Chapter 8: Cash or Liquid Asset Management

The Federal Deposit Insurance Corporation (FDIC) insures deposits at commercial banks for up to __________ per depositor.

$250,000

What is the after-tax return on a money market mutual fund if it is currently paying 3% and you are in a 28% marginal tax bracket?

2.16%; You compute the after-tax return by multiplying the pre-tax return by the factor (1 - marginal tax rate). So, the after-tax return is = 3%(1 - .28) = 2.16%.

A certificate of deposit, or CD, pays a fixed rate of interest on deposits ranging in term from:

30 days to several years; Since you guarantee that you will leave the money on deposit for the specified length of time, or face stiff financial penalties, CDs pay a slightly higher interest rate than other liquid forms of savings. CDs are insured by the FDIC and require a minimum deposit amount.

__________ is an interest-paying checking account issued by some deposit-type financial institutions.

A NOW account

Which of these is not one of the three Cs of choosing a financial institution?

Collateral; Cost, convenience, and consideration are the three Cs of choosing a financial institution.

A time deposit that pays a fixed rate of interest is known as:

a savings account.

Most career experts advise that you should begin looking for a job:

about one year before you graduate.

Jessica inherited $282,000 from her grandfather which she used to buy a certificate of deposit at a local bank. However, the bank was just declared insolvent and taken over by federal regulators. How much money will Jessica potentially lose?

$32,000; CD is only guaranteed up to $250,000.

The __________ converts interest rates with different compounding frequencies into a comparable annual interest rate so investors can make accurate comparisons.

APY

Which of these is considered a deposit-type financial institution?

Bank

Which of these is an advantage of online banking?

Convenience

Which of these accounts is not federally insured?

Money Market Mutual Funds; Deposits in money market deposit accounts (MMDAs) are insured by the FDIC up to $250,000 per depositor and checking accounts at credit unions are insured by the National Credit Union Association for up to $250,000 per depositor.

Which of these is considered to be a liquid asset?

Money market mutual funds

Any cash transfer that takes place automatically is known as:

an electronic funds transfer.

The decision regarding what career path to select is __________ financial planning.

an important step in

Determining how much money to keep in liquid assets and where to keep it is the subject of:

cash management.

A card that allows you to access your bank account electronically is known as a:

debit card.

The key factor that typically determines your eventual salary is:

educational attainment.

Additional skills, training, or education is often referred to as:

human capital.

Liquid assets are __________ risk and generate __________ returns.

low; low

Jason just agreed to purchase a couch from an individual who is not willing to accept a personal check. The post office is just around the corner and Jason knows he can purchase a __________ there to cover the transaction.

money order

The top issue that leads to divorce is:

money problems

An MMDA account:

or money market deposit account, is similar to a savings account but it pays a variable rate of interest that is normally higher than a savings account and also typically has limited check writing privileges.

A NOW account:

or negotiable order of withdrawal account, is an interest-paying checking account issued by some deposit-type financial institutions.

Financial planners recommend __________ to make it easier to save.

paying yourself first

Jorge wrote a check to a local vendor prior to inspecting the vendor's work on his house. However, after inspection he is dissatisfied with the quality of the work. Assuming the vendor has not cashed the check Jorge can:

put a stop payment on the check (EFT); Automatic payments and Internet banking are both forms of EFT.

T-bills are short-term debt issued by the U.S. Treasury that are considered to be:

risk-free; T-bills have maturities less than 12 months and are sold at a discount. In other words investors buy T-bills and pay less than face value and then collect the face value when the bills mature. T-bills are sold in $1,000 increments.

A physical storage location at a financial institution that you can rent and use to store important documents and other small items is known as a:

safety-deposit box.

The single most important factor that determines your value to an employer is your:

skill set.

In order to free up funds for savings and investment you must:

spend less than you earn.

Some people may postpone saving for retirement since there is so much uncertainty surrounding the future. In behavioral finance this tendency to discount the future is known as:

temporal myopia

Financial planners recommend having an emergency fund that should only be used for:

unexpected events