Personal Finance Chapter 18

Jasmine Smith owns a condo worth $340,000, a car valued at $26,000, and miscellaneous assets worth $10,000. She owes $186,000 on the condo and $14,000 on the car and has no other debts. Her retirement account, in which she is fully vested, contains $44,500 in mutual funds. She is insured with a $540,000 term life insurance policy. What is her net worth? $220,500 $234,500 $210,500 $760,500 $750,500

$220,500

Jasmine Smith owes $185,000 on her condo and $15,000 on her car and has no other debts. Her net worth is $122,000. What are her total assets? $78,000 $122,000 $185,000 $200,000 $322,000

$322,000

Ted Riley owns a 2005 Lexus worth $32,000. He owns a home worth $360,000. He has a checking account with $900 in it and a savings account with $2,700 in it. He has a mutual fund worth $90,000. His personal assets are worth $78,000. He still owes $16,000 on his car, $113,000 on his home and has a balance on his credit card of $1,300. What is Ted's net worth? $693,900 $563,600 $433,300 $130,300 None of the above is correct.

$433,300

If you do not plan to retire early, then when should you apply for Social Security? 3 months before your 65th birthday 1 year before your 65th birthday 1 year after your 65th birthday 10 years before your 65th birthday On your 65th birthday

3 months before your 65th birthday

If you work after age 65, your Social Security benefit will increase by one-fourth of one percent for each month you delay retirement up until what age? 67 70 75 80 85

70

You have $10,000 in your retirement fund that is earning 5.5 percent per year, compounded quarterly. How many dollars in withdrawals per month would reduce this nest egg to zero in 15 years? (Use Exhibit 18-16)

A withdrawal rate of $81 a month will reduce the $10,000 nest egg to zero in 15 years given an interest rate of 5.5 percent, compounded quarterly

Which of the following is a true statement about retirement planning? You can expect to spend about 16 to 30 years in retirement. It's never too early to begin planning for retirement. You should not let your 45th birthday roll by without a comprehensive retirement plan. Retirement planning has both emotional and financial components. All of these statements are true.

All of these statements are true.

Beverly Foster is planning for her retirement. She has determined that her car is worth $10,000, her home is worth $150,000, her personal belongings are worth $100,000, and her stocks and bonds are worth $300,000. She owes $50,000 on her home and $5,000 on her car. What step in the retirement planning process is Beverly completing? Analyzing her current assets and liabilities Estimating her spending needs Evaluating her planned retirement income Evaluating her retirement housing Developing a balanced budget based on her retirement income

Analyzing her current assets and liabilities

Which federal law sets minimum standards for pension plans in private industry and protects more than 50 million workers? Employee Retirement Income Security Act Tax Reform Act Early Retirement Act Income Protection and Guarantee Act Civil Rights Act

Employee Retirement Income Security Act

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

Employee required contributions

Rebecca Murphy is planning for her retirement. She has done some checking and thinks she will get about $1,025 a month from Social Security. She also thinks her pension plan will pay her about $1,125 per month. In addition, she has some personal retirement accounts that she thinks will pay her $500 per month. What step in the retirement planning process is Rebecca completing? Analyzing her current assets and liabilities Estimating her spending needs Evaluating her planned retirement income Evaluating her retirement housing Developing a balanced budget based on her retirement income

Evaluating her planned retirement income

Calculate how much you would have in 15 years if you saved $2,500 a year at an annual rate of 9 percent with the company contributing $625 a year. Use Exhibit 1-B.

FVA = Payment amount × Future value annuity interest factor9%,15 = ($2,500 + 625) × 29.361 = $91,753

Janine is 35 and has a good job at a biotechnology company. Janine estimates that she will need $943,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $28,000 a year. (She expects that Social Security will pay her an additional $22,500 a year.) She currently has $2,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 13 percent, and she plans to leave it untouched until she retires at age 65. How much money will Janine have to accumulate in her company's 401(k) plan over the next 30 years in order to reach her retirement income goal? Use Exhibit 1-A.

FVIRA = PV × Future value interest factor 13%, 30 = $2,000 × 39.116 = $78,232.00 FV401(k) = Desired retirement funds − FVIRA = $943,000 - 78,232.00 = $864,768.00

Assume your gross pay per pay period is $6,400 and you are in the 33 percent tax bracket. Calculate your net pay and spendable income if you save $640 per pay period after paying income tax on $6,400.

Gross Pay = $ 6,400 Tax = $ 6,400 x 33% = $2112 Net pay = $6400-$2112 =$4288 After-Tax Savings = $640 Spendable Income = $4288 - $640 = $3648

Which one of the following is not a typical characteristic of a defined contribution plan? Employer may match contributions Ability to transfer account balance to an IRA Guaranteed formula-based benefit Employee-managed investments Account balance withdrawal option

Guaranteed formula-based benefit

Which one of the following is a true statement about retirement planning? I should wait until at least age 45 to start saving for retirement. My pension benefits will increase to keep pace with inflation. I should update my retirement plan periodically. My employer's health insurance plan will cover my medical expenses. Social Security will cover my medical expenses.

I should update my retirement plan periodically.

Which retirement plan is specifically designed for self-employed individuals and their employees? Roth IRA Traditional IRA Defined-contribution plan Keogh plan Defined-benefit plan

Keogh plan

Shelly's assets include money in checking and savings accounts, investments in stocks and mutual funds, and personal property, including furniture, appliances, an automobile, a coin collection, and jewelry. Shelly calculates that her total assets are $109,700. Her current unpaid bills, including an auto loan, credit card balances, and taxes total $24,600. Calculate Shelly's net worth.

Net worth = Total assets − Total liabilities = $109,700 − 24,600 = $85,100

Which of the following is typically a characteristic of a defined contribution plan? Employer promises a retirement benefit No employee contributions No federal guarantee of benefits Retirement benefit computed based on an age, wage, and years of service formula Account balance not transferable to an IRA

No federal guarantee of benefits

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

Smaller condominium close to the city bus line

Bruce Willis has been making contributions into an individual retirement account on behalf of his nonworking wife. What type of individual retirement account is this? Traditional IRA Roth IRA Spousal IRA Coverdell Education Savings Account SEP-IRA

Spousal IRA

Ben Carmichael has been making contributions into an individual retirement account for his retirement. His contributions are tax deductible as his employer does not offer a retirement plan. What type of individual retirement account does he have? Traditional IRA Roth IRA Spousal IRA Coverdell Education Savings Account 401(k)

Traditional IRA

Which type of housing is designed to allow people to stay in their homes as they grow older and more frail? Two-story house Multi-story apartment complex Rooming house Universal design Rental unit

Universal design

Your right to at least a portion of the benefits you have accrued under an employer pension plan is called: vesting. inflation-adjusted survivorship. lump-sum withdrawal option. guaranteed formula-based benefit. none of these.

vesting.

Some retirement planning experts suggest that you start retirement planning while you are: young. married. divorced. middle-aged. still employed.

young.