Multiple Choice Answers
If you contribute $1000 toward a medical flexible spending account, and you are in the 25% tax bracket, how much will you save on federal income taxes?
$250
About how much does a 20 year term life insurance policy with a face value of $500,000 cost for a very healthy 30 year old male with average weight and height?
$250 per year
Many financial advisors would suggest that if you are about 30 years old, a good asset allocation in your retirement accounts is:
80% stocks and 20% bonds
An employee's Social Security contributions are invested in a general fund account and will be made available for the employee at retirement
False
If you are in a 25 percent tax bracket then every dollar of your adjusted gross income will be taxed at 25 percent.
False
In the short run, investing in stocks outperforms most other invesments
False
Investments with higher risk always have higher expected returns.
False
Most people will need to pay at least a small amount in estate taxes when they die
False
Normally, you can avoid repaying your Federally Subsidized Student Loan by declaring Bankruptcy
False
One of the best things about retirement is that retirees don't have to pay income taxes once they retire
False
The advantage of whole life insurance is that it is generally cheaper than term life insurance per dollar of coverage
False
The gift tax is the tax that recipients of your gifts over $13,000 must pay
False
The main advantage of the ROTH IRA over the traditional IRA is the employer matching funds
False
The main difference between a defined-benefit plan and a defined-contribution retirement plan is the tax deduction for the defined-contribution plan
False
The size of your Social Security benefits are determined by
The number of years of earnings and the average level of earnings, age at which you retire, and Inflation
In California, which of the following could increase the cost of your auto insurance?
driving more miles per year, and getting speeding tickets
The Patient Protection and Affordable Care act
requires individuals to pay a fine if they do not have health care coverage. allows children under the age of 26 to be covered by their parent's plan. requires insurance companies on the exchange sites to cover pre-existing medical conditions.
A deferred income annuity
provides you with a set monthly payment for the rest of your life, can be purchased in a traditional IRA, and are sold by insurance companies
To determine your estate's net worth, you would
subtract the amount of your estate's liabilities from the amount of your estate's assets
When it comes to actively managed mutual funds, Sethi believes that professional fund managers
tend to underperform the market
A person may have a 401K and a Roth IRA plan open at the same time
True
A potential drawback of a high deductible health plan is that individuals with these plans may be hesitant to seek medical care when they need it
True
Trusts are much more difficult to challenge in court than are wills which is one thing that makes them more attractive
True
With a PPO, it is much more expensive to go to out of network healthcare providers.
True
the best place to start looking for Renters Insurance is with the Company you have your automobile insurance
True
Short-term capital gains are taxed at the same rate as your salary?
True (Income from short-term capital gains is taxed at the same rate as income from salary and wages)
What is/are advantages to establishing a trust?
Trusts bypass probate, Trusts can ensure that children from a previous marriage will receive some inheritance, Trusts can be used to shelter assets from estate taxes, and a trust does not become a matter of public record, so its offers confidentiality.
Who needs disability insurance?
anyone who relies on income from a job
A key disadvantage of a flexible spending plan is that you may lose any money not spent.
True
According to our guest speaker, the renter's insurance policy that he described from Allstate would cover the following items:
A laptop that was stolen out of your car (after you pay the deductible). A laptop that was stolen out of your apartment (after you pay the deductible). And the medical bills of Joe, if Joe was bitten by your dog at the park.
Which of the following factors can increase your automobile insurance premium in California according to our guests speaker Greg Phister.
Accidents in which you were at fault, moving violations (ex. speeding ticket), and lowering your deductible
Which of the following factors can increase your auto insurance premium in California according to our speaker Greg Phister
Accidents in which you were at fault. and Moving violations, such as speeding or failing to stop at a red light
If Susan dies in 2013 with an estate valued at $2,000,000 how much would her estate tax liability be?
Assuming she has not given out any money as gifts throughout her life, she would owe no estate taxes.
Is moral hazard more likely to be an issue with life insurance or auto insurance?
Auto insurance
What are the benefits of a trust for most people?
Can avoid attorney and executor fees associated with probate. and can distribute your assets privately, minimizing public records
Verci and Banok skidded on the ice and hit a telephone pole. Their car suffered severe damage to the front end. the expense to repair their car will be covered under which part of their auto insurance policy?
Collision
If you have caused an accident, which type of automobile insurance would cover damage to your own car?
Collison
Historical rates of return for the last 82 years place _______ at the highest end of the spectrum for risk and _______ at the lowest end for risk.
Common stocks; treasury bill
Under joint tenancy with the right of survivorship two or more individuals share ownership of the assets; when one of the owners dies that owner's share of the asset becomes part of the deceased's estate and is distributed according to the deceased's will
False
With a good comprehensive health care policy, paying extra for disability income coverage is not a good use of your scarce insurance budget.
False
A bond's yield is always the same as its coupon interest rate
False (a bond's yield also depends on whether you paid the face value for the bond. For example, if you paid less than the face value, your actual yield will be higher than the coupon rate.
The benefits of an HMO are that
HMOs tend to be less expensive than PPOs. HMOs encourage a relationship with a primary care provider
In "I Will Teach You to Be Rich," Sethi recommends a strategy for saving up for your retirement. Which of the following strategies best describes his recommended approach for young people?
Invest in a 401K up to the point at which you take advantage of any employer matching, then invest the maximum you can in a Roth, and then invest more in your 401K
Which of the following statements is true about your FICO score:
It affects the interest rate you will be charged on home loans (You have the right to see you credit report free of charge, not your FICO score. The most important factor is making payments on time.)
How is the size of a person's Social Security retirement benefits determined?
It depends on the number of credits earned in a person's lifetime. It depends on the average level of earning over a person's lifetime. It depends on the number of years a person has paid Social Security taxes.
Which of the following types of health care insurance plans pay for some medical costs even when the insured decides t go out of the provider network (without a referral) for services?
PPO (preferred provider organization)
In what type of health insurance plan do networks of doctors negotiate rates with insurance company about what they can charge you?
PPOs (in an HMO, the insurance company pays health care service providers a capitation payment for each enrolled HMO member, regardless of how many services the individual uses)
What factor carries the most weight in your FICO scores?
Payment history (whether you have made late payments)
Social Security is a system in which current workers pay taxes that are used to pay current retirees' benefits. How is social security funded?
Payroll taxes on employees up to a salary cap
While transporting your TV to the repair shop, someone stole it from your while it was parked. Your TV is covered under your which type of insurance:
Renters and Homeowners
Which of the following is true about the Affordable Care Act (ACA)?
The ACA instituted a financial penalty for those who do not have health insurance. And the ACA made it possible for individuals up to the age of 26 to stay on their parents' health insurance plans.
What are the disadvantages of Group term insurance?
The cost to convert from Group coverage to individual coverage if you leave the company may be cost prohibitive. and Replaying on group insurance may hinder your decision to leave the company
Todd was driving his friends, Natasha and Sam, home when he rear-ended another car. He is worried about paying for the medical bills and possibly getting sued. Who will be covered under his Medical expense coverage?
Todd, Natasha, and Sam
A corporate bond offers a higher coupon rate than a U.S Government bond because of the default risk premium
True
Assume that you rent an apartment and your dog bites one of your guests. If you had a renters insurance policy, it could pay for your legal defense and settlement charges from this event.
True
Life insurance agents receive a higher commission from selling a cash value policy than they do from selling a term policy
True
Most major health care policies cover Hospital, Surgical, and Physician covereages
True
One way to lower the premiums you pay on your insurance is to have a higher deductible.
True
Short-term capital gains are taxed at the same federal tax rate as your ordinary income?
True
The combat the issue of moral hazard, insurance companies might insure your items for less than 100% of their value
True
Which of the following statements are true about health insurance?
You would have a better chance to choose your own doctor with a PPO rather than an HMO. And also increasing the deductible is likely to lower the premium on a comprehensive major medical policy.
In California, what characteristics will affect the cost of your car insurance?
Your driving record, the make and model of your car, where you live, and number of miles you drive per year.
Suppose that, during a party, one of your guests drove their car into the corner of your garage while turning around. Where is the first place you would look for damage payment to fix your garage?
Your guest's auto insurance liability coverage
What is true of a loan forgiveness program?
a loan forgiveness programs eliminate the entire remaining balance of your loan after working for a specific number of years in specific employment sectors (such as working for a federal, state, or local government).
Most financial economists agree, the best stock investment for individual investors is:
a low cast index fund
Why do life insurance agents recommend cash value insurance policies for everyone?
because they pay a higher commission
As your car becomes older and older, how might it be worth changing your auto insurance?
cancel your collision insurance
Your agent argues in favor of cash-value life insurance. You counteract with term to
have a large policy and keep things simple. Enjoy a relatively low cost per each $1000 of coverage. have a lot of insurance at affordable prices when you need it the most. save the difference you would pay, invest it, and come out ahead
Which of the following is true about whole life insurance?
in addition to life insurance, it includes a component for savings
Long-term disability insurance
is an insurance policy that protects an employee from loss of income in the event that he or she is unable to work due to illness, injury, or accident for a long period of time
Which of the following statements is true regarding Social Security retirement benefits?
it attempts to replace 42% of your average earnings. Once you start collecting Social Security Benefits, your payments are adjusted for inflation. Some people's benefits may be taxed.
A deferred income annuity is potentially a good investment in case you
live a longer amount of time than you expected
For most Americans, the benefit of having a living trust are:
the avoid probate (although a living trust can help avoid paying estate taxes, that is primarily helpful only for the super wealthy- those with estates over $5.45 million. For most Americans, a trust is still very helpful to avoid the potentially high costs of probate.)
For an ordinary new car such a Honda Civic, about what price should you expect to pay?
the dealer's invoice price
The relationship between insurance premiums and deductibles is an inverse relationship; in that,
the higher the deductible the lower the annual premium
Life cycle Funds
try to tailor their holdings to the investor's individual age and risk tolerance
The purpose of the probate process is to
validate the will, distribute the assets, and collect the taxes
Which of the following factors are typically used in determining the price of a life insurance policy?
whether the insured smokes, the age of the insured, and the sex of the insured