Personal Finance Exam 4

Which of the following seeks high total return by maintaining precise amounts within each of the various types of asset that the fund invests in?

Asset allocation fund

common stock

Common stock represents shares of ownership in a corporation and the type of stock in which most people invest. It comes with NO voting rights

Which one of the following statements is false?

Investors who purchase mutual funds are guaranteed a higher rate of return than if they were to purchase comparable stocks and bonds directly.

Jeremiah Brown has been making contributions into an individual retirement account for his retirement. His contributions are not tax deductible but his earnings accumulate tax free. What type of individual retirement account does he have?

Roth IRA

What happens to your Social Security income if you retire early at age 62 instead of 65?

There is a permanent reduction of 5/9 of one percent for each month that you receive payments before age 65.

Which one of the following statements is false?

There is no need to evaluate mutual fund investments, because investment companies hire the best professional managers they can to manage their funds.

Ben Carmichael has been making contributions into an individual retirement account for his retirement. His contributions are tax deductible (based on his tax filing status and income) as his employer does not offer a retirement plan. What type of individual retirement account does he have?

Traditional IRA

Your first step in retirement planning is to:

analyze your current assets and liabilities

A mutual fund in which shares are issued only when the fund is organized is called a ____________ fund.

closed-end

Nancy Moore is planning for her retirement. She guesses that by the time she retires, her mortgage will be paid off on her home. She expects she will pay $600 a month on food and that her medical expenses will be $400 a month. She also estimates that she will spend $400 a month on things that she enjoys like traveling, going to concerts, reading and other similar activities. What step in the retirement planning process is Nancy completing?

estimating her spending needs

Rebecca Murphy is planning for her retirement. She has done some checking and thinks she will get about $1,408 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 $400 per month. What step in the retirement planning process is Rebecca completing?

evaluating her planned retirement income

When one investment company manages a group of mutual funds, it is called a:

family of funds

What is most likely to be an individual's single biggest asset?

home

A mutual fund that invests in investment-grade corporate debt with maturities between 3 and 10 years is called a(n) ____________ fund.

intermediate corporate bond

A mutual fund in which investors pay a commission every time they purchase shares is called a ____________ fund.

load

Which one of the following expenses for retirees is most likely to increase?

medical expenses

Which one of the following funds would be considered the safest investment?

money market fund

The current market value of a mutual fund's portfolio minus the mutual fund's liabilities equals a figure, that when divided by the number of shares outstanding, results in the:

net asset value

The contribution Billy Foster's employer makes to his retirement plan depends on the profits of the company. What type of retirement plan does Billy have?

profit-sharing plan

Which of the following is not a variable expense?

rent or mortgage payments

A mutual fund that invests in companies within the same industry is called a(n) ____________ fund.

sector

Which one of the following is the most widely used source of retirement income?

social security

Tisha Elmwood is buying shares in a mutual fund that avoids companies that do harm to people, animals, and the environment. What type of mutual fund is this?

socially responsible fund

Joseph Carter is buying shares in a mutual fund that is investing in stocks throughout the world, including the United States. What type of mutual fund is this?

global stock fund

A mutual fund:

offers safety through diversification because a loss in one investment is usually offset by gains in other investments within the fund.

A mutual fund whose shares are issued and redeemed by the investment company at the request of investors is called a ____________ fund.

open-end

An investment company sponsoring a mutual fund must give potential investors a(n):

prospectus

As its retirement plan contribution, Aaron Copeland's employer has been buying shares of the company's stock for Aaron's benefit. What type of retirement plan does Aaron most likely have?

stock bonus plan

An annuity in which payments stop when you die, whether a month or many years after the payout begins is called:

straight life annuity

The Capitalist Mutual Fund's portfolio is valued at $40 million. The fund has liabilities of $2 million, and the investment company sponsoring the fund has issued 1,250,000 shares. What is the fund's net asset value?

$30.40

Ted Riley owns a vehicle worth $20,000 and a home worth $230,000. He has a checking account balance of $1,000, a savings account balance of $1,000, and a mutual fund worth $75,000. His personal assets are worth $100,000. He still owes $10,000 on his car, $101,000 on his home, and $1,000 on his credit card. What is Ted's net worth?

$315,000 (Assets-Liabilities)

Many financial planners recommend that investors choose a mutual fund with an expense ratio that is:

1 percent or less

A fee that some investment companies charge for distributing and marketing a mutual fund is called a:

12b-1 fee

At a 3 percent rate of inflation, approximately how many years will it take for prices to double?

24 years

When an investor purchases shares in a load fund, the average load charge is between ____________ percent.

3 and 5

preferred stock

A special type of stock whose owners, though not generally having a say in running the company, have a claim to profits before other stockholders do. DOES have voting rights

Another name for a mutual fund that charges a contingent deferred sales load is a(n) ____________ fund.

B

Another name for a mutual fund that doesn't levy a sales charge, but does charge an ongoing higher 12b-1 fee is a class ____________ fund.

C

Karen Endicott is planning for her retirement. She knows that after she retires she will no longer need her own single family dwelling. She plans on buying a condominium in Chicago, close to the bus and train line and close to a grocery store. What step in the retirement planning process is Karen completing?

Evaluating her retirement housing

What are the two most popular personal retirement plans?

Keogh accounts and IRAs

Which retirement plan was specifically developed for self-employed individuals and their employees?

Keogh plan

Bruce Wills has been making contributions into an individual retirement account on behalf of his nonworking wife. What type of individual retirement account is this?

Spousal IRA

Which employer retirement plan specifies the benefits promised to the employee at the normal retirement age?

defined-benefit plan

Together, all the different management fees, 12b-1 fees, and additional operating costs for a specific fund are referred to as a(n):

expense ratio