Financial Literacy Exam #2

Which of the following are true regarding investing for the long term? Check all that apply.

Dollar cost averaging (investing at regular intervals) reduces risk and is a systematic approach to investing. Socially responsible investing assures gains in portfolio growth. Diversification helps reduce investment risk. Women are usually not willing to take the same risks as men - so their portfolio returns are usually lower over time.

Eleanor and Eric are buying their first home. They have spent the last 3 years paying off all their debt, they have a fully-funded emergency fund, they have saved enough to put 20% down (to avoid PMI). Both of them have solid, full-time careers. What mortgage option would you suggest to them:

20% down, 15-year Fixed

What investment account can help you reach long term goals for building wealth? Check all that apply.

401K SEP IRA (if self-employed) Traditional IRA ROTH IRA

Risk Tolerance

A measure of how much of a loss an investor is willing to endure within their portfolio

Network

A roster or directory of medical professionals that work with your insurance company

Replacement Value

A settlement method where the insured receives the full cost of repairing or replacing a damaged or lost item

Diversification

A strategy that mixes a variety of investments within a portfolio

An offer to purchase all new furniture at 0% interest for 12 months is a good idea because you don't have to pay it all off at once.

False

Dental and Vision insurance are covered in your major medical insurance policy.

False

Financial contentment can only come from having at least 1 year of expenses in the bank.

False

Financing is a marketing technique used for large purchases. It can benefit you because you pay less interest and bring down the total cost of the item.

False

Giving a financial gift is the only way you can express your generous heart.

False

Giving should only be done when you have extra money and feel like being kind.

False

Health insurance is only offered as a benefit from your employer. You must have a job that offers these benefits to be fully covered.

False

I can pay my taxes every other year if I can't afford them. The IRS won't mind.

False

Insurance on a leased car is lower because you don't really own the car. The leasing company does.

False

Itemizing your deductions on a tax return is always better than simply applying the standard deduction.

False

Once you pay for your car, the only additional expense is fuel and insurance.

False

The bible says that money is the root of all evil. Therefore, we should not have too much and should give a lot of it away.

False

When you purchase a car, it is more important to consider what monthly payment you can afford rather than the price of the car.

False

You can refuse to pay federal income tax because you don't agree with the federal budget and do not want to support some of the government's initiatives.

False

Your gift doesn't really make an impact if you can't give at least $100 away.

False

To determine affordability when purchasing a car, you should (check all that apply)

Find a reliable car that will fit your needs. Be sure you have saved up enough cash to pay for it.

The bible says that the generous will prosper... and also that those who refresh others will be refreshed themselves. So this must mean:

God will bless us in our giving and generosity - and that doesn't always mean financial

ROTH IRA

Individual retirement account that allows for tax-free growth where withdrawals are not taxed

Compound Interest

Interest on deposits calculated based on both the principal and the accumulated interest

Which statement about investing is not true?

Investing always results in growth of your portfolio.

Check the biblical principles that apply to giving:

It is more blessed to give than to receive. Whoever gives to the poor lacks nothing. God promises to supply all of our needs. God loves a cheerful giver.

Jonathan had $3000 withheld for taxes last year. After filling out the appropriate forms with the IRS, his total tax liability turned out to be $2800. Consequently, Jonathan overpaid by $200 and will receive a refund from the IRS. What if Jonathan's tax liability turned out to be $3500?

Jonathan would owe the IRS $500 and may want to adjust his W4 withholding.

Liability

Legal responsibility for the financial cost of another person's losses or injuries

When considering whether to rent or purchase a home, which of the following are benefits to renting: (check all that apply)

Little or no maintenance costs Flexibility

Jonny graduates in May. He has no debt except for his small student loan. He already has a job offer and rents his apartment at a reasonable cost. What is Jonny's first financial move upon graduation?

Live on a zero based budget and pay off the student loan as fast as possible.

If we want to make generosity a part of our lives, what strategies can we use? (check all that apply)

Make giving a priority. Be consistent and regularly give. Plan ahead and include it as a line item in the budget.

When you lease a car, the following are some fees that you might be responsible for. Check all that apply:

Mileage overage fees. Additional wear and tear. Early termination fees.

Collision

Motor vehicle insurance that pays for damage to the insured's vehicle when it is involved in an accident.

A 401K is an employer sponsored retirement plan where (check all that apply).

Once retirement age is reached, withdrawals from your 401K are penalty and tax free. Employee contributions are made with pre-tax dollars, thereby lowering your taxable income. Some employers off a dollar match - up to a certain amount or percentage - if you invest. Employees can fund their accounts by making regular payroll deductions.

The following are possible tax deductions - check all that apply:

Property Taxes Medical and Dental Expenses Mortgage Interest

Reagan is a 24 year old, single, and lives in an apartment. He has no dependents. Last year he earned $50,000 as a professor teaching history. He also earned $150 in interest income from his money market account. He paid $300 in student loan interest. He deposited $100 a month ($1200) into his tax deferred 401K. He also contributed to his ROTH account (which is not a tax advantaged account, but growth is not taxed). He decides to take the standard deduction. He had no tax credits. Calculate his Gross income, Adjusted Gross income, and taxable income.

Reagan's gross income is $50,150; his AGI is $48,650; his taxable income is $36,100

Which of the following factors exist that might afford you auto insurance discounts? Check all that apply.

Safe-Driver (no tickets or accidents in a year) High GPA Multi-car Policy Low-Mileage

Eleanor graduates in May. She has a job lined up and will be making regular income. She decides to include generosity and giving in her budget, but there doesn't seem to be room for any giving. What can she do?

Start small, budget giving first, and trust God.

Single Stock

Stock in one individual company

401K

Tax-advantaged contribution retirement account offered by many employers as a benefit to employees

Deductible

The amount you pay for care or loss before the insurance company starts to pay its share

Premium

The amount you pay for your insurance plan even if you don't use the plan

itemized deductions

expenses that can be deducted from adjusted gross income: medical expenses, real estate property tax, home mortgage ineterest, charity, etc

AGI

gross income reduced by certain adjustments, such as contributions to an IRA or alimony payments

Earned Income

money received for personal effort, such as wages & salary

investment income

money recieved in form of dividents, interest, etc.

Taxable Income

net amount of income, after allowable deductions, on which income tax is computed

marginal tax rate

the rate used to calculate tax on the last and next dollar of taxable income

Homeowner's Insurance

Coverage for a place of residence and its associated financial risks

In an automobile insurance policy, the section that covers liability might be listed something like this: 100/300/50. Those numbers are an indication of the following policy limits:

$100K paid to one person in an accident, $300K limit paid to all persons in an accident, and $50K limit for damage of property of others.

Eric has a cool Camaro. He has a 50/100/15 vehicle insurance coverage with no deductible. Eric went out right before a hurricane and lost control of his car, hit a parked car, and damaged the corner store. The damage to the parked car was $5500 and the damage to the store was $15,000. No one was injured and Eric was not hurt (except for his pride). What amount will the insurance company pay Eric for the accident?

$15,000. This is the limit of the policy.

How much is $2,400 invested each YEAR at a modest 7% for 25 years worth at the end of 25 years? (rounded to the nearest dollar)

$151,798

Eric and Peyton just purchased their first home, which cost $250,000. They chose a homeowner's policy that insured the home for $250,000 and property for $75,000. They declined the coverage for additional living expenses. Their deductible for the policy is $1000. Not long after they moved into their new lovely home, a storm hit and damaged their roof. The roof damage was estimated at $20,000. While the repairs are being done, Eric and Peyton had to move out and stay at a nearby hotel for 4 days. The hotel bill totaled $550. Assuming the insurance company settles the claim using replacement value, what amount will the insurance company pay for the damages to the roof?

$19,000

What is the maximum ROTH IRA contribution?

$6000 ($7000 if you are over 50) as long as you earned that amount in the year.

The Sims family of 4 has health insurance coverage that includes 75% out-of-hospital expenses after the $500 deductible per person. Mrs. Sims fell ill and incurred a doctor's expense and prescription expense totaling $1350. What will the insurance company pay?

$637.5

Based on the 2021 tax brackets, If Brian and his wife have a taxable income of $70,000 and they receive a $7200 child credit (because they have 2 children under the age of 5), what is their total income tax liability?

$802

Comprehensive Damage

Damage caused by a non-moving accident such as trees falling or hail

Bull Market

Condition of the financial market in which prices are rising or are expected to rise

If you get a mortgage, the following expenses will likely be put in "ESCROW" each month - so be prepared for this! (check all that apply)

Homeowners Insurance Real Estate Tax

A ROTH IRA allows tax-free withdrawals of contributions and earnings upon reaching retirement age

True

A generous heart and a giving spirit will bring you joy.

True

There are four major categories of taxes. Check all that apply:

Wealth Tax (often called death tax) Property Tax Sales Tax on purchases Tax on earnings

Bear Market

When a market experiences prolonged price declines

Tax Deductions

an amount subtracted from adjusted gross income to arrive at taxable income

The following factors will impact the cost of your car insurance (check all that apply):

Your location Year, make, and model of your car Your driving record (including tickets and accidents) Your age

Standard Deduction

a set amount on which no taxes are paid