chapter 5

You are examining two different MMMFs. Fund A is tax-exempt and pays 5%. Fund B is taxable and pays 6%. You live in a state that imposes no income taxes and are in a 28% federal tax bracket. At what tax rate would the two funds have identical yields?

16.67%

You are considering an MMMF. The fund is taxable and pays 8.5% interest. If your top federal tax bracket is 25% and you live in a state that doesn't impose income taxes, what after-tax return would you realize from this investment?

6.38%

A disadvantage of an MMMF is

administrative fees

When college students start saving early

all of the above

A check drafted on the financial institution's account is a(n)

cashier's check

Pay yourself first refers to

put money in a savings account

Card-blocking occurs when you use a debit card (or credit card) to check into a hotel or rent a car and the anticipated expenses are blocked-in effect, placing a hold on the money.

true

Overdraft protection is an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it.

true

The deregulation of the 1980s has allowed brokerage firms to offer traditional banking services, and has also let banks offer services formerly found only at investment companies.

true

Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. How is Christopher doing with his cash management?

All but He is not maximizing his returns on his liquid assets are correct answers

Christopher just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401(k) pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. What recommendations would you give Christopher about his goal of buying a house in five years?

Both You need to develop a savings plan and You need to estimate what a down payment would be are good answers.

Brenda White had her bank certify one of her personal checks as being good. Which type of check has been issued?

Certified check

You are examining two different MMMFs. Fund A is tax-exempt and pays 7%. Fund B is taxable and pays 9.5%. You live in a state that imposes no income taxes and you are in the 25% federal tax bracket. Which of these two alternatives is better?

Fund B is the better choice

Credit unions and Internet-only banks typically offer

NOT Both more attractive interest rates to both borrowers and savers and the same interest rates as brick-and-mortar banks are correct

Comprehensive financial services packages that offer checking accounts, debit and credit cards, loans and brokerage services are known as?

NOT Comprehensive financial services packages that offer checking accounts, debit and credit cards, loans and brokerage services are known as?

What is the name of an investment company that raises funds from investors, pools the money, and invests in stocks or bonds?

NOT Stockbrokerage firm

Money market mutual funds provide attractive competition for bank deposits because

NOT they are convenient to purchase and use

What is the name for an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it?

Overdraft protection