Personal Finance Chapter 7

Your neighbor has monthly expenses totaling $3180. His employer has indicated that the firm is expecting to announce layoffs soon. How much should your neighbor have in an emergency fund if he wants to cover 6 months of living expenses?

$19080.

Up to what amount, the kiddie tax rules, partially or fully, shelter income on custodial accounts for the 2018 tax year?

$2,100.

Jerry is thinking about buying a U.S. savings bond. What is the minimum investment that he needs to make if he opens a Treasury Direct account and purchases the bond online?

$25.

Jason established a Roth IRA and funded it with $5240. By the next year, the Roth IRA was valued at $7040. Yesterday, Jason found out emergency car repairs will cost him $3280. What is the maximum that Jason can withdraw tax- and penalty-free?

$5240.

As a general rule, how much money should be kept in an emergency fund?

Between 3 and 6 months of expenses.

For which of the following savings goals would a U.S. savings bond be most useful?

Building a child's college education fund.

Which of the following benefits do U.S. savings bonds provide?

are very safe, are tax-advantaged, and do not require a bank account.

Laura has a steady job earning of $99000 per year. She has looked at her fixed expenses and other financial obligations and determined that in the event of a major financial emergency she would need to replace approximately $60000 per year in income. Based on the 3-month emergency fund ratio rule, how much should Laura have in an emergency fund today?

$15000.

Joe has cash in a savings account totaling $7,500, and his monthly expenses are $2,500. What is his emergency fund ratio?

3

Which of the following is a warning sign of fraud? An unsolicited phone call asking for personal information. A promise of high investment return with very low risk. A limited time offer that must be purchased now. An unsolicited phone call asking for personal information, promises of high returns with very low risk, and / or limited time offers that must be purchased now.

An unsolicited phone call asking for personal information, promises of high returns with very low risk, and / or limited time offers that must be purchased now.

Which of the following sources of emergency funds will have the least negative impact on your lifetime financial situation if the source is used to meet emergency expenses?

Taking money from your savings account.

Roth IRAs were created by:

Congress.

Which of the following would be an appropriate tool, if necessary, for someone who has not yet accumulated any savings and is just starting to build an emergency fund?

Credit cards.

Which of the following statements is true when you invest in a federally insured bank account?

Even though there is federal insurance in place, you still face inflation risk.

A Ponzi scheme represents:

Fraud risk.

Which of the following risk-return statements is true?

Higher returns mean greater risk.

An emancipated minor may: I.buy property. II.sell property III.not open a financial account until he or she turns 21years old.

I and II only.

Which of the following bank products are insured by FDIC? I.Savings account. II.Certificate of deposit. III.Dedicated savings account.

I, II, and III.

What are benefits of a custodial IRA?

It offers tax-deferred growth on investment earnings, allows minors to build long-term savings, and gives minors control of assets in the IRA once they reach the age of majority.

Tammy is going on a 2-week vacation overseas. She is planning on taking two credit cards, and has notified her credit card issuers that she will be traveling with those credit cards. What should she do with her other credit cards while she is gone?

Keep them in a safe deposit box.

Which of the following bank products provides high liquidity with a limited ability to make penalty free withdrawals?

Money market savings account.

A portfolio of securities that is professionally managed is known as a:

Mutual fund.

Who of the following may establish a Roth IRA?

Nelda, who is still in college and has a part-time job as a sales clerk.

If a parent establishes a UGMA or UTMA to fund their child's college education and the child—now age 22—decides to forgo college, the parent can do what to ensure that the child does not use the money in the account for an unwise purchase?

Nothing, because the child is legally entitled to the assets held in the account.

Bernie Madoff ran the world's largest:

Ponzi scheme.

Who should consider buying an I bond today?

Someone who thinks inflation will be higher in the future.

When interest rates increase, which of the following outcomes is most likely?

The rate of return on a bank or credit union savings account will increase, and holding cash in an emergency fund is more attractive.

Which of the following types of accounts could be subject to taxation?

UTMA, 529 plan, and/or Qualified Tuition Program.

Which type of account can hold any type of investment or real estate property?

UTMA.

Graham would prefer to own a U.S. savings bond directly, rather than through an account with Treasury Direct. What method should he use to make the purchase?

Using Form 8888 when he files his federal income tax return.

Which of the following is not a common financial emergency?Major car repairs. Vacation travel. Job loss. Major medical expenses.

Vacation travel

If you withdraw money from a CD prior to maturity, what can happen?

You can be penalized through the lost interest earned.

If you become a victim of identity theft, you should report the crime to:

Your local police or sheriff department.

The cost of going without an emergency fund can be:

catastrophic.

A Roth IRA can be established at a(n):

credit union, bank, and / or an investment company.

Liquidity can be described as:

having access to your money whenever you need it.

Purchasing an asset designed to help you reach a long-term goal is a form of:

investing.

An effective way to manage temptation and impulse spending involves:

managing your environment.

One strategy to avoid prize scams from telemarketers is to:

never pay anything to receive a free prize and never give your credit card number out over the phone unless you initiated the phone call.

Bart has been a successful financial advisor for more than 10 years. During that time, he has generated returns that have never been less than 5% annually. He does not advertise but that has not stopped investors from opening new accounts with his firm. It turns out that Bart has been taking the deposits of new investors, keeping a portion for himself, and sending the rest to earlier investors. Bart is running a(n):

ponzi scheme.

Traditional IRAs provide for:

pretax contributions and taxable distributions.

Rick is petrified at the thought of flying. Whenever he thinks about getting on an airplane, he envisions a disaster. Rick's assessment of the risks associated with flying is most closely associated with his:

subjective risk evaluation.

When someone says that they purchased something, but they could have bought something else, they are referring to:

the opportunity cost of their purchase.

Risk refers to:

the possibility of losing money.

You can make tax-free withdrawals from Roth IRAs:

when you withdraw your principal, or after reaching age 59 ½ and the account has been open for 5 years.