personal finance Adaptive Practices
4.4 Students who take out $10,000 in student loans must include how much in their gross income?
$0
7.11 Earlier this year, Jorge contributed $4,500 to a savings account within a Roth IRA. By the end of the year, he earned $500 in interest. Unfortunately, he had a minor emergency and needs to withdraw $500 from the account. If he is in the 10% marginal tax bracket, how much will he owe in taxes from this withdrawal?
$0
4.12 Which of the following choices results in the greatest tax savings?
$1,000 tax credit.
9.11: Zelda purchases a 20-year-term life insurance policy with a face value of $1,000,000. She must pay $20 a month to maintain coverage. Sadly, she passes away just 12 months into her term. How much will Hilda, the sole beneficiary, receive?
$1,000,000
8.32 Mark is using a fee-only financial planner who charges a typical asset-based fee. He currently has $250,000 in assets being managed. What is his annual fee?
$2,500
Five years ago, Sammy purchased a house for $340,000. Today the market value of the house is $420,000. Sammy still owes a balance of $220,000 on the mortgage. What is her equity in the house?
$200,000
2.11 Based on Debbie's balance sheet, what is her net worth?
$21,080
9.21: Debra, age 68, has very low income and very few financial assets, and her employer does not provide health insurance. Where, if anywhere, is she most likely to find healthcare coverage?
Medicare.
5.19 Gail defaulted on a department store credit card eight years ago. Her credit score is now 720 and she would like to get a card with a competitive credit line, interest rate, and some perks. What type of card should she apply for?
Rewards credit card.
7.14 Inflation this year was particularly high. A relatively good place to keep money would have been in Series EE U.S. Savings BondsSeries I U.S. Savings Bondsa savings accounta savings account in a Roth IRA
Series 1 US Savings bonds
10.10: Shaq gave each of his children $25,000 this year. Which of the following statements regarding taxes related to the gift is correct?
Shaq will have to file a gift tax return. Whether or not Shaq will owe a gift tax depends on the amount of cumulative taxable gifts. None of the children will have to pay a tax on the gift.
4.18 Bidar, a financial advisor, is helping his client Madison decide on a savings strategy. He advises her to contribute to a Roth IRA. What does the Roth IRA offer that makes it a beneficial option for Madison?
Tax-deferred income and capital gains and tax-exempt withdrawals in retirement.
3.18 Yoko was recently laid off from her job where she netted $500 per week. Her expenses average $360 per week. She collects unemployment insurance of $150 per week. What percent of her weekly income is being covered by unemployment insurance?
17%
8.21 Jose is a 24-year-old professional who just landed a job with a great salary. He has no debt and would like to start investing early. Jose isn't worried about losing a little money, his motto is that you have to spend money to make money. Which of the following products would be most appropriate for Jose?
Actively managed mutual fund by a top technology manager with 1.9% expense ratio.
2.17 Tori earns a $55,000 salary of which $10,500 is withheld for taxes and 5% is deducted for her retirement plan contribution. After deducting her total expenses, she has a surplus income of $900. What is her savings ratio?
6.64%
8.15 Rebecca wants to start investing. She currently has $3,000 to invest. Her goal is to beat the market with her investment. Which of the following type(s) of funds should she invest in?
Actively managed mutual fund.
6.11 Portia leased a car with a fair market value of $36,000 and has paid $12,000 in payments. How much equity has Portia built since the car was first leased?
$0
7.10 Luke earned $100 in interest from his $10,000 savings account, which is itself in a Roth IRA. If he is in the 10% marginal tax bracket, how much will he owe in taxes on this interest?
$0
10.19: You recently inherited $25,000, and you have decided to place the entire amount into a mutual fund recommended by your financial adviser. This mutual fund charges a 5.75% load fee when purchasing the fund and an annual expense ratio of 1.17%. How much would you be charged as a commission?
$1,437.50.
3.5 How much overtime pay can Rocky expect to earn on an annual basis if he accepts a full-time job making $12 per hour plus $18 per hour for overtime? He expects to work 104 hours in excess of regular hours over the course of 52 weeks.
$1,872
9.15: Terron is involved in a car accident that is his fault. Terron has 20/40/10 coverage. The maximum amount the insurance will pay for the other person's car is
$10,000
9.10: Khalid's father recently passed away, leaving him with $100,000 in life insurance benefits. If Khalid is in the 37% marginal tax bracket, how much of that $100,000 will he have after tax?
$100,000
5.20 Marcus owes $3,500 on a credit card with a 12% APR and a minimum payment due of 3% or $70. What will be his minimum monthly payment?
$105
How much equity would Phil have in his home based on the following information:Purchased price of $425,000Fair market value of $432,00020% down paymentHas made $15,000 in principal payments
$107,000
6.15 According to HUD, if your pretax income is $4,000, you should pay no more than $900 on rent.
$1200
2.8 In 30 years, what will be the approximate value of $1,000 that is saved at the end of each year, in an account that pays 8% APY?
$133,283
6.12 Geraldine purchased a car with a fair market value of $36,000 and currently owes $14,000. How much equity has Geraldine built since she first purchased the car?
$22,000
5.2 Karen has deposited $500,000 into her individual money market savings account. If her FDIC-insured bank were to fail, how much of her account balance is she insured for?
$250,000
10.3: Devonte works for a company with a retirement plan that offers 100% matching up to an annual cap of $2,500. He contributed $4,000 to his retirement plan this year. How much does his employer match?
$2500
2.9 Fred will need $3,000,000 in 40 years to retire. Assuming that he can achieve an annual return of 6%, approximately how much would he need to put away today?
$291,667
8.8 Mike invests $2,000 in a new bond issued with a coupon rate of 5%. If the bond issuer makes semiannual payments, what is the coupon payment that Mike will receive?
$50
8.9 Michael is a novice investor. He has decided to use a typical asset allocation strategy. He would like to invest $50,000. How much should he invest in bonds?
$5000
9.6: Max went to the doctor. Max's health insurance has a $40 copayment per office visit, no deductible, and 90/10 coinsurance for medical expenses. This is the first time Max has used his health insurance this year. The office visit cost is $40 with $200 for other medical expenses, including lab work. The out-of-pocket cost Max must pay is
$60
5.3 Jan needs some cash and is trying to figure out how much she can take from an ATM. She updates her check register regularly and it currently shows a balance of $615. Using her phone, she checks her account balance: $600. And she's holding a birthday check from her grandmother for $35. At this moment, what is the maximum Jan could safely withdraw while avoiding overdrawing her account?
$600
5.9 Manuel borrowed $4,000 to purchase a used car. The total amount that needs to be paid is $4,000 in principal, $400 in interest, and $250 in loan fees. What is the finance charge on Manuel's loan?
$650
6.6 Carlos chose to get a payday loan for 14 days and borrowed $600. What total amount of fees will Carlos pay for the payday loan based on the average fees charged for payday loans?
$90.
10.4: Samantha, who is single, worked a part-time job for several months this year, earning $3,600 in wages. She also received $6,000 this year from her ex-husband in the form of child support. She is 36 years old. What is the most she will be allowed to contribute to her Roth IRA this year?
$3600
4.6 Rodrigo just graduated from college and his parents will no longer claim him as a dependent. Assuming their incomes remains the same, what will happen to their effective tax rate?
it will increase
4.20 Even though they have the same gross income this year, Jocelyn paid $10,000 in federal income taxes while Ivan only paid $5,000. This is because Ivan had
less recognized income.
3.9 Georgia started a business with three other people. If the business defaults on a loan, the creditors can seize the business's assets but not Georgia's or the other three people's assets. This type of business is best described as a
limited liability corporation.
1.19 In the decision-making process, creating a list of the pros and cons of different financing options available for purchasing a car would be considered
listing advantages and disadvantages of each alternative
Planning for retirement to occur in seven years is considered a(n) _____ goal time horizon.
long- intermediate term
1.11 Playing the lottery represents a ____________ investment strategy and investing in a savings account represents a ____________ investment strategy.
low-risk; low-risk
9.2: Choosing to wear your seat belt in every car, no matter what seat you sit in, is an example of
managing the risk
7.8 Theodora worked overtime for the past 6 months and has saved up $900 in an account. She is considering using the money to pay for a course in college that will help her get a new job. She is also considering using the money to purchase a monthly makeup subscription box. If she chooses to take the college course instead of the monthly subscription box, this would represent the
opportunity cost of choosing the one option over the other.
1.17 Max is a physician and considers himself smarter than most people. Since he has never lost money in an investment, he often chooses investment options that carry high risk and feels that he can't lose money on any investments. Which of the following mental biases is Max is exhibiting?
optimism bias
3.19 Shannon is a 27-year-old single mother with one minor child. Shannon recently had her hours reduced from full-time employment to part-time. Based on this information, for which of the following government programs might she qualify?
Earned Income Tax Credit.
5.7 Becky was offered a 10-year installment loan by ABC Bank, where she has a savings account. If she takes that loan, which of the following options could help her pay off the loan in the future?
Enrolling in a 2-year graduate program.
4.10 Sebastian is in the 24% federal tax bracket. If his taxable income is $100,000, how much will he pay in federal income taxes?
Less than $24,000.
9.20: Omar and Suzette are trying to decide whether long-term care insurance is right for them. They both just celebrated their 75th birthdays and have very little left in their retirement savings accounts. Which of the following statements most applies to their situation?
Long-term care insurance premiums are probably too costly for them to afford.
4.17 Phillipe hopes to pay as little tax as possible. Which source of income would result in the lowest tax burden?
Municipal bond interests
8.29 two years ago, Sophia purchased a piece of art for $5,000. She decided that she needs some money and approached a dealer to sell the art for her. The dealer charges 25% commission. At auction, they were able to sell the art for $5,500. What was Sophia's net profit or loss?
Net loss of $875.
8.11 Which is the best type of investment for investors who want to reduce the frequency of their tax liability?
Stocks and bonds: Tax on capital gains are paid only if you sell for a profit, and taxes are paid on interest received on bonds and dividends received from stock.
1.16 Kenyatta purchased shares of stock several years ago and the stocks went down in value. She sold the stocks at a loss because she wanted to get out of the investment. She has determined to avoid investing in stocks in the future. Kenyatta is exhibiting
past negative
8.22 Emilio owns a volatile stock and was worried that it might drop drastically from its current price of $25.72. His threshold for loss is at a price of $20, and he would sell it right away. However, he would like to keep the shares if they maintain value above $20. Emilio went on a two-month trip to climb Mt. Everest and did not check his investments. When he returned from his trip, he noticed that the stock had dropped to $14.25. Emilio should have
placed a stop-loss order to sell at $20 before he left on his trip.
9.4: Mildred has, despite her best efforts, reached the age of 60. As she ages, she finds that her healthcare
premiums and out-of-pocket expenses go up.
7.18 Marshall is 16 years old and lives in Minnesota. He has been saving his money for several years in hopes of investing in real estate to provide income for his future. Marshall's parents could use a )____Under this type of account, once he reaches age 21, he has reached the age of majority and is no longer considered a minor and would have total control of the account.
Uniform Transfers to Minors Act (UTMA).
3.2 Which of the following people will likely end up in a better financial position in the long run?
Walken, who generates a relatively low salary as an administrative assistant, keeps his expenses low and regularly invests in a diversified portfolio of stocks and bonds.
1.3 Which of the following represents advantages for people who learn to take control of their finances and manage their money well?
Wealth increases at a higher rate over time.
6.19 Terrance currently earns $3,500 per month and is looking to buy a house. Terrance has the following monthly debt payment expenses: $75 for credit cards, $125 for student loans, and a $235 car payment. The monthly mortgage, including principal, insurance, and taxes, is $900. Does Terrance meet the FHA housing payments-to-income ratio guideline?
Yes, because the ratio is less than 31%.
10.16 In order to create a living will, a good first step would be to
see if your state attorney general's office provides instructions and documents free of charge.
1.10 People who want to achieve higher returns on their investments should
select more risky or more volatile investments.
1.13 External and internal factors work together to increase your goal commitment. All of the following are examples of external factors EXCEPT
self improvement
1.18 Which heuristic technique is being used for making wise financial decisions in the following scenario?Jamal has a goal of saving $50 per week for the next 10 weeks. Jamal has chosen to begin saving today instead of waiting until tomorrow to start saving.
set clear goals
10.9: By naming beneficiaries to your 401(k) account and your brokerage account, it is possible to avoid
the probate process.
10.20: Your grandparents are both 80 years old and recently met with a stockbroker who convinced them to invest in an aggressive security. Given your grandparents' age, the state regulators have informed you that this is an inappropriate investment. The stockbroker is in violation of
the suitability standard of advice.
9.5: Mia went to the doctor. Mia's health insurance has a $1,000 deductible. It also has a $20 co-payment per visit. This is the first time Mia has used her health insurance this year. The office visit is $145. Mia must pay_____ out of pocket
$145
8.28 What is the dealer's spread on an item with a bid price of $75 and an ask price of $90?
$15
3.16 In 2003, you purchased a house for $214,000. Over the years, you invested $18,000 in capital improvements. In 2019, you sold the house for $429,000 and paid fees and other expenses of $43,000. What is your capital gain on the sale of the house?
$154,000
9.17: Antwan rents an apartment that has a fair market value of $175,000. He also owns a car worth $25,000, furniture worth $10,000, clothing with a $3,000 replacement value, and about $5,000 of other personal belongings. When deciding on a renter's insurance policy, which of the following policy maximums is most appropriate?
$18000
4.8 Tchiki and Taylor (married filing jointly) sold a stock that they have held for years and profited $100,000 in the sale. They are in the 37% marginal tax rate. How much tax will they pay on this gain?
$20,000.
4.9 Amrit has a long-term capital gain of $5,000 and a short-term capital loss of $10,000. How much, if any, of his capital losses can be used to reduce Amrit's taxable income this tax year?
$3000
6.13 Paco is considering the purchase of a used car. Paco currently has excess monthly cash flow of $490 available for vehicle payment and other associated expenses. Paco estimates the following monthly expenses for the car: $60 for gas, $70 for insurance, $15 for maintenance, and $10 repairs. What is the amount Paco has remaining for the loan payment each month, based on the information given?
$335
2.16 Kent earns a salary of $35,000. He has $15,000 in savings, which earns 2% APY, contributes 10% of his gross pay to his retirement plan and donates $500 to the NRA. What is Kent's annual income?
$35,300
2.12 Brenda purchased a home for $350,000. She used her savings to make the down payment and financed 80% with a mortgage. How is this transaction reflected on her personal balance sheet?
$350,000 home in assets, $280,000 mortgage in liabilities, and $70,000 reduction in monetary assets.
2.10 Breda is looking to purchase a new car for $24,500. The dealership is offering a 2% APR for 5 years. What will her approximate monthly payments be?
$430
2.7 Thirty years ago, Peter was gifted a $100 savings deposit that pays 5% annually from his grandmother. Approximately what is its worth now?
$432
8.2 alculate the earnings per share using the following data:Gross sales: 1,000 unitsSelling price per unit: $5.00Expense per unit: $4.50Total shares outstanding: 100 shares
$5.00
8.4 ABC Online Merchant has a current stock price of $42.50. The company paid $1.34 in dividends this year, and the dividends are expected to grow at 3% per year. If an investor has a required rate of return of 5%, what is ABC worth to that investor?
$69.01
9.16: Jared and Laura have renter's insurance with a $500 deductible and a $20,000 coverage limit. Unfortunately, a fire destroys their apartment, requiring them to stay in a hotel for $100 a night for 10 nights. In addition, they lost $7,000 worth of property. How much will their renter's insurance pay?
$7,500
5.4 Terron received a $700 prepaid card for graduation. Terron lost the card while commuting home. What is Terron's risk from fraud?
$700
4.3 Samantha buys a product for $100. If the sales tax rate is 8%, how much sales tax is due at the time of the transaction?
$8.00
6.10 Amal has a Revised Pay as You Earn (REPAYE) plan loan to pay for the cost of college. Based on the terms of his loan, he must pay $500 a month to pay his loan off in 10 years. Amal's monthly discretionary income is $800. What is the maximum monthly payment that Amal will be required to pay based on the current discretionary income?
$80
6.18 Maria owns a house with a fair market value of $275,000. When Maria purchased the house she paid $210,000 but that was several years ago. She currently owes $195,000. How much equity has Maria built since she first purchased the house?
$80,000
4.19 Andrea's gross income this year is $100,000. What is her taxable income if she makes a $3,000 Roth IRA contribution and takes the $12,000 standard deduction?
$88000
9.19: Beverly has a long-term care policy that pays 80% of long-term care expenses and has a 3-month elimination period. On January 1st of this year, she suffers a stroke and can no longer perform two activities of daily living. If she incurs $45,000 in long-term care expenses from April 1 through the end of the year, how much will she need to pay out of pocket for those 9 months?
$9000
3.17 Last month, your grandfather passed away and left you 500 shares of Apple stock. On the day he passed away, the stock was worth $189 per share. He purchased the shares for $73 per share in 2009, and today, the shares are priced at $196. Calculate the basis of stock you inherited.
$94500
8.14 Calculate the net asset value of an ETF with portfolio holdings equal to $100 per share in market value and an expense ratio of 0.25%.
$99.75
8.3 Mary owns stock in J&R Construction Company. Last year, each share of stock was worth $139.71 and paid an annual dividend of $2.19. What was J&R's dividend yield?
1.57%
2.3 If a bank offers a deposit account with a quarterly periodic rate of 3%, what is the annual percentage yield (APY)?
12.55%
6.20 Eduardo is about to buy a house and is trying to understand his mortgage options. If he picks a
15-year mortgage, his monthly payments will be relatively high.
3.14 Tara is saving money to buy her first car. She will need $20,000. She currently has $10,000 and can invest the money at 12% per year. In approximately how many years can she buy her car?
6 years
10.2: You expect Social Security will replace 30% of your income. Your average annual career income is $60,000. Since you plan to travel more frequently throughout your retirement years, you think you will need an 85% wage replacement rate. What percent of your income will you be responsible to replace?
55%
6.8 Kirsten has a federal student loan and has just finished school. How soon will Kirsten have to start repaying the loan?
6 months
6.3 Mia received a credit card offer in the mail. The credit card has an annual percentage rate of 26%. What is the approximate monthly interest rate that will apply to any unpaid balances on this credit card? Assume 12 equal months.
2.17%.
8.5 Calculate the P/E ratio of a stock with a price per share of $15.35 and EPS of $0.71.
21.62
2.1 A bank charges a periodic monthly interest rate of 0.3%. What is the APR?
3.60%
5.11 When reviewing her Experian credit report, Dela found it to contain inaccurate information. She has informed Experian in writing. Within how much time after receiving the notice is Experian required to investigate?
30 days
7.17 Luke's parents want to save money to use only for his college education. Which of the following products would be best for his parents?
529 plan.
1.7 Serinity plans to pursue a certification in financial planning that has a total cost of $82,000. Once she completes the certification program, her income will increase by $9,500 per year. What is Serinity's payback period?
8.63 years.
2.2 If you invest $10,000 at 8% annual percentage yield (APY), approximately how long will it take you to double your money?
9 years
7.2 Hamish wishes to make investments in all three levels of the investment pyramid. Which of the following investment choices would meet Hamish's requirement?
A 6-month CD at a local bank, a rental property, and a stamp collection.
8.1 Which of the following businesses would best benefit from becoming a publicly traded corporation?
A business that needs large sums of money to expand its successful product line overseas. Diversity of ownership is not an issue for this company.
10.8: Joaquin would like to establish a trust and maintain the right to make changes while living. Which type of trust would be most appropriate?
A revocable living trust.
6.16 Shaun moved out of an apartment and received a check for $325 from the landlord. The check represents
A security deposit refund
2.13 Which of the following would be classified as "good debt"?
A student loan to finance MBA classes in the evenings.
9.14: Shelly has just been involved in a significant car accident with another car. Which of the following is important for her to do assuming she is not severely injured as a result of the accident?
All of these answers are correct.
2.4 What do the equal monthly payments of a car loan or mortgage represent, if the original principal represents the present value and the loan is completely paid off at maturity?
Amortization payment.
5.16 When looking to finance a home with the best possible rate, which of the following will have the smallest negative affect on your credit score?
Applying for several mortgages at the same time.
9.1: Oscar has been to the doctor 6 times already this year for health-related problems worsened by recent weight gain, and it is only April. Which of the following would be most appropriate for him to do to improve his overall health and protect his human capital?
Begin a program of diet and exercise.
6.5 Gabe needs to borrow $450 to cover the deductible for an unexpected medical expense. Which of the following options would minimize borrowing fees?
Borrow from family until payday and then repay the money.
7.5: Pareasa's main source of income comes from being a food delivery driver. Last week while coming home from her last trip of the day, her tire blew out. When she went to purchase a new tire, she found out that the other three tires were worn out and also needed to be replaced. It is too dangerous for her to continue driving with those tires. The cost for a new set of four tires is $1,000. Pareasa only has $500 set aside to cover emergencies. Which of the following options would be best for Pareasa's situation?
Borrow from her emergency fund and sell the trumpet from high school to her friend who asked her last week about buying it. Pareasa no longer uses the trumpet.
8.13 Which of the following statements is correct?
Both mutual funds and exchange-traded funds offer the ability to diversify.
7.3 Which of the following scenarios illustrates objective risk?
Brent knows there is risk involved with flying since the odds of dying in a plane crash are 1 in 6,460.
2.14 Jeanine's monthly salary is $3,650 and her total expected expenses are $3,890. What does this mean?
Budget deficit $240
6.17 Mayme is moving to a different state for a new job and is researching housing options in the area. Which of the following characteristics would be considered a disadvantage when evaluating whether to buy versus rent?
Buy: Closing costs and fees.
1.9 Which of the following people is engaging with a formal network?
LaToya participated in the Youth Council business plan competition as a judge and met several other business people who were also participating in the event.
1.2 Which of the following would fall under the component of financial risk tolerance?
Carmen made a financial plan for his future and determined the best investments that he would be comfortable making. He knows he might have to make changes based on opportunities that may arise, and he is willing to do so.
3.7 After graduating from college, Christina accepts a full-time position with a publishing house. Which of the following counts as earned income for Christina?
Christina received an annual salary of $50,000 from the publishing house for a typical 40 hour per week, 52-week job.
1.5 Which of the following resources can increase your human capital?
Completing a continuing professional education course.
8.17 Which countries offer appropriate investment opportunities for individuals with a low tolerance for risk?
Countries with strong GDP growth, oversight, and legal structure.
5.8 Michael needs his car to function properly so that he can get to work. To protect against the risk of his car breaking down, which of the following is Michael's best option?
Create an emergency fund.
5.12 Mitchell has lived in his home and paid his mortgage on time for 10 years. After becoming ill, he was no longer able to work and could not make the payments. Eventually, Mitchell had to vacate the home due to foreclosure. How will the foreclosure influence Mitchell's credit report?
Credit reporting agencies are allowed to maintain negative information about you for up to 7 years.
3.15 Which of the following people is likely to experience the highest increase in wealth? Assume they are all about the same age and generate approximately the same income from their work.
Cysco, who saves 5% of every paycheck and follows a "buy-and-hold" strategy of investing in a well-diversified portfolio of mostly stocks.
5.5 Maci is getting ready to check out at the grocery store. Which of the following types of payment could provide the most security and protection?
Debit card with PIN.
6.14 Emberly just graduated college and is thinking of gifting herself a car. What's her next step?
Determine her transportation needs.
6.9 Which of the following loans would be most appropriate for Tammy, a graduate student who does not show financial need and has no other debt?
Direct PLUS Loan
8.7 Which of the following statements regarding diversification is true?
Diversification can help reduce the risk of a portfolio because different asset classes tend to move in different directions at any time.
5.18 How is the "interest due amount" calculated for a monthly credit card bill?
Divide APR by 365 days, multiply that percent by the number of days in the billing month, and then multiply that percent by the outstanding balance.
3.1 Which of the following statements is correct?
Even people with low income can save money if they maintain expenses lower than their income.
5.1 TJ Vargas signed the back of his checks for deposit and then lost them on the way to the bank. When he contacted the issuers of the checks to try to have them reissued, he discovered that the checks had already cleared. How could he have made a restricted endorsement to ensure that they would get deposited only into his account?
For Deposit Only (3846933720). Midwest Bank. TJ Vargas.
8.18 Robert wants to add foreign investments to his portfolio. With which investment is this NOT possible?
Foreign government bonds.
8.10 Rachel is comparing two mutual funds. Fund A has a 0.15% expense ratio, and Fund B has a 1.15% expense ratio. Which mutual fund should Rachel purchase assuming these are similar funds in all other ways?
Fund A because it has a lower expense ratio so it will have a higher return.
8.19 Which of the following statements is true?
Generally, as your financial knowledge increases, your risk tolerance will rise as well.
3.3 Which of the following statements is correct?
Generating a moderate monthly surplus and placing it in a savings account would not be sufficient for a well-funded retirement
10.1: George is 73 years old and retired. He was told that he should withdraw $15,000 from his 401(k) to meet his required minimum distribution. George does not feel like he needs the money, so he decides not to take his withdrawal. Which of the following describes the taxable consequence of his decision?
George will have to pay $7,500, which is the 50% tax on the amount that he should have taken for
7.12 Which of the following situations would qualify for a Roth IRA?
Grayson has an adjusted gross income of $96,000 per year, is not married, and would like to contribute $5,500 to a Roth IRA account.
4.16 Which of the following tax deductions are allowed for self-employed individuals?
Half of payroll taxes.
9.7: Horace, an emergency-room surgeon, has an own occupation definition of long-term disability on his long-term disability insurance policy. If he is injured in a major car accident and loses his eyesight, which of the following is true?
He will be eligible to receive long-term disability benefits because he has an own definition of his occupation in his disability insurance policy.
2.20 Which of the following element assessments is adverse for your financial plan?
High feelings-of-control assessment score.
9.13: Sam, age 22, who lives in a rural area, has just graduated college and is buying his first car. He needs to obtain a Personal Automobile Policy (PAP). Which of the following is true?
His premiums will be higher since he is under the age of 25.
1.1 Which of the following situations represents an example of all the elements of internal finance?
Lakeisha has researched options and has determined her risk tolerance for investing. She is confident that she will make a smart investment decision based on her research and risk tolerance.
3.11 Which of the following statements is correct?
If you work as an independent contractor for a company, you will not get all the benefits that are given to a regular employee of the company.
7.9 Hugh and Liv have had trouble saving for a down payment for their first house. Which of the following techniques might motivate them best to save?
Imagining what the house will look like with their furniture in it.
8.6 Which of the following companies is most likely to experience more volatile changes in stock price?
Internet retailer who has no earnings but annual growth in sales of 400%.
5.17 Pat receives a letter stating that he has been pre-approved for a credit card. The letter states he would pay zero interest for six months on retail purchases, then it will revert to the standard base rate plus 8%. The 0% interest rate is a(n)
Introductory rate
7.7 Chinyere is planning to take a study abroad course for 6 weeks in Paris in 12 months. She currently has 75% of the cost saved up and needs to earn money on the amount she has saved in order to reach her goal. She is concerned that if the money is easily accessible, she will be tempted to use it for other purchases. Which of the following options would be best for Chinyere?
Invest in a 12-month CD paying 2.0% APR.
10.13: Which of the following people should have a will?
Isa, a single mother with two minor children. She has no discernible assets nor any close relatives.
10.5: Jason, age 49, recently used $10,000 from his IRA to purchase his first home. Which of the following applies?
Jason will have to pay taxes on his distribution, but he will not incur an additional 10% penalty since he is a first-time homebuyer.
10.6: Which of the following people would be the MOST likely to have an employer-sponsored retirement plan?
Jerome, who works for a Fortune 500 company with branches in most major countries.
5.15 Nicole is working to rebuild her credit. Besides continually making prompt payments, what can she do to make the most positive impact to her credit score?
Keep the available amount of existing credit as high as possible.
7.16 Iggy's is 15 years old and lives in New Hampshire. She is a student, does not work, and plans to enter college once she graduates high school when she is 18 years old. Her grandparents want to be able to help her pay for college. They currently own shares of stock that could be used to pay for her education. What is the best option tax wise for them to make this gift to Iggy?
Make the gift to Iggy as soon as possible to save paying taxes on the gain of the stock.
3.13 Michele starts her first job after graduating from college and is interested in generating additional income from her salary. Which of the following is true?
Michele can generate unearned income by investing in stocks, mutual funds, and bonds.
1.20 Which of the following situations represents someone who is procrastinating?
Millie has a goal of saving $25 per month to put into her retirement account and will begin making contributions in 3 months.
9.8: Maggie likes the idea of disability insurance but really hates how much it costs. Which of the following policies would be the least expensive?
One that covers 50% of salary for up to 2 years.
8.23 Jill is just starting out investing. She isn't comfortable making her own decisions about investments, but she only has $8,000 to invest. Which is the most appropriate option for Jill?
Open a low-cost self-directed account because she has a limited amount of funds to invest.
5.10 Martie just took an auto loan with a $500 monthly payment. Over time, what will happen to the parts of her payment that are principal and interest?
The part that is interest will decrease while the part that is principal will increase.
4.15 Which of the following tax issues is an advantage for a self-employed individual but not an employee of a company?
Pass-through deductions.
8.12 Anthony wants to purchase a mutual fund that replicates the S&P 500 Index for a long-term investment. He wants to hold the investment through his employer's retirement account. Which of the following investments best suits Anthony's goal?
Passively managed mutual fund with low-load and very low expense ratio.
7.4 Which of the following scenarios best represents a true "emergency" in which someone should use their emergency fund to cover the costs?
Paying to repair a damaged motor in the car that is used for a job as an Uber driver.
4.11 Peter and Petra have the same gross income and they both took the standard deduction. When they compared their tax returns, Petra noticed that her taxable income was $1,000 higher than Peter's. Why would Peter have a lower taxable income?
Peter has more FOR AGI deductions.
5.6 Marcy doesn't have a bank account. Which electronic form of payment is available to her?
Prepaid card
2.6 Derek just received a bonus and wishes to set aside a portion of it in order to save for a 10-year reunion cruise that his old college fraternity is sponsoring, 4 years from now. His broker says that he can buy a bond that matures in 4 years with an APY of 6%. The cost of the cruise is $4,000. What would he have to set aside from his bonus to pay for the reunion?
Present value of $4,000 at 6% for 4 years.
1.6 In the process of estimating the value against the costs (cost-benefit analysis) of pursuing a post-graduate certificate, you would consider all of the following factors EXCEPT
Pride
7.6: Shirley and Steve are trying to decide the best place to keep their emergency fund. Which of these options is most appropriate for Shirley and Steve's emergency fund?
Putting the money in an account with a 2.5% APR and no withdrawal penalty.
3.10 Suppose you graduate from college and QVC is willing to hire you as a regular employee at an annual salary of $50,000. In addition, the company will pay $7,500 toward your health insurance and $2,500 toward your retirement fund. Another employer, Comcast, wants to hire you as an independent contractor for $1100 per week (40 hours per week) over the next 52 weeks. No overtime is allowed. Which is the better offer financially?
QVC offer is better, because the value of their offer is $60,000 and Comcast offers $57,500.
7.19 Which of the following represents a fraud scheme?
Raqwan has told you about an investment he made of $1,500. He received his $1,500 plus interest in only a few weeks. The only catch is that you need to find four other people to invest $1,500 as well.
2.18 Which of the following would count as a SMART (specific, measurable, attainable, realistic, and timely) goal for a 21-year-old recent college graduate with a degree in Accounting? She has about $30,000 in student loans after attending college for 4 years.
Reduce student loan balances by $12,000 within 5 years by making extra payments of $200 each month.
2.15 Which of the following would be a fixed expense on your budget?
Rent on your apartment.
3.6 Which of the following represents a commission?
Rida works for an auto dealer and receives 10% of the profit from each car she sells.
7.13 Rudy is 18 years old and wants to save to buy a house in 4 years. She wants to start by placing $500 she has in a savings bond. Why would a savings bond not be the best choice for Rudy?
Rudy will be penalized if she takes her money out it 4 years.
3.4 Which of the following represents a wage?
Salima works as a waitress and receives $2.13 per hour.
3.8 Which of the following statements is correct?
Sara is self-employed and as a result she is likely to work more than 20 hours per week.
9.9: In the past week, Barbara has become disabled and cannot work. She has a long-term disability policy with an elimination period of 12 months. How will this elimination period affect her coverage?
She will not collect any benefits until she is disabled for 12 months.
10.7: Vonda and Franklin are best friends, and they would like to purchase a house together. Both Vonda and Franklin would like to maintain the freedom to be able to sell their ownership interest in the house at will. Which form of ownership would be most appropriate for Vonda and Franklin?
Tenancy in common.
6.4 Kingston obtained a loan for $1,000 to be paid back in 30 days. The lender quoted Kingston a $200 fee. Which of the following statements is correct regarding this loan?
The APR is over 240%.
10.15: Riley, age 29, was attempting to jump from the roof of his house into his swimming pool. Unfortunately, he missed the pool and is now in a coma and connected to a respirator. His team of doctors believe there is a 1% chance he might recover over time. He had a living will that explicitly stated that should he become incapacitated, he did not wish to be kept alive via artificial means. Which of the following statements is true in Riley's case?
The doctors will need to remove the respirator and allow nature to determine the course of Riley's life since he has a living will that explicitly states that.
9.18: The Johnsons own a homeowners' insurance policy already. Which of the following risks will require them to purchase separate insurance coverage?
The home is in a flood plain.
7.15 Clara wants to invest for her future and is considering the purchase of savings bonds. Which of the following represents a benefit of purchasing savings bonds?
The interest earned on savings bonds compounds and earns interest on the interest and the principal.
8.33 Marie is looking for a financial adviser to assist her in making investment decisions. Which factor should NOT be used to determine which adviser to hire?
The least expensive adviser.
4.14 Heather is weighing the pros and cons of becoming self-employed. If she decides to become self-employed, what will happen to her Medicare and Social Security taxes?
They will both increase.
5.13 Ace wishes to finance the purchase of a new car. The dealership requests permission to access Ace's credit report. How will the dealership's finance company use the credit report in deciding on the car loan?
They will evaluate Ace's history of credit use, payments, and existing debt management, as well as any adverse legal action in public records.
8.31 Which investor is probably the best protected with their investments?
Thomas, who has an S&P 500 Index ETF and a bond market ETF through an established brokerage firm with SIPC.
1.14 Deanne has decided to save money for the purchase of a new refrigerator. She has given herself 12 months to save the full amount. Choose which SMART goal component Deanne's decision represents.
Timely.
6.2 Seema's cat needs dental surgery urgently. What is the best way for Seema to handle this unexpected expense?
Transfer money from her emergency fund.
3.12 Which of the following is an example of unearned income?
You had bought 1000 shares of Apple, Inc. and Apple pays
3.20 Which one of the following statements regarding Social Security is correct?
Younger workers today should not expect to receive full Social Security benefits when they retire due to a shortage of Social Security funds.
7.20 Which of the following situation does NOT represent identity theft?
Your human resource department used your Social Security number to remit the taxes withheld from your paycheck.
1.8 Continuing professional education and on-the-job training can help you increase your human capital by
allowing you to develop specific skills
8.16 Investors should include foreign investments in their portfolios because this type of investment
boosts the diversification of the portfolio since U.S. markets and some foreign markets do not exhibit high correlations.
10.14: You have a will in which you named your brother as your Personal Representative. He had agreed to serve in this capacity at the time the will was written; however, he recently told you that he had changed his mind and no longer wishes to do so. This is a relatively minor change that needs to be made to your will and could best be accomplished by adding a
codicil
10.11: If Jose dies, his 457 plan will be transferred to his adult children who are named beneficiaries. This type of property ownership transfer is known as a(n)
contract
2.19 Which of the following will increase your financial capacity score?
current ratio of 3.5
10.17: Tracy is 84 years old and suffering from lung cancer. Sadly, her doctor has told her she likely only has 6 months left to live. Tracy is dissatisfied with the quality of her life in terms of her ability to physically do what she would like, and she would prefer that members of the medical community not attempt to aid her should she need reviving. Tracy should create a
do-not-resuscitate declaration.
1.12 Researching and investing in mutual funds that have an annual return of 6% represents a(n) ____________ investment, and entering in a betting pool for a sports game end score represents a(n) ____________ investment.
effort; chance
10.18: For the past few years, you have struggled to make all the minimum payments on your numerous credit cards, student loans, and other debt. You have decided it is time to seek advice. The finance professional who could most affordably and likely help you would be a
financial counselor
8.26 Savannah bought her house right before the financial crisis began in 2007. The house cost $389,000 and she financed 90% of the purchase price. During the financial crisis, Savannah lost her job and could no longer afford to pay her mortgage. The value of her house started to drop to below what she still owed on her mortgage. Eventually, the bank seized her house and sold it for less than what was owed on the mortgage, and Savannah had to pay the difference. Savannah experienced a
foreclosure.
2.5 Susan opened a retirement account, and she plans to contribute $2,000 every year on April 14, for the next 30 years until retirement. To determine how much money she will have upon retirement, you will need to solve the
future value of the $2,000 annuity
4.7 Yang is an unmarried mother with two dependent children. What is her federal income tax filing status?
head of household
9.3: Frank lives in California in a forested area that is prone to severe wildfires. The insurance company he wanted to insure his home and property with has refused to write a homeowners' insurance policy for his home. The probable reason that they declined to write the policy is because the risk of wildfires is
high in both severity and frequency.
4.5 Walter worked a part-time job this year. Walter must file a federal income tax return if
his income is above a certain level.
9.12: Abha purchases an annual renewable term life insurance policy. Each year she renews her coverage, her premiums will
increase
7.1 Derek is nearing retirement age and is trying to determine if he is financially able to retire. He is trying to consider all the types of risk that could affect his decision. Derek has talked with his financial advisor about his concern with his money not keeping up with the cost of living during his retirement years. In other words, if the price of a gallon of milk is $3.95 today and increases to $5.50 next year, his money will buy less of the goods that it currently buys. This is an example of
inflation risk
8.30 Jay owns several dozen gold bars. His plan is to sell them at some point and hopefully generate a hefty profit. Jay could best be described as a(n)
investor
4.2 Tabitha, who earns $150,000 a year, pays a higher effective tax rate than Henry, who earns $50,000 a year. This is because the U.S. federal tax system is a
progressive tax system.
6.7 A borrower might benefit from a ______ if they decide to work for either a nonprofit hospital or public health organization.
public service loan forgiveness program
1.4: Financial literacy can mean
recognizing the role insurance plays in managing uncertainties that can occur.
4.13 Sepna received a U.S. Treasury check after filing her tax return, despite not withholding any taxes from her paycheck. Sepna must have claimed a
refundable tax credit.
4.1 Kylie, a dependent minor child, is most likely to pay which of the following taxes?
sales tax
8.24 Sonny received his first brokerage statement. He is confused as to why there is such a difference between beginning account value and ending account value. Where would you suggest he look to find the reason for the difference?
transactions
10.12: Unfortunately, your father passed away without leaving a will. Your parents were divorced, and your mother is still alive. Any property that your father had that was not transferred via contract or title will be
transferred in accordance to the law of the state where your father resided.
6.1 Brian does not have a checking account. He primarily uses money orders and certified checks to make payments. Brian is
under banked
5.14 Suzie has just celebrated her 18th birthday and wants to establish her credit for the future. One way to establish credit is to
use a credit card and make timely payments.
7.21 Periah checked her online bank account and saw a couple of charges that she did not recognize. All of the following are immediate steps Periah should take EXCEPT
wait until the bank statement comes next month before investigating the charges.
8.20 Calculate the probable returns (volatility) at a 95% confidence level on a mutual fund that reports a 10-year average rate of return of 7% with a standard deviation of 10%.
−13% and +27%.
