Fam Finance 2 Final

Your right to at least a portion of the benefits you have accrued under an employer pension plan is called:

vesting.

You can get a reverse annuity mortgage if:

your mortgage is largely or completely paid off.

Advantages of ETFs

- no minimum investment because shares are traded on exchange and not purchased from an investment company - you can use limit orders and the more speculative techniques

withdrawal options

-Closed-end fund or ETF can be sold in over-the-counter market to another investor -Open-end fund can be sold to sponsoring investment company -Minimum NAV value of shares of $5,000 allows four withdrawal options during investment period •Withdraw specified, fixed dollar amount •Liquidate or "sell off" a certain number of shares •Withdraw a fixed percentage of asset growth •Withdraw all asset growth earned (principal remains untouched)

Management fees for open-end and closed-end funds typically range between _____ and _____.

0.5 to 2 percent

3 types of REITs

1. Equity Trusts- The investors participate as owners of large and hopefully more profitable income-producing properties. 2. Mortgage trusts - Investors Loan their money to be used making mortgages on commercial income properties and get their income from interest, loan origination fees, and profits from buying and selling mortgages. 3. Hybrid Trusts - Combination of above

ways to access information about mutual fund investments on the internet

1. Yahoo Finance 2. Investment Companies that sponsor mutual funds have a website 3. Professional Advisory Services

at a 3% rate of inflation, approximately how many years will it take for prices to double?

24 years

a federal reserve study has shown that the average homeowner's net worth is ___ times the net worth of the average renter

46

The full Social Security benefit for a spouse is what percent of the retired worker's full benefit?

50

Almost one out of every _____ Americans collects some kind of Social Security benefit.

6

Up to what percent of your Social Security benefits may be subject to federal income tax?

85

turnover ratio

A ratio that measures the percentage of a fund's holdings that have changed or "been replaced" during a 12-month period of time.

Which of the following is a feature of an Education IRA? Annual contribution limit of $2,000 for each child All of these are features of an Education IRA. Non-deductible contributions Renamed the Coverdell Education Savings Account Can be used for elementary and secondary school costs

All of these are features of an Education IRA.

Ted Riley owns a vehicle worth $20,000 and a home worth $230,000. He has a checking account balance of $1,000, a savings account balance of $1,000, and a mutual fund worth $75,000. His personal assets are worth $100,000. He still owes $10,000 on his car, $101,000 on his home, and $1,000 on his credit card. What is Ted's net worth?

Assets (20,000 + 230,000 + 1,000 + 1,000 + 75,000 + 100,000) − Liabilities (10,000 + 101,000 + 1,000) = 427,000 − 112,000 = $315,000

Jasmine Smith owns a condo worth $250,000, a car valued at $15,000, and miscellaneous assets worth $7,000. She owes $125,000 on the condo and $10,000 on the car and has no other debts. Her retirement account, in which she is fully vested, contains $28,000 in mutual funds. She was just insured with a $200,000 term life insurance policy. What are her total assets?

Assets = 250,000 + 15,000 + 7,000 + 28,000 = $300,000

For the average individual, which one of the following statements is most likely correct regarding retirement? My employer's pension plan will provide sufficient income to meet all my retirement needs. I need to save whatever I can, even if it's a little bit, to help cover my retirement costs. Once I retire, all my medical bills will be paid by Medicare. My costs of daily living will decrease significantly once I retire. I can only expect to live about ten years in retirement, so I don't need to save that much money.

I need to save whatever I can, even if it's a little bit, to help cover my retirement costs.

intermediate corporate bond funds

Invest in investment-grade corporate bonds that have maturities between 5 and 10 years

index funds

Invest in the same companies included in an index

What are the two most popular personal retirement plans?

Keogh accounts and individual retirement accounts (IRAs)

The contribution Billy Foster's employer makes to his retirement plan depends on the profits of the company. What type of retirement plan does Billy have?

Profit-sharing plan

Which of the following is not a variable expense? Clothing Medical expenses Rent or mortgage payments Vacations Food

Rent or mortgage payments

As people reach retirement age, what is the most likely housing choice they would make? Assume they are moving to a new geographic area. House with 10 acres far out in the country Larger rental house Split-level house with two sets of stairs Smaller condominium close to the city bus line 100-year old house that needs lots of renovations

Smaller condominium close to the city bus line

Net Asset Value (NAV)

The current market value of the securities contained in the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding

What happens to your Social Security income if you retire early at age 62 instead of 65?

There is a permanent reduction of 5/9 of one percent for each month that you receive payments before age 65.

Ben Carmichael has been making contributions into an individual retirement account for his retirement. His contributions are tax deductible (based on his tax filing status and income) as his employer does not offer a retirement plan. What type of individual retirement account does he have?

Traditional IRA

Which is correct with respect to life expectancy? There is no difference in life expectancy between men and women at age 65. There is no difference in life expectancy among retirees in retirement communities at age 65. At age 65, the average life expectancy for a man is 25 years. Men have a longer life expectancy than women at age 65. Women have a longer life expectancy than men at age 65.

Women have a longer life expectancy than men at age 65.

Which statement is most likely correct about retirement planning? Your pension may remain constant and not keep pace with inflation. Your employer's pension combined with your Social Security will cover your basic living expenses. Social Security is sufficient to cover your cost of living. Your expenses will drop once you retire. Most retirees don't need to worry about inflation.

Your pension may remain constant and not keep pace with inflation.

contingent deferred sales load (B fund or back-end load fund)

a 1-5% charge that shareholders pay when they withdraw their investment from a mutual fund

Passive Activity

a business or trade in which the investor does not materially participate (such as rental activity)

Exchange Traded Fund (ETF)

a fund that generally invests in the stocks or other securities contained in a specific stock or securities index

no-load fund

a mutual fund in which the individual investor pays no sales charge no-load funds don't change commissions because they have no salespeople, if you want to buy shares, you must deal directly with the investment company

open-end fund

a mutual fund whose shares are issued and redeemed by the investment company at the request of investors. Investors are free to buy and sell shares at the net asset value

closed-end fund

a mutual fund whose shares are issued by an investment company only when the fund is organized

syndicate

a temporary association of individuals or firms organized to perform a specific task that requires a large amount of capital may be organized as a corporation, as a trust, or, most commonly, as a limited partnership

participation certificate

an investment in a group of mortgages or student loans that have been purchased by a government agency

Real Estate Investment Trust (REIT)

an organization that purchases, owns, and manages real estate for its investors (similar to a mutual fund)

exchange traded fund fees

because of passive management, fees associated w owning ETF shares are generally less

mutual funds can be classified as:

cosed-end funds, exchange traded funds, or open-end funds.

federal law requires REITs to:

distribute at least 90 percent of their taxable annual earnings to shareholders. refrain from engaging in speculative holding of real estate to sell for quick profits hire independent real estate professionals to carry out certain activities have at least 100 shareholders invest at least 75% of total assets in real estate

advantages of investing in mutual funds:

ease of buying and selling shares professional management diversification multiple withdrawal options distribution of income and capital gain switching privileges within the same fund family additional services

family of funds

exists when one investment company manages a group of mutual funds

12b-1 fees (distribution fees)

fees that a mutual fund may charge to cover marketing and advertising expenses. used to defray the costs of distribution and marketing a fund and commissions paid to brokerage firms

limited partnership

formed by a general partner, who has unlimited liability for its liabilities. the general partner then sells participation units to the limited partners, whose liability I generally limited to the extent of their initial investment.

What is most likely to be an individual's single biggest asset?

home

Long-term U.S. bond funds

invest in U.S. Treasury securities with maturities greater than 10 years

Short Term US Government Bond Funds

invest in U.S. Treasury securities with maturities less than 3 years

Intermediate U.S. Bond Funds

invest in U.S. treasury securities with maturities between 3 and 10 years

World Bond Funds

invest in bonds and other debt securities offered by foreign companies and governments

balanced funds

invest in both stocks and bonds, with the primary objectives of conserving principal, providing income, and long-term growth

Growth Funds

invest in companies expecting higher-than-average revenue and earnings growth

International funds

invest in foreign stocks sold in securities markets throughout the world

Long-term corporate bond funds

invest in investment-grade corporate bond issues with maturities in excess of 10 years

Short-term corporate bond funds

invest in investment-grade corporate bond issues with maturities less than 3 years

municipal bond funds

invest in municipal bonds that provide investors tax-free interest income

equity income funds

invest in stocks issued by companies with a long history of paying dividends

Global Stock Funds

invest in stocks of companies throughout the world, including the US

Asset Allocation Funds

invest in various asset classes, such as stocks, and bonds, with precise amounts within each type

indirect investment (real-estate)

investors appoint a trustee to hold legal title on behalf of all the investors in a group

commercial property

land and buildings that produce rental income

limited financial liability

limited partners liability is initial investment

indirect investments (real-estate) include:

limited partnerships and syndicates, real estate investment trusts, mortgages, and mortgage pools

Types of ETFs

midcap stocks, small-cap stocks, fixed-income securities, stocks issued by companies in specific industries, stocks issued by corporations in different countries, commodities

the people who are in the best position to save are: middle-aged. young adults in their 20s. elderly. people in their 30s. teenagers.

middle-aged

load fund

mutual fund in which investors are charged sales commissions when they buy in or sell out the commission may be as high as 8 1/2%, but average is between 3-5

exchange traded funds:

normally invest in the stocks, bonds, or securities included in a specific index

open-ended fund services

payroll deduction programs, automatic reinvestment programs, automatic withdrawal programs, and the option to change shares one fund to another within the same fund family

mutual fund

pools the money of many investors - its shareholders - to invest in a variety of securities.

Which type of housing is preferred by most people who are approaching retirement?

present home

major reasons investors purchase mutual funds

professional management and diversification

an investment company sponsoring a mutual fund must give potential investors a:

prospectus

disadvantages of investing in a mutual fund:

purchase/withdrawal costs ongoing management and 12b-1 fees poor performance the may not match S&P index inability to control when capital gain distributions occur potential market risk some sales personnel are aggressive or unethical

Aggressive Growth Funds

seek rapid growth by purchasing stocks whose prices are expected to increase dramatically in a short period of time

Direct real estate investments include

single-family dwellings, duplexes, apartments, land, and commercial property

You can determine your net worth by:

subtracting your liabilities from your assets.

advantages of a load fund

the fund sale's force will explain the investment objective of the fund and provide additional information to investors and offer advice as to when shares should be bought or sold

direct investment (real estate)

the investor holds the legal title to the property

Passive Loss

the total amount of losses from a passive activity minus the total income from the passive activity

financial leverage

the use of borrowed funds to increase the return on owners' equity

For every 10 years you delay before starting retirement, you will need to save _____ times as much each month to catch up.

three

Janice Jacobs is planning for her retirement. She knows what assets and liabilities she has now and expects to have in the future. She knows what her spending patterns are likely to be and adjusted them for inflation. She also has identified all of her sources of income after she retires. Now she is sitting down and planning her income and expenses each month. After she has finished this plan, she knows that she has enough income to cover her expected expenses and still have $200 extra each month for emergencies and other unplanned activities. Even with inflation, she thinks she can sustain this plan for approximately 30 years. What step in the retirement planning process is Janice completing?

Determining how long her retirement savings will last.

Which one of the following is a disadvantage associated with Social Security retirement income?

Earned income may partially offset benefits

Which one of the following is not a typical characteristic of a defined benefit plan? Investments managed by plan officials Employee required contributions Federal government guarantees some benefit amount Employer contributions Formula-based benefit

Employee required contributions

Which of the following is typically a characteristic of a defined benefit plan?

Employer funded with federal rules setting the amounts that employers must contribute