Personal Financial Planning Final Exam
Which of the following may be a disadvantage of an online savings account?
It may take a few days for you to actually get the funds when you need to make a withdrawal
The quickest method of improving your credit score is to:
Reduce your Credit Utilization Ratio to less than 30% of your credit limit.
Employers who offer pension plans to their employees have a choice of 2 main types of pensions. One of these retirement plans provides a retiree with annual payments that are based on their years of service and average ending salary. Because this type of pension is so expensive most employers are no longer offering it to their new hires. This type of plan is called a:
Defined benefit plan
You want to invest $4,000/year into an account that earns 8% compounded annually. How much will you have in your account in 30 years? (Beginning of Period)
$489,383
How long does old Doc White suggest that you keep your federal and state income tax records?
3-7 years
To calculate your net worth, subtract your total liabilities from your total assets.
True
True or False. Checking your own credit history will not have an impact on your credit score.
True
Which of the following investment portfolios is not an example of proper (or good) diversification?
50 shares of Ford stock, 50 shares of General Motors stock, 50 shares of Toyota stock
Doc White has preached about changing the percentage (the allocation) of stocks and bonds in your retirement account as you get older. You know, using that old "100 - Your Age" Rule as you get older. This strategy is called:
Reallocating your portfolio.
Part A of a homeowner insurance policy will cover damages to which of the following assets?
Smoke damage to the house itself
True or False. Doc White wishes each of you good luck during exam week and a peaceful, happy holiday season!
True
Doc White's sure-fire rule for determining that you have too much risk in your investment portfolio says:
if you are waking up at night worrying about your stocks, you have too much risk.
Assets that you purchase for the purpose of accumulating wealth to satisfy your financial goals are called
Investment Assets
Which of following is NOT a legal method of reducing your federal income taxes?
Listing only 75% of your cashtips and wages as income
Suppose that Jacob's assets include a motorcycle worth $12,000 and a checking account with a $3,000 balance, while his liabilities include a credit card balance of $4,000 and a motorcycle loan balance of $7,000. What is his net worth?
$4,000
Which of the following sources of consumer loans typically offers the lowest interest rates (APR) on consumer loans?
Credit Unions
The grossest-sounding piece of investment advice that Uncle Al has given you this semester is, "take advantage of DRIPs." How does a DRIP impact your investments?
Instead of getting a cash dividend you receive additional shares in that company, which increases the compound growth of your investment.
Which statement best describes the principle of "Pay Yourself First"?
Save or invest 5-10% of your paycheck (or as much as you can afford) as soon as you receive it.
Old Doc White advised you to do your homework before applying for a consumer loan. Which of the following is his main piece of advice on preparing to get a consumer loan?
Check your credit history at least 3-6 months before applying for the loan.
Which of the following is can NOT be listed as an itemized expense on Schedule A?
Traditional IRA contributions made during the year
You want to have $3 million available for your retirement in a TAXABLE account. You will invest for 40 years in an account that earns an annual return of 8%. You are in the 25% Marginal Tax Bracket. How much will you need to invest each MONTH to reach your goal? Use Beginning of Period PMTS.
$1,498.91
Doc White told you to set a goal for your personal savings by the time you graduate. Your current monthly living expenses are $1,500 per month. What amount of money did Doc advise you to have in your savings account on the day you graduate?
$1,500-$3,000
Inflation represents a rise in prices over time - and that means your dollars won't buy as much in the future. As an example, assume that the average annual inflation rate is 3.5%. Your family currently has an annual living expense of $60,000. How much money will you need in 25 years to have the equivalent lifestyle that costs $60,000 today? (End of Period)
$141,795
Jose just borrowed $4,500 to buy a used car. His loan is for 3 years with monthly payments. The interest rate on the loan is 8% APR. Calculate his monthly loan payments. (End of Period)
$141.01
D'Wayne wants to have $60,000 available in 15 years for a down payment on a house. His account will earn 4% compounded annually. How much money does D'Wayne need to deposit into his account today to reach his goal? (Beginning of Period)
$33,316
Most students graduate from college with an average of $35,000 in student loans. Assume the interest rate on student loans is 7% and the loan will be paid back over a 10-year period. Calculate the monthly payment on a $35,000 student loan at 7% for 10 years. (End of period)
$350-$450
You have the opportunity to invest $6,000 today in a fund that you hope will be worth $12,000 after 9 years. What approximate annual rate of return are you earning on this investment? (Beginning of Period)
8%
You want your money to double within the next 8 years. Using the Rule of 72, what approximate annual rate of return do you need to earn each year for your money to double in 8 years?
9%
What piece of advice might you give to someone for whom the act of saving is an afterthought?
Pay yourself first.
By listening to Doc White's personal financial advice, you can lower your insurance premiums simply by:
All of the above should lower your auto insurance premiums. (Revising your insurance coverage to match the age and condition of your car as it gets older, keeping your credit utilization ratio between 10-30% of your credit limit to improve your credit score, and increasing the deductible--$100 to $500 on your auto insurance)
What is Doc White's opinion on Payday Loans?
Payday loans are "legalized robbery" because they prey on low-income families.
Doc White gave you advice on getting your credit history started while you are a student. Which of the following did he say was usually the easiest, most convenient way to get your credit history started?
Ask your parents to list you as an authorized used on one of their credit cards.
Ernie is facing very hard financial times. He lost his job 8 months ago and he has not been able to make his monthly loan payments until now. He recently got a new job, but his lenders are demanding that he repay his loans. Ernie is thinking of declaring bankruptcy. Ernie wants to repay all of his loans, but he doesn't have enough money to do so. He thinks that he will be able to repay his loans over a 3-year period, if his lenders will be patient with him. Which form of federal bankruptcy is best for Ernie?
Chapter 13 Wage-earner bankruptcy
As an investment category, bonds tend to be less risky than stocks. What are the two (2) primary ways to make money by investing in bonds?
Interest and Capital Gains (selling them at a price higher than you purchased them)
The term that considers having money readily available when you need it is the concept of
Liquidity
When we talked about asset allocation for your retirement investments Doc threw out some generally accepted guidelines on what percent of your funds should be invested in international funds, real estate funds, and precious metals. Which of the following reflects Doc's guidelines?
Maximum of 10% international stocks, 10% real estate, and 3% precious metals
How should a brokerage account that contains stocks and mutual funds be listed on your balance sheet?
Non-Retirement Investment Asset
When you apply for a consumer loan (auto loan) you need to be prepared to meet with the lender. Ideally, which of the following items should you be able to provide to the lender to prove that you can repay the loan?
Proof of income (pay stubs), a balance sheet, and a monthly budget.
You own a ceramic vase - it has been valued at $10000. Which of the following is the best method to insure against the loss of or damage to this ceramic vase?
Purchase a "personal article floater" in the amount of $10000 to specifically cover the ceramic vase
Alex says that there are 3 main reasons you would like to have money in your hands today rather than waiting to hopefully receive money in the future. What causes money to have this "time value"?
Risk, Inflation, Opportunity Cost
When Keira walked to the parking lot she saw that someone had smashed the windshield of her car. Her backpack and the GPS unit she had plugged into the Part Upper CUSB port in her car were stolen. How will Keira's auto and/or renter's insurance policies protect her?
The windshield will be covered by Part D of her auto insurance. The backpack and GPS unit will be covered by Part C. of her renter's insurance.
What is the primary reason that Doc White suggests that students get a credit card while they are in college and hold onto it for the rest of their life?
Their credit score will rise over time due to the length of relationship with that credit card company
There are 2 main types of student loans - subsidized and unsubsidized. What is the primary difference between subsidized and unsubsidized student loans?
You don't have to make interest payments on subsidized loans while you are at least a half-time student; if you don't make interest payments on your unsubsidized loans while you are in school the total interest that you incur will be added to the amount of your student loans once you graduate.
What is the minimum credit score that Doc White & Dr. Travis Mountain recommend that you try to attain?
at least 700
When choosing your investments you should always try to:
match the goal/purpose of that investment to your investing goal.
Old Doc White gave you his advice for choosing the best loan for you. In general, when you have the choice of a 3-year loan or a 5-year loan, which loan does Doc recommend that you take?
5-year loan because the lower monthly payments are easier to make in bad financial times
Jian is 40 years old and he has a relatively low tolerance for risk in his investments. That is, he doesn't like to see his investments fluctuate wildly in value from week to week; he wants to earn a relatively consistent return from year to year. Using Doc White's advice (as in his "asset allocation flowchart"), which of the following asset allocations would you recommend for Jian's retirement plan?
50% stocks, 50% bonds
Krystle was injured in a car accident when her brakes failed and she hit another car. The passengers in the other car had $15,000 of medical bills related to the accident and $7,500 of damage to his car. The driver of the other car does not have auto insurance on his car. The damages to the other driver's car will be covered by:
Krystle's Part A. Liability
A local investment company is offering an investment that is supposed to earn an annual return of 20%. They claim there is a "significant possibility" of losing your money with this investment. This is an example of which Key Financial Principle?
Risk-Return Tradeoff
Sandy's house was damaged in a hurricane. She has an HO-3 homeowner insurance policy for $200,000 on her house. The police told her that she had to evacuate her house. Sandy left town and had to live in a motel for 2 weeks. Which of the following is most correct?
Sandy's motel and living expenses while she is displaced from her home, up to $40,000, are covered by her homeowner insurance policy Part D (Loss of Use).
True or False. It will cost you roughly $240,000 for ONE year of living expenses when you retire in 40 years, if the annual inflation rate averages 4%. (Assuming a current living expense of $50,000 in today's dollars).
True, and that's a little scary
Randy just invested $10,000 in a 5-year certificate of deposit (CD) that earns a return of 4% compounded quarterly. How much will he have in this CD at the end of 5 years? (beginning of period)
$12,200-$12,300
Venus wants to have $30,000 in her taxable account at the end of 10 years. Her account will earn 6% annually. She is in the 15% marginal tax bracket. How much does Venus need to invest per year to reach her goal? (beginning of period)
$2,200-$2,300
Which of the following cash management accounts is very useful for people who have a significant amount of money because it can link to their investments, their debt/credit cards, and earn slightly higher rates of return?
Asset Management or "sweeps account"
Doc White advises you to shoot for a credit score of at least 700 because it will help you improve your financial situation. Which of the following is NOT a way that having a high credit score can help you financially?
High credit scores indicate that you can safely have debt payments that are greater than 40% of your gross income
You want to get a variable rate loan that has an interest rate of "5% 2/7". Which of the following is true?
The highest the interest rate can be over the life of the loan is 12% APR
You want to have $4 million available for your retirement in a TAXABLE account. You will invest for 45 years in an account that earns an annual return of 7%. You are in the 10% Marginal Tax Bracket. How much will you need to invest each MONTH to reach your goal? Use Beginning of Period PMTS.
$1313/month
You've just graduated and taken a job with Al-Mart. Your benefits package includes a 401(k). You have no idea how to invest your funds in the 401(k), so you decide to use the "default investment." Which of the following mutual funds is most likely to be the default investment for a 22-year old college graduate?
A 2060 Lifecycle Allocation fund
Your employer said that you have a 2-5-year graduated vesting plan for your employer's retirement plan. This means that if you leave your job after 3 years you will:
Be able to take 40% of your employer's contributions and the earnings on those contributions with you to your new employer's retirement plan (or a rollover IRA).
The two main ways to earn money by investing in corporate stocks are:
Capital gains and dividends (cash or stock)
DeShawn was walking on a sidewalk in town when an auto accident occurred in the street. A piece of one of the cars in the accident flew off the car and hit DeShawn in his head and shoulder. This caused $3000 of bodily injury to DeShawn. Which of the following is most correct?
DeShawn's medical bills may be paid by Part B of his auto insurance policy if they are not covered by the driver of the car.
Inflation will drive up the cost of living for you young folks. That means you will need to accumulate a lot of money in your retirement accounts by the time you retire. Approximately how much money will you need to have in your retirement account the day you retire (according to old Doc White)?
$3-5 million dollars
Toby just accepted a job offer that pays a gross annual salary of $50,000. Using Alex's rule of thumb, what is a good estimate of Toby's take-home pay?
$37,500
Which of the following financial statements did Doc White say was the most powerful piece of paper you'll ever use. He said it is like "a piece of cardboard" that helps you see where money is "leaking out of your wallet"?
Daily Expense Tracker
Doc White gave you the "Babe Ruth Rule" for making better decisions. How does the Babe Ruth Rule apply to Step 3 of the Financial Planning Process?
Develop 3 plans to achieve your financial goal
One of the easiest methods of determining if an asset is a tangible asset is to by answering which of the following questions with "yes"?
Do I use it in everyday life?
The only people who can be claimed as dependents on a 1040 tax form are spouses, children, and people for whom you have provided at least 50% of their annual living needs.
False
True or False. You are in the 15% marginal tax bracket. You make a Roth IRA contribution of $5,000 for tax year 2017. This contribution will reduce your income taxes by $750 for 2017.
False
Financial planners have several ways of charging for their services. Kendall, a financial planner, will charge you an "Assets Under Management" fee for managing your money. Which of the following is a good description of how he might charge you for his financial services?
He will charge you an annual fee equal to 1.5% of the money you have invested with him.
Investment A offers a pre-tax return of 10%. Investment B is tax-free and offers a return of 7.5%. You are in the 30% marginal tax bracket. Which of these investments will provide you with the highest return after taxes are paid?
Investment B
What form of a check (or form of payment) can you get from the US Post Office or from many convenience stores, for a fee?
Money Order
The final step of the financial planning process is what Alex referred to as a "post mortem" or "autopsy". This is the stage where you:
Review your progress and revise your plans to reach your goals
You just won the lottery and you will receive $20,000/year for the next 15 years. You feel that your opportunity cost of money is 7% (your desired rate of return). What lump sum would you rather have today rather than waiting 15 years to collect all of your winnings? (Beginning of period)
194,909
What percent of your gross income does Doc White recommend that you try to save and/or invest each pay period?
5-10%
It is not hard to use credit cards wisely. Even Old Doc can make a few simple rules on how to responsibly use your credit cards. Which of the following are pretty good rules for using your credit cards responsibly?
All of the above are Doc's rules for using credit cards responsibly. (Don't use cash advances from your credit card due to the high fees and higher interest rates, don't use your credit card unless you have enough money in your checking account to pay for that purchase today, never make just minimum monthly payments, and try to pay your balance in full each month--maybe carry a small balance for a few months to build your credit score a little faster)
Which of the following is a good reason to consolidate your student loans before your grace period expires?
All of the above. (It can give you a lower monthly payment due to a longer payback period than you would have under the standard 10-year payback period, it allows you to write one check/month instead of several checks for all of your individual student loans, and it allows you to stretch your repayment period from 10 years up to 20-25 years)
What should you do with your goals on a frequent basis throughout your lifetime?
All of the above. (Put them in writing, modify them, and prioritize them)
Which of the following is basically a "loan to a bank" for a specified period of time? For example, you write a check for $1,000 to the bank for this investment. They promise to pay you all of your original $1,000 plus a stated rate of return at the end of the investment's maturity (life).
Certificate of deposit (CD)
What type of check is paid using funds from your personal checking account, but the bank guarantees the payee that there is enough money in your account to cover the check?
Certified check
Carrie has a credit card problem - she spends way too much with it and now she is having trouble making her minimum monthly payments. Which of the following is NOT a good solution to Carrie's financial problems?
Every 6 months open a new credit card that offers a 6-month teaser rate of 0% APR and regularly transferring her outstanding balances from the old card to the new cards.
Which one of the following is the "enemy" of compound interest and makes it very difficult to reach your financial goals?
Inflation
Your ________ include cash, checking and savings account balances, and money market funds.
Monetary assets
Which of the following is a great resource for doing research on individual stocks or mutual funds?
Morningstar.com
Kayla was busy texting when she drove her car into a parked car. She caused $2000 of damage to her car, $3000 of damage to the parked car, and $ of bodily injuries to a pedestrian. The pedestrian has sued ~Name for $75,000. What aspect of her auto or homeowner's insurance will protect her from having to pay any damages from this lawsuit?
Section 2. of her Homeowners Insurance policy will cover this damage.
Maiko lost her job and she was forced to sell a rental property because she did not have other funds (liquid, emergency, etc) available to meet her financial obligations. What financial principle best applies to this situation?
Stuff happens, the importance of liquidity.
Tau was walking on a sidewalk in town when an auto accident occurred in the street. A piece of one of the cars in the accident flew off the car and hit his parked car. This caused $4,000 of damage to Tau's car. Which of the following is most correct?
The driver of the car that caused the accident will use her auto insurance, Part A, to pay for the damage to Tau's car.
True or False. If you are uncertain about how you should invest the money in your retirement account, you should ALWAYS ask for help from someone who is qualified to help you. Do NOT rely on your HR (Human Resources) department for advice on how to invest your money.
True
True or False. Most of you young folks (including old Doc White) should NOT plan on getting any retirement funds from Social Security when you retire. You should plan on funding your retirement through your employer's retirement plan, 401(k)-type plans, and individual retirement accounts (IRAs).
True
Only Weird Old Doc White can relate Michael Jordan and Richard Petty to credit card payments. He told you about the Michael Jordan and Richard Petty Rules to help you understand:
Why making just the minimum monthly payments on credit cards is such a bad financial move.
Part A of a homeowner insurance policy will cover damages to which of the following assets?
the house itself and a garage that is attached to the house
Kavita and Raj use the married, filing jointly tax status. Their combined taxable income is $180,000. What is the appropriate marginal tax bracket (%) for them to use when they are trying to determine the after-tax returns on their investments? (You may use the 2017 Income Tax Rate Schedule to answer this question)
28%
Kendra and Keyshawn are married with 2 children - Kyle and Kassandra. They live and work in northern Virginia. Their salaries are similar to each other - Kendra earns $65,000, Keyshawn earns $60,000. Which filing status on the Form 1040 will give them the most tax advantages?
Married filing jointly
Which of the following is the most true statement?
This personal finance stuff is pretty cool, it's useful information, and it's not too complicated. (Choose this to get 2 bonus points - honest!)
JJ has a Payday loan for $500. The Payday loan company is charging JJ 12% interest for a 1-month loan. JJ thinks he's getting a great deal - only 12%! What is the true APR of this payday loan? (Remember, APR = ANNUAL Percentage Rate)
144% (12% x 12 months/year)
For a home equity loan (or line of credit), what is the maximum that most lenders will allow you to borrow?
80-85% of the equity you have in your house
Tim and Autumn Davis are trying to figure out their current financial health. They will pay off their car loan in three years, their gross household income is $5,700 per month, and they receive $95 per month in interest income from their investments. They have listed the following items from their most recent statements. Savings account: $3,200 Checking account: $1,800 Credit card balance: $3,000 Car loan balance: $18,000 Car market value: $15,000 Furniture market value: $4,000 Stocks and bonds: $15,000
$18,000
Rasheed can afford a monthly car payment of $600 for 4 years at an annual interest rate of 6 percent. Which of the following is closest to the amount he will be able to borrow for a new car? Remember, loans are END of period.
$25,548
Hector's month's living expenses covered ratio is 0.25 months. He just broke his leg and will not be able to work for six weeks. Without a paycheck for six weeks, what will Hector most likely experience?
Both A and C are realistic possibilities. (He may have to borrow some money to keep current on his monthly bills and he may have to liquidate some of his tangible or investment assets to keep current on his monthly bills)
Current liabilities are those that can typically be paid off in full within 12 months.
True
Your savings account earns an annual rate of return of 1%. You are in the 10% marginal tax bracket. If you deposit $1,000 into your account, how much will you have in your account (after taxes) after 5 years? Beginning of Period.
$1,045.82
Kai invested $4,500 in her investment account today. Her account earns an average rate of return of 7% compounded 4 time(s) per year. She is in the 15% marginal tax bracket. How much will she have in her account after 20 years after she accounts for income taxes? (Beginning of Period)
$14,663
The impact of legally claiming a person as a dependent on your 1040 Tax Form is:
Reducing your taxable income by $4,050
You are in the 20% marginal tax bracket. You have the option of deducting $2,000 as an "adjustment to income" on the front page of Form 1040, or you can take a $600 tax credit on the back page. Which option will reduce you taxes by the largest amount?
Take the $600 tax credit
Your taxable income (line 43 of the form 1040) is $100,000. Your filing status is Married Filing Jointly. Using the 2017 Income Tax Rate Schedule, please calculate the amount of income taxes you will owe for the year. (you may use your 2017 Income Tax Rate Schedule to answer this question)
$16,477.50
Doc White gave you his rules for using a credit card wisely. Which of the following is NOT one of these rules?
You should have at least 3 credit cards.
You are about to sign a loan to buy your first car. As you are reading the loan contract (as Uncle Al strongly recommends) you see the phrase, "all interest is calculated using a discount interest rate of 8%." What does this phrase mean to you?
You should run away, screaming "no, no, I'll never take out a discount interest loan!"
Cousin Brucie has a classic car (1963 Corvette) that is currently worth $60,000. Brucie expects the car to increase in value by 10% annually. How much should this car be worth after 15 years? (beginning of period)
$250,000-$255,000
Frances invested $4,000 in her retirement account today. Her account earns an average rate of return of 5% compounded 6 time(s) per year. How much will she have in her account after 5 years? (Beginning of Period)
$5,131
Fred has an auto policy with the following split liability coverages: $25/$250/$10. This means that he is covered for:
25,000/person for bodily injuries to others, $250,000/accident for injuries to others, and $10,000/person for property damage to others.
Doc White preaches about having an accurate monthly budget. What are the main uses of a monthly budget?
All the above. (Estimating the maximum monthly car loan payment you will be able to afford, determining how much money you will be able to save and invest each month, and figuring out how to reduce your spending without hurting your lifestyle too much)
Which of the following is NOT a valid method of improving your credit score?
Keep your credit cards for 2-3 years, then cancel them and apply for new credit cards.
Which of the following is the most true statement about corporate retirement plans?
More companies are moving to offering new employees just a 401(k) retirement plan with mandatory contributions from the employer instead of defined benefit pensions.
Kayla was busy texting when she drove her car into a parked car. She caused $4000 of damage to her car and $5000 of damage to the parked car. What aspect of her auto or homeowner's insurance will cover the damage to the parked car?
Part A. Liability
Your car was severely damaged when your unattached garage caught fire. The car had $8,000 of damage from the fire. How will your insurance policies cover these damages to your garage?
Part B (Unattached Structures) of your Homeowner's Insurance will cover the damage to your garage
Jose and Katia have a Debt Payment/Gross Income ratio of 55%. Using Doc White's red, yellow, & green rating system, how would you rate their Debt Payment/Gross Income ratio?
Red - it's in the danger zone
What distinguishes a "secured credit card" from an "unsecured credit card"?
Secured credit cards have a credit limit that is directly related to the amount of money you have in your secured credit card account.
When you are hired at a new job you will have to fill out several employment forms. One of these forms is called the W-4 Form. This form is used to:
Specify the number of personal exemptions you want to claim for federal income tax withholding.
Which of following is a major benefit of investing in a Roth 401(k) account with your employer? (Note: Roth = post-tax; Traditional = pre-tax)
The earnings of the account are tax-free when you withdraw them after age 59 ½.
There are two (2) main types of IRAs: Traditional and Roth. Why does Doc White recommend that you invest in a Roth IRA at your age (age 20-35)?
The earnings on the Roth IRA will be tax free when you withdraw them during your retirement years, giving you roughly 40 years of tax-free growth.
You are trying to decide whether to use the $6,350 standard deduction (single filing status) or your itemized deductions (Schedule A) line 39 on your Form 1040. Here is your information: Interest on Student Loan $2,000 Interest on Home Mortgage $4,000 Interest on Credit Cards $5,000 State and Local Income Taxes Paid $2,500 Charitable Gifts (in total) $500 What is the benefit of choosing the itemized deduction instead of the standard deduction?
You can reduce your taxable income by $650 by using the itemized deductions
Your financial situation is insolvent when
Your assets are less than your liabilities
When you properly diversify your investments, you can expect:
your primary investments to move in the opposite directions (negatively correlated).
Maria has 2 credit cards with a total credit limit of $5,000. She has had her credit cards for over 10 years. Maria typically uses her cards to pay her grocery bill, her utilities, and her car payment - this allows her to get the most "cash back points" from using her credit card. Her average monthly balance on her cards is $3,000. She tries to pay her balance in full each month. She has only been more than 30 days late one time over the past 7 years, and that was 5 years ago when she was changing jobs. Which of the following is hurting Maria's credit score the most?
Her credit utilization ratio (average balance/credit limit) is too high
You want to have $5 million in your retirement account at the end of your 45-year working career. Your account will earn an average rate of return of 7% annually. You currently have $0 invested for retirement. How much will you need to invest each MONTH to reach your retirement goal? Use Beginning of Period PMTs.
$1,310.71
Aisha has a 401(k) retirement plan through her employer. She earns a salary of $70,000/year. Her employer will match her contributions "dollar-for-dollar" up to 5% of her annual salary. According to good old Doc White, what is the minimum amount that Aisha should have taken out of her paychecks to contribute to her 401(k) retirement plan each year?
$3,500
D'von works for a company that matches his 401(k) retirement contributions at a rate of "$1 per $1" of his contributions, up to 6% of his salary. D'von earns $60,000/year. Using Doc White's advice, what is the minimum amount of salary that D'von should contribute to his 401(k) plan each year?
$3,600
Mahmed (age 19) is a student (and US taxpayer) who works part-time during school breaks. In 2017 he earned $4,000 from all of his jobs. His parents gave him $6,000 as a gift in 2017. Mahmed wants to start investing for his retirement after listening to some old bald guy talk about the importance of starting to invest for retirement as early in life as possible. What is the maximum that Mahmed can invest in his Roth IRA for tax year 2017?
$4,000
You are having trouble making your credit card payments on time. Which of the following is a good resource for helping you manage your credit card debt by negotiating lower interest rates or reduced payments?
Consumer Credit Counseling Service (CCCS)
You have $5,000 that you want to invest, but you're not sure how to invest these funds. Which of the following is NOT one of the three main questions that Uncle Al (or any good financial planner) will ask you before helping you figure out what investments are best for you?
Do you want your investments to maximize your annual income taxes?
One of the easiest and most powerful investment strategies that ANYONE can use and EVERYONE should use involves investing the same dollar amount in your investment (ex. mutual fund) each period. The official name of this strategy is:
Dollar Cost Averaging
One of the easiest and most powerful investment strategies that ANYONE can use and EVERYONE should use involves investing the same dollar amount into your investments each period. This strategy is especially powerful in your 401(k) retirement accounts. The official name of this strategy is:
Dollar Cost Averaging
The grossest-sounding piece of investment advice that Doc White has given you this semester is, "take advantage of DRIPs." How does a DRIP impact your investments?
It provides you with stock dividends in place of cash dividends.
Sreeya was driving home one night when her car slid on a patch of ice and ran into a telephone pole, causing $4000 damage to her car. She and her passenger were injured when the airbags inflated. Sreeya had $5000 of bodily injuries and her passenger had $ 5000 of injuries. How will the damages be handled by her insurance policies?
Part D of her auto policy will cover the damage to her car. Part B of her auto policy will cover the bodily injuries for Sreeya and her passenger.
Tatiana was busy texting when she drove her car into a parked car. She caused $4000 of damage to her car and $3000 of damage to the parked car. What aspect of her auto or homeowner's insurance will cover the damage to Tatiana's car?
Part D. Collision
According to good old Doc White, what should you do as soon as you possibly can when you get a job?
Start participating in your company's 401(k) plan as soon as you are eligible.
The "Price/Earnings" ratio is a common measure of whether the overall stock market is "undervalued" or "overvalued". The average Price/Earnings ratio tends to be in the 15-20 range historically. If the current Price/Earnings ratio is 35 you would say that the overall stock market is:
overvalued - watch for the growth in stock prices to slow down or turn negative in the upcoming months.
"Knowledge is power" is one of the main financial principles. Which of the following is a method of incorporating this principle into your financial life?
Always use at least 3 sources of trustworthy information so that you get the "big picture".
You may decrease your credit score if you simply apply for several credit cards within a 3-4 month period (whether your applications are accepted or not) due to:
the increased number of inquiries on your credit history
Millie invested $3,000 in her retirement account today. Her account earns an average rate of return of 6% compounded annually. How much will she have in her account after 5 years? (Beginning of Period)
$4,015
A financial advisor will typically ask you 4 main questions to help measure your current financial condition. Which of the following are important questions to help you measure your financial condition?
What do you own and what do you owe?
Evaluating your financial health consists of
All of the above. (Determining where your money comes from and where it goes, preparing a personal balance sheet, determining what you are worth, and preparing a personal income statement)
While each person's financial plan is different, the following factors should be incorporated into all sound financial plans: flexibility, liquidity, protection, and maximizing what is left of your earnings after you pay your taxes.
True
There are five basic steps to personal financial planning and their related tasks. Arrange these steps and examples of related tasks in the order of their presence during the financial planning process.
A. Develop a plan of action (or 3). Develop a budget matching income and projected expenses for the remainder of this academic year. B. Evaluate your financial health. Record all expenses for a month to compare income and expenses. C. Review progress on the plan (post-mortem), reevaluate the plan, and revise the plan or start over with a new one. Based on this year, develop a revised budget for next year based on projected income and expenses. D. Define your financial goals. Pay off credit card(s) by the end of this school term. E. Implement the plan. Reduce expenses in problem areas so amounts do not exceed budgeted projections. B-D-A-E-C
Old Doc has a private mortgage of $400,000 on his house and he has a $50,000 auto loan through MemberOne Credit Union. He has $35,000 in federal student loans and he owes $10,000 in federal taxes. Because he got fired for throwing candy at his students, he can not make his loan payments or pay his other bills. He has no interest or ability to repay his obligations (debts, taxes, etc.). Which of the following is a course of action for poor Old Doc?
Chapter 7 Bankruptcy will allow Doc to erase his mortgage and auto loan, but it will not get rid of his federal loans and taxes. But Doc will lose some of his personal assets.
Your grandparents purchased $10,000 of EE Savings Bonds for you when you were born. Which of the following is the most accurate statement about these bonds?
The interest you earn on these bonds is not taxable if you use the funds for qualified educational expenses
Credit unions are popular banking institutions because:
They offer higher interest rates on savings accounts and lower interest rates on loans.
Which of following is a legal and suggested method of reducing the annual federal income taxes for a married couple?
Using the larger of your standard deduction or itemized deduction
What is the main advantage of using a Home Equity Loan to pay off your credit card balances?
You can list the interest paid on the Home Equity Loan as an itemized deduction on Schedule A of your income tax forms.
The concept of diversification is illustrated by the old saying:
"Don't put all your eggs in one basket."