BUS 320 - Personal Finance Chapter 10 & 11
Determine the current yield on a corporate bond investment that has a face value of $1,000, pays 4.60 percent, and has a current price of $950.
1,000*.046=46 → 46950=.0484=4.84%
Twelve months ago, you purchased 10-year Treasury notes with a face value of $1,000. The interest rate is 2.45 percent. What is the annual dollar amount of interest you will receive each year?
1,000*0.0245= $24.50
Jane and Bill Collins have total take-home pay of $5100 a month. Their monthly expenses total $4050. Calculate the minimum amount this couple needs to establish an emergency fund.
4,050*3= $12,150
You are the wage earner in a "typical family," with $40,000 gross annual income. Use the easy method to determine how much insurance you should carry.
40,000*7= 280,000*.70= $196,00
A 25-year-old single investor with a secure, full-time job that pays $60,000 would likely prefer investments with less risk.
False
A corporate bond is a written pledge of a government or a municipality to repay a specified sum of money, along with interest.
False
A good rule of thumb is to limit consumer credit payments to 30% of your net (after-tax) income.
False
An example of an investment with high risk is a government bond.
False
As investors age, they tend to invest more in growth-oriented investments.
False
Asset allocation is the process of spreading your assets among several different types of investments to increase risk.
False
If you are unable to make your credit card payments, you should not contact your credit card company.
False
In the event of bankruptcy, stockholders have a claim to assets of the corporation before bondholders.
False
Investments that earn a lower rate of interest will have a higher total dollar return than those that earn a high rate of interest.
False
Investors pick investments that have less risk, because they know there is a moderate chance that these investments will become worthless.
False
Municipal bonds generally are only tax-exempt at the federal level.
False
The potential return on any investment should be indirectly related to the risk the investor assumes.
False
The risk of fluctuations in the market prices of stocks or bonds relates only to fundamental changes in the financial health of corporations that issue these investments.
False
The value of a bond is not tied to the corporation's ability to repay its bond at maturity.
False
To investors, liquidity means their investments will increase in value.
False
With business failure risk, you face the possibility that good management and successful products will cause the business to be less profitable than originally anticipated.
False
An unemployed single parent who just received a $300,000 divorce settlement would likely prefer investments with less risk.
True
Bond ratings range from AAA (the highest) to D (the lowest) for Standard & Poor's Corporation.
True
For many people, the easiest way to begin an investment program is to participate in an employer-sponsored retirement account — often referred to as a 401(k) or a 403(b).
True
From both a legal and ethical standpoint, you have an obligation to pay for credit purchases.
True
Investment goals are always oriented to the future.
True
Investors can typically find more websites about stocks and mutual funds than they can find for bonds.
True
Patrick Guitman wants to protect himself against losses in his investments after the purchase. To do this, he should monitor the value of his investments to determine if he should hold, sell, or increase his stake in a specific investment.
True
The purpose of diversification or asset allocation is to spread your assets among several different types of investments to decrease risk.
True
To help survive a financial crisis, it is important to establish a larger than usual emergency fund.
True
To investors, liquidity is the ability to buy or sell an investment quickly without substantially affecting the investment's value.
True
Shaan and Anita are married and have two children, ages 4 and 7. Anita is a "nonworking" spouse who devotes all of her time to household activities. Estimate how much life insurance Shaan and Anita should carry.
Youngest child: 4 years (14 years until 18) 14*10,000= $140,000
