Personal Finance Study Guide

Whay are Target Date Funds (TDFs) becoming an increasingly popular option to invest in?

TDFs automatically adjust the allocation between stocks and bonds as you age

How is a bond different from a stock?

a bond is a loan you give an organization while a stock is a partial ownership in the company

Your friend Jerry wants to use a robo-advisor to manage his portfolio. What does this mean?

a computer software system is going to adjust his portfolio based on his preferences

How can someone make money from investing in a stock?

they receive dividends from the company they bought the stock of and/or they sell the stock at a higher price than what they bought it forThis

T/F 100% of the ten-year periods in the history of the stock market have made money.

true

T/F 403b plans are designed for employees of non-profit organizations such as hospitals and schools.

true

T/F A savings account is an example of a liquid asset.

true

T/F A series of equal, regular deposits is called an annuity

true

T/F A telephone bill is a current liability.

true

T/F Creating a personal balance sheet is a good way to determine your assets and liabilities.

true

T/F Financial transactions and documents can be saved on a password protected computer.

true

T/F If we used a race analogy to describe building wealth, it would be a marathon.

true

T/F Insolvency happens when the total of your liabilities is greater than your assets.

true

T/F Living without debt in today's society requires a paradigm shift.

true

T/F Pre-authorized checking helps to build discipline in saving.

true

T/F diversification means to spread around

true

T/F supply and demand are examples of market forces

true

T/F the title to your car is an example of a personal financial document

true

T/F the typical millionaire drives a reliable, used car.

true

When investing in individual stocks, you should expect that...

unforeseen company events can have a dramatic impact on the stock price for a company

T/F You can buy and touch intangible items

false

T/F You need a credit card in order to rent cars and check in to hotels

false

T/F You should include possible gifts when you estimate your income.

false

T/F You should invest 10% of your household income into Roth IRAs and pre-tax retirement plans.

false

T/F Your first "Baby Step" is to pay off all your debt.

false

T/F take-home pay is equal to your salary

false

T/F the first thing you should save for is your retirement fund.

false

The central banking organization of the US is called the __.

federal reserve system

You bought 10 chares of stock in StreamingVideoCo for $45 per share. Two months later you sold the 10 shares of stock for $80 per share. What was your profit or loss on StreamingVideoCo stock? (assume no dividend was paid and you did not incur any fees)

gain $350

If you invest $1,000 at 12% interest, how much money will be in the account after 2 years, compounded annually?

$1,254.40

Joe's annual salary is $40,000. His company matches his 401k up to 5%. How much will he invest in his 401k, Roth IRA, and what is his total investment?

$2,000 401k, $4,000 Roth, and $6,000 total investment

Using the Rule of 72, how long it will take your money to double at 12% interest.

6 years

Why is compound interest more advantageous than simple interest?

Compound interest allows you to earn interest not only on the amount you have saved, but also on the interest you've already earned

What is the best option for your retirement plan when you leave a company?

Do a direct transfer into an IRA

Which of the following is a good way to save for college?

ESA

Which of the following statements about Exchange Traded Funds (ETFs) is TRUE?

ETF prices can change throughout the day as they are exchanged on the market

How does investing in the stock market differ from putting money in a savings account at a bank?

Investing allows you to accumulate wealth for retirement while saving is best for short-term purchases and emergencies

To open a brokerage account, you...

must be able to transfer money from a check or savings account

What is a vesting period?

The period of time it takes for shares in an employer retirement plan to be owned fully by the employee

What definition best explains an IRA?

The tax treatment on virtually any type of investment

Which statement is not true about debt consolidation?

You end up saving money because you get a lower interest rate

If you have $3,000 invested in a Roth IRA, what is true about your contribution?

You have already paid taxes on the money, so it will grow tax-free

How is a debit card like a credit card

all of the above

A disadvantage of using a safe-deposit box for keeping financial documents is that it ____.

can cost $100 a year to rent

Under which condition are you not able to make a tax-free withdrawal from your Roth IRA?

career changeand temporary drop of income

Earning interest on previously earned interest is called ____.

compounding

Savings is about

contentment and emotion

T/F The time value of money is the amount your original deposit will be worth in the future, based on earning a specified interest rate over a set period of time.

false

T/F With all investments, as the risk goes up, the return goes down

false

Why diversification is a recommented investment strategy?

diversifying your portfolio helps reduce risk

The ways in which people make, distribute, and use their goods and services is called the ____.

economy

What kind of cognitive biases and behaviors can prevent people from making smart investment decisions?

exiting the market because that's what everyone else is doing

T/F A new car is example of a need

false

T/F A share is a piece of ownership in an annuity

false

T/F A surplus is when more money is spent than is earned or received

false

T/F ETAs are a good way to save for college.

false

T/F Interest rates provide an indicator of how well people are living

false

T/F Interest rates provide an indicator of how well people are living.

false

T/F Murphy's Law is more likely to strike if you are prepared for the unexpected events that occur throughout life.

false

T/F Once you have a fully funded emergency fund, put 12% of your income into retirement plans.

false

T/F Pre-tax means the government allows you to invest money after taxes are taken out.

false

T/F Saving money for the holidays is an example of a long-term goal.

false

T/F The difference between saving and investing is the amount of interest you earn on your money.

false

T/F The first debt in your debt snowball is the one with the highest interest rate.

false

In which type of loan would you use your house for collateral?

home equity

A good budget has all the following characteristics EXCEPT ____.

inaccessibility

A cash flow statement gives you important feedback on your ____.

income and spending patterns

an example of a fixed expense is __.

insurance premiums

What is the next step after you have a fully funded emergency fund?

invest 15% of your income into Roth IRAs and pre-tax retirement plans

You want to open a Roth IRA. Is this saving or investing?

investing

You want to start a college fund for your newborn son. Is this saving or investing?

investing

How does investing in the stock market differ from putting money in a savings account at a bank?

investing allows you to accumulate wealth for retirement while saving is best for short-term purchases and emergencies

Which of the statements below BEST describes the relationship between risk and return when considering an investment?

investors expect to earn a higher return when they invest in high risk asset, like a stock in a small company

An actively managed mutual fund...

is managed by a fund manager who charges a fee

Payday lending and cash advance companies are aggressively targeting which group of people?

military

The trade-off made by making one choice instead of another is commonly referred to as a(n) ____.

opportunity cost

Your net worth goes up when you ____.

pay off previous debts

You want to buy a car in two years. Is this saving or investing?

saving

You want to buy a house within the next five years. Is this saving or investing?

saving

Your daughter has a wedding next year. Is this saving or investing?

saving

A sinking fund approach means:

saving and paying cash

An example of a liquid asset is a ____.

savings account

Hairstyling and bookkeeping are examples of ___.

services

Which is not true about the practice of marketing credit cards to teenagers?

teens are concerned about retirement and being debt free

Why do people think that the home equity loan is not a good idea?

they can fix up their home free

One use of discretionary income is spending on ____.

videos

Which of the following is true about using credit?

when using credit, one spends more

Which statement is not true about debt consolidation?

you end up saving money because you get a lower interest rate

A disadvantage of using a robo-advisor might be that...

you may not be able to get advice from a human financial advisor when you want it

As a shareholder in a public company, what are the benefits available to you?

you may receive dividends from a company, if the company pays them, and you have ownership of a portion of a company

Which is not true about making purchases with credit cards?

you spend 12-18% less when using a credit card