 Total interest amount=Interest for each bond × Number of bonds =$48 × 14 =$672

Determine the current yield on a corporate bond investment that has a face value of $1,000, pays 9 percent, and has a current price of $943.

Amount of annual interest=Face value × Interest rate =$1,000 × 0.09 =$90 Current yield=Annual interest amount / Current price =$90 / $943 =0.0954, or 9.54%

Hannah purchased 65 shares of Best Buy stock at $36 per share. After 3 years, Hannah sold the stock for $43 per share. During the time she held the stock, Hannah received the dividends totaling $4.00 per share. What is Hannah's total return?

Annual Dividends = Dividends per Share x Shares = $4.00 x 65 = $260Capital Gain = (End Share Price - Beg Share Price) x Shares = ($43 - $36) x 65 = $455 Total Return = Annual Dividends + Capital Gain = $260 + $455 = $715

Dividend yield equals

Annual dividend amount/Current price per share.

The Yamaha Aggressive Growth Fund has an expense ratio of 1.82 percent. If you invest $56,500 in this fund, what is the dollar amount of fees that you would pay this year?

Annual fee=Value of investment × Expense ratio as a percentage =$56,500 × 1.82% =$56,500 × 0.0182 =$1,028.30

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

An example of a lifecycle fund is a fund that

Assists investors with planning for retirement by a specific date.

If you bought stock using dollar cost averaging as listed here, what was your average cost?

Average cost = (Total investment cost)/(Total number of shares purchased) = ($50 × 3)/(1.75 + 1.65 + 2.0) = $150/5.4 shares = $27.78/share.

This tax is only imposed by state governments.

Inheritance tax

Casper Energy Exploration reports that the corporation's assets are valued at $185,000,000, its liabilities are 64,000,000, and it has issued 3,781,250 shares of stock. What is the book value for a share of Casper stock?

Book value per share=(Assets - Liabilities) / Number of shares outstanding =($185,000,000 - $64,000,000) / 3,781,250 =$32.00

Estate planning is an essential part of

Both retirement planning and financial planning.

Payments to a fund's shareholders that result from the sale of securities in the fund's portfolio are

Capital gain distributions.

Nicholas purchased 150 shares of ABC Mutual Fund at $10.50 and sold them one year later at a price of $14.50. His total capital gain was

Capital gain or profit = # shares × (Sell price − Purchase price) = 150 × ($14.50 − $10.50) = $600.

When you sell your shares in a mutual fund, you may receive a profit that results from an increase in value called

Capital gain.

Excessive buying and selling of securities to generate commissions is called

Churning.

Which type of fund has the prices determined by factors of supply and demand like the prices of a stock?

Closed-end fund

Jan Throng invested $51,000 in the Invesco Charter mutual fund. The fund charges a commission (load) of 4.5 percent when shares are purchased. Calculate the amount of commission (load) Jan must pay.

Commission (load)=Dollar amount of investment × Load stated as a percentage =$51,000 × 4.5% =$51,000 × 0.045 =$2,295

This calculation uses the current price per share and the annual amount of money paid to investors from the company.

Dividend yield

Given the information shown here for NMOP Inc., calculate the dividend yield. Annual dividend = $4.00 Number of shares outstanding = 40,000 Current market price per share = $40.00 Book value per share = $8.00

Dividend yield = Annual dividend/Current price per share = $4.00/40.00 = .10 = 10%.

Currently, Boeing pays an annual dividend of $2.47. If the stock is selling for $95, what is the dividend yield?

Dividend yield=Annual dividend amount / Current price per share =$2.47 / $95 =0.026, or 2.6%

A distribution of money, stock, or other property that is paid to the stockholders of a company is called a

Dividend.

A fancy way of saying you need to diversify your investments is

Don't put all of your eggs in one basket.

Using the information given here, what are the earnings per share for DEF Company? Number of shares outstanding = 60,000 Price per share = $30 Book value per share = $10 Earnings = $180,000

Earnings per share = Earnings/Number of shares outstanding = $180,000/60,000 = $3.00.

Using the information given here, what are the earnings per share for GHI Company? Number of shares outstanding = 150,000 Price per share = $60 Book value per share = $20 Earnings = $375,000

Earnings per share = Earnings/Number of shares outstanding = $375,000/150,000 = $2.50.

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.

Which of the following types of stock funds invests in stock issued by companies with a long history of paying dividends?

Equity income funds

An estate consists of

Everything you own.

Using the information given here, what is the price-earnings ratio for DEF Company? (Hint: This is a two-step calculation.) Earnings = $180,000 Number of shares outstanding = 60,000 Price per share = $30 Book value per share = $10

First, earnings per share needs to be calculated. EPS = Earnings/Number of shares outstanding = $180,000/60,000 = $3.00. Then price-earnings ratio can be determined: Price per share/Earnings per share = $30/$3.00 = (((((($10.00.)))))

When you retire, you will probably spend more money on

Health insurance.

Ethan wants to purchase some stock for the first time. Which of the following is correct?

His commission should be lower at an online broker than at a full-service broker.

A handwritten will is known as a(n)

Holographic will.

An "average" older (65+) household spends more money on

Housing than on cash contributions, entertainment, and clothing combined.

In 2017, you gave a gift of $10,500 to a friend. What was the gift tax?

In 2017, you can gift up to $14,000 to any one person without incurring any gift tax. Thus, the gift tax is $0.

Barry and his wife, Mary, have accumulated over $4.6 million during their 50 years of marriage. They have four children and three grandchildren. What is the total amount of estate removed from Barry and Mary's estate in 2017 if they gift the maximum allowable amount to their children and grandchildren without incurring any gift taxes?

In 2017, you can gift up to $14,000 to any one person without incurring any gift tax. Thus, the maximum this married couple can gift to their children and grandchildren without incurring any gift tax is: Maximum tax-free gifts to family=$14,000 × Number of family members × Number of spouses giving gifts =$14,000 × (4 + 3) × 2 =$196,000

Barry and his wife, Mary, have accumulated over $5.2 million during their 50 years of marriage. They have two children and seven grandchildren. How much money can they gift to their children in 2017 without any gift tax liability?

Maximum tax-free gifts to children=$14,000 × Number of children × Number of spouses giving gifts =$14,000 × 2 × 2 =$56,000

Calculate approximately how much money an older (age 65-74) household with an annual income of $35,000 spends on housing each year.

Money spent on housing=Annual income × Average housing percent =$35,000 × 32.4% =$35,000 × 0.324 =$11,340

The investments in the Alamo Basics Contingency Fund have a current market value of $800 million. The fund also has liabilities that total $60 million. If this mutual fund has 20 million shares, what is the net asset value per share?

Net asset value = (Current market value of the fund's portfolio − Liabilities)/Number of shares outstanding = ($800 million − $60 million)/20 million = $740 million/20 million = $37.00.

The Western Capital Growth mutual fund has: Total assets$829,500,000 Total liabilities 16,300,000 Total number of shares 40,000,000 What is the fund's net asset value (NAV) per share?

Net asset value=(Value of the fund's portfolio − Liabilities) / Number of shares outstanding =($829,500,000 − $16,300,000) / 40,000,000 =$20.33

Ted Riley owns a Lexus worth $42,000. He owns a home worth $320,000. He has a checking account with $500 in it and a savings account with $2,400 in it. He has a mutual fund worth $114,000. His personal assets are worth $94,000. He still owes $21,300 on his car and $192,000 on his home, and he has a balance on his credit card of $2,100. What is Ted's net worth?

Net worth=Assets − Liabilities =$572,900 − $215,400 =$357,500

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

Megan decided to start investing in stocks. Which of the following should she do first?

Research the corporations she is interested in as well as their industries.

A bond that is repaid from the income generated by the project it is designed to finance is called a(n)

Revenue bond.

Julian's annual contributions to his retirement are not tax-deductible, but his earnings accumulate tax-free. He is investing in a

Roth IRA.

Sarah and James Hernandez purchased 150 shares of Macy's stock at $32 a share. One year later, they sold the stock for $40.00 a share. They paid a broker a commision of $9 when they purchased the stock and a commision of $13 when they sold the stock. During the 12-month period the couple owned the stock, Macy's paid dividends that totaled $1.54 a share. Calculate the Hernandez total return for this investment.

Total dividend income=Dividend per share × Number of shares =$1.54 × 150 =$231.00 Total cost of purchase=(Price per share × Number of shares) + Commission =($32 × 150) + $9 =$4,809 Total sale proceeds=(Price per share × Number of shares) - Commission =($40.00 × 150) - $13 =$5,987 Total return=Dividends + Capital gain =$231.00 + ($5,987 - $4,809) =$1,409.00

This calculation includes the yearly dividends in dollars plus the increase in the original purchase price of the investment.

Total return

Gregory bought 500 shares of stock at a price of $60 per share. He later sold his stock at a price of $56. What was his total return on his investment?

Total return on investment = Dividends + Capital gain (loss) = Dividends + [(Price change) × # shares] = $0 + [($56 − $60) × 500] = ($2,000 capital loss).

Three years ago, James Matheson bought 350 shares of a mutual fund for $25 a share. During the three-year period, he received total income dividends of 0.60 per share. He also received total capital gain distributions of $0.70 per share during the three-year period. At the end of three years, he sold his shares for $28 a share. What was his total return for this investment?

Total return=Income dividends + Capital gain distributions + Change in share price when sold =(350 × $0.60) + (350 × $0.70) + [350 × ($28 − $25)] =$1,505

When estimating your budget or spending plan at retirement, you should consider all of the following except

Withdrawing all retirement savings within five years of retirement.

You have $10,000 in your retirement fund that is earning 5.5 percent per year, compounded quarterly.

a. Given a $10,000 account value and an interest rate of 5.5 percent, compounded quarterly, a monthly withdrawal of $68 will reduce the account value to zero in 20 years. b. Given a $10,000 account value and an interest rate of 5.5 percent, compounded quarterly, you can withdraw $46 a month indefinitely while maintaining the $10,000 account value.

Analysts that follow JPMorgan Chase, one of the nation's largest providers of financial services, estimate that the corporation's earnings per share will increase from $4.58 in the current year to $4.73 next year.

a. Amount of increase=Next year's earnings - Current year's earnings =$4.73 - $4.58 =$0.15 b. From an investor's standpoint, a projected increase in earnings from $4.58 to $4.73 per share is a good sign. Since a stock's market value is often tied to a corporation's ability to earn money, the stock's market value should increase during the next 12 months.

Michelle Townsend owns stock in National Computers. Based on information in its annual report, National Computers reported after-tax earnings of $6,572,000 and has issued 2,120,000 shares of common stock. The stock is currently selling for $43 a share

a. Earnings per share=Earnings / Number of shares outstanding =$6,572,000 / 2,120,000 =$3.10 b. Price-earnings (PE) ratio=Price per share / Earnings per share =$43 / $3.10 =13.87

Bob Orleans invested $10,000 and borrowed $10,000 to purchase shares in Verizon Communications. At the time of his investment, Verizon was selling for $45 a share.

a. Number of shares=Funds available for investment / Price per share =($10,000 - $100) / $45 =220 b. Number of shares=Funds available for investment / Price per share =($10,000 + $10,000 - $200) / $45 =440 c. Net sale proceeds=(Sales price × Number of shares) - Sales commission =($54 × 440.0) - $200 =$23,560.00 Profit=Net sale proceeds - Total investment =$23,560.00 - $20,000 =$3,560.00

Jason Mathews purchased 500 shares of the Hodge & Mattox Energy Fund. Each share cost $14.15. Fifteen months later, he decided to sell his shares when the share value reached $17.00.

a. Total investment=Price per share × Number of shares purchased =$14.15 × 500 =$7,075 b. Sale proceeds=Price per share × Number of shares sold =$17.00 × 500 =$8,500 c. Profit=Sale proceeds − Total investment =$8,500 − $7,075 =$1,425

Assume that one year ago, you bought 460 shares of a mutual fund for $33 a share, you received a capital gain distribution of $0.55 per share during the past 12 months, and the market value of the fund is now $37 a share.

a. Total return=Income dividends + Capital gain distributions + Change in share price when sold =$0 + (460 × $0.55) + [460 × ($37 − $33)] =$2,093 b. Percent of total return=Dollar amount of total return / Original cost of your investment =$2,093 / $15,180 =0.1379, or 13.79%

Ruby is 25 and has a good job at a biotechnology company. She currently has $10,600 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 9 percent, and she plans to leave it untouched until she retires at age 65. Ruby estimates that she will need $875,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $20,000 a year (she expects that Social Security will pay her an additional $15,000 a year).

a.Future value of IRA=Present value of IRA × Future value factor =$10,600 × 31.409 =$332,935 b.Required future value of 401(k)=Total retirement savings goal - Future value of IRA =$875,000 - $332,935 =$542,065

A(n) ____ cannot be changed or ended.

irrevocable trust

Bonds of a single issue that mature on different dates are called ____________ bonds.

serial

A(n) ______ administers a trust.

trustee