Exam 3 Money Management

Consistently invest BLANK percent of your income in long-term investments.

10%

A typical liability insurance policy would be a 100/300/50 policy. Match the number with the coverage.

100: Limit per person for bodily injury liability coverage 300: Limit per accident for bodily injury liability coverage 50: Limit per accident for property damage coverage

With a homeowners' insurance policy, the contents would be covered for the replacement value of contents damaged, destroyed, or stolen. What would be a typical amount of coverage for one's contents (based on the value of the structure of the home)?

50%-70% of the home's value

Which of the following define speculation? Choose all that apply.

A substantially greater return of investment than the market rate of return. The practice of engaging in risky financial transactions in an attempt to profit from fluctuations in the market. Allows you to get rich quickly—to make a lot of money in a short amount of time with little effort.

Which funds are managed by professional investors who constantly "buy low" and "sell high?"

Actively managed funds

Contributions to a Traditional IRA or a Traditional 401(k) plan is an example of which type of income?

Adjustments to income

There are four ways you can manage risk: avoid it, reduce it, assume it, or transfer it. Match each tactic with the likelihood of risk.

Assume Risk (for example, losing a wallet): Low Frequency, Low Severity Transfer Risk (for example, home fire): Low Frequency, High Severity Reduce Risk (for example, common cold): High Frequency, Low Severity Avoid Risk (for example, lung cancer caused by smoking): High Frequency, High Severity

Which of the following statements are true of a Health Savings Account (HSA)? Select all that apply.

Can be used to pay co-payments, deductibles, and other medical expenses. Contributions are tax deductible. Portability. After age 65, the money can be used for any purpose without penalty. Anyone can participate.

You want your portfolio to include which of the following asset classes? Choose all that apply.

Cash Fixed income Equities Real estate Commodities

What type of auto coverage would cover damage caused by a hailstorm, earthquake, lightning, or a deer?

Comprehensive

Which of the following is not a common method used to determine the needed amount of life insurance?

Desired Income

According to the text, which of the following should we consider in regard to life insurance?

Do I need life insurance? How much life insurance should I purchase? What kind of life insurance should I buy? How should the life insurance proceeds be received?

Which of the following expenses would not be able to be itemized on one's taxes?

Education expenses

A tax deduction is more valuable than a tax credit.

False

Automobile liability coverage is legally required in every state.

False

Disability insurance isn't typically a recommended insurance coverage for healthy individuals because the risk of disability is lower than the risk of premature death.

False

Federal income tax is an example of a regressive tax system.

False

Floods and earthquakes are typically covered in a homeowner's policy.

False

There is just one right way to invest.

False

Investing is distinct from speculating in several ways. Choose all that apply.

Investing is a very slow, disciplined process of acquiring wealth. Investing relies on true economic growth to fund its returns. Investing is based on a stewardship perspective where returns are used to bless others.

Which type of statistical event are you most likely to purchase insurance for?

Low Frequency, High Severity

What strategies outlined in the text will commonly reduce your auto insurance premium? Select all that apply.

Maintaining a certain GPA Maintaining a high credit score Driving at slower speeds Carpooling

Which funds are managed by professional investors who invest money using a "buy and hold" strategy?

Passively managed funds

Which of the following is an example of passive income?

Rental property income

Match the different types of taxes.

Sales taxes: Taxes applied to the purchase price of taxable goods Property taxes: Traditionally used to support public schools Personal property taxes: Levied by states on certain assets such as vehicles Excise taxes: Taxes levied for products such as fuel and cigarettes.

Diversification is your best defense against company-specific risk.

True

If you have anyone dependent on your income, you have an ethical responsibility to have sufficient life insurance.

True

Opportunistic investing should only be done with money you can afford to lose.

True

The best investments are tax-deferred or tax-exempt retirement accounts because they reduce your tax liability.

True

There are two kinds of financial loss that are associated with health problems: the cost of medical care, and the loss of income.

True

Uninsured or underinsured motorist coverage will only pay if the other driver is at fault.

True

Your objective should be to legally minimize the amount of money you pay in taxes each year.

True

The authors suggest that BLANK is perhaps the most important tax strategy to reduce your lifetime income tax burden.

a Roth 401(k) and/or a Roth IRA