FMGT - TEST 1

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The earned income credit serves as a negative income tax and is available to a. only senior citizens below the poverty line. b. only head of households status filers c. anyone with an earned income as opposed to passive income d. low-income taxpayers

D - low-income taxpayers

Which of the following is not allowed as a personal or dependency exemption? a. yourself b. your 75-year-old grandfather, whom you financially support c. your spouse, if you're filing a joint return d. your 25 year old child lives at home and earns $25,000 a year e. both B and D are not allowed

D - your 25 year old child live at home and earns $25,000 a year

A series of equal dollar payments at the end of each period for "x" number of time periods is a. an annuity b. a complex annuity c. an annuity due d. a deferred annuity. e. an equal installment annuity

A - an annuity

Which type of expenditure would probably be the hardest for an individual to track? a. cash b. children's bills c. credit card d. checks written e. direct deposits

A - cash

If your liabilities are greater than the value of your assets you are considered a. insolvent b. unbalanced c. unstable d. bankrupt

A - insolvent

An IRS - allowed reduction in your income for yourself, your spouse, and any dependents that is subtracted before you compute your taxes is called a a. personal and dependency exemptions b. itemized exemptions c. dependency deduction d. personal deductions e. None of the above

A - personal and dependency expemtions

Your dependent is claimed as an approved exemption on ______ tax return. a. your b. his or her own c. the return they choose themselves d. all of the above e. none of the above

A - your

Probably the most important determinant of your future earnings will be a. your highest level of education obtained b. joining a labor union c. the size of the company where you will work d. the size of the company where you will work e. your seniority with your company

A - your highest level of education obtained

Which of the following is outlined in the test as reasons why many people do not have an adequate financial plan? a. many of us lack proper knowledge b. procrastination can affect everyone c. there is never enough time for organizing and planning d. for most people it is easier to spend than save e. all of the above are common excuses for not planning

E - all of the above are common excuses for not planning

_____ income is from activities in which the taxpayer does not actively participate. a. Active b. investment c. passive d. portfolio e. Both C and D

C - passive

A tax system in which tax rates increase as income increases is called a _____ system. a. universal tax b. regressive tax c. progressive tax d. prorated tax e. None of these

C - progressive tax

A physical asset, such as furniture or a car, is called a _______. a. liability b. financial asset c. tangible asset d. investment e.. none of the above

C - tangible asset

Suppose that you had deposited $100 in a bank account for each of the last 5 years. What annual interest rate is attached to this account if there is now (at the end of the fifth year) $758.92 in the account? a. 10% b. 16% c. 19% d. 21% e. 23%

D - 21%

An investment earning twelve percent interest per year should double in value in approximately four years. True or False

False The rule of 72 shows us that 72/12 = 6 years

Bracket creep refers to an increase in marginal taxes caused by the impact of inflation. True or False

True

Current liabilities are those that can typically be paid off in full within twelve months True or False

True

During this recent economic downturn 23% of households reported a drop of at least 25% of their annual household income. True or False

True

Education and specialized skills required for a job are important determinants of the income potential associated with that job. True or False

True

Women live, on average, 7 years longer than men. True or False

True

The deadline to file your income tax return is _____ although an automatic extension may be filed. a. march 30 b. april 15 c. march 15 d. april 30

b. April 15

If you are unable to file your tax returns by the deadline, you may file form 4868, Application for Automatic Extension of Time, and receive an extension of up to six months a. if you meet the IRS requirements b. automatically c. upon approval d. none of the above

b. automatically

Suppose you borrowed $12,000 at an annual rate of 6% interest to buy a car and wish to repay it in five equal payments at the end of each of the next five years. Which of the following is the closest to the amount of each of these payments? a. $2364 b. $2544 c. $2849 d. $2436

$2849

It is really pretty easy to create a valuable personal financial plan without understanding the time value of money principle. True or False

False

What is the annual interest rate earned on a deposit that grew from $250 to $502.84 over the last year? a. 15% b. 13% c. 11% d. 9%

A - 15%

Consider that you are paying back a fully amortized loan. Which of the following statements is most correct? a. later loan payments involve larger amounts of principal repayment b. The actual loan payments vary from year to year c. early loan payments include smaller amounts of interest payments d. after the last loan payment is made, there is still a large principal repayment remaining. e. none of the above statements are true.

A - later loan payments involve larger amounts of principal repayment

The term that considers having money readily available when you need it is the concept of a. liquidity b. solvency c. flexibility d. equity e. none of the above

A - liquidity

Which of the methods listed below is not used by the IRS as a tax collection mechanism? a. quarterly estimated tax payments b. payments sent with your tax return c. audits held in your home or office d. paycheck withholdings e. all of the above are used by the IRS to collect income taxes

C - audits held in your home or office

Most people achieve comfortable retirements by postponing saving until after age 50, when they are able to save a large amount on a regular basis. True or False

False

Once a sound financial plan is in place, there should be no need to ever change it. True or False

False

Only people in the higher tax brackets pay taxes on capital gains. True or False

False

A compound annuity involves depositing or investing an equal sum of money at the end of each time period for a certain number of time periods and allowing it to grow. True or False

True

In some cases insolvency can lead to bankruptcy. True or False

True

Two of the most important factors in reaching your financial goals are the return on your investments and the length of time you have until you need your money. True or False

True

$491.25 $1965*.25 (marginal tax bracket) = $491.25

Adrian Clemons Adrian is a single man and wants to save up enough money to put as a down payment on a new house in 5 years. He has read that the best way to purchase a house is with 20% down payment. He has a large income and very little debt right now so he can afford to save a substantial amount of money every month. He is asking for some advice to help him reach his goal. It is now 5 years later and Adrian has saved up enough money to make a 20% down payment on a new house. He will have to borrow $135,000 at annual rate 6% for 30 years compounded monthly. What will his mortgage payment be? a. $809.39 b. $779.98 c. $397.50 d. $1199.55

$809.39

Suppose that you were trying to determine how much income was available for future monetary needs as well as for investment. You would most likely use which of the following ratios? a. savings ratio b. debt ratio c. total asset turnover d. current ratio e. none of the above

A - savings ratio

Shawan is a single person with no dependents. She normally receives over $1800 every year for an income tax refund. She is having difficulty paying her monthly bills every month. What tax advice would you give her? a. she should increase her exemptions on her W-4 form at work. b. She should pay her estimated taxes every quarter. c. She needs to file as Head of Household status d. She needs to find some more tax deductions

A - she should increase her exemptions on her w-4 form at work

The sub-prime mortgage mess is dominating the news. Many people signed up for adjustable rate mortgages and now they can't afford their payments. Many of these people were misled by the lender. Which financial principle from chapter one most applies? a. the best protection is knowledge b. stuff happens, or the importance of liquidity c. mind games and your money d. the time value of money

A - the best protection is knowledge

Suppose that you place $450 in a bank account each year for the next 20 years. How much would be in your bank account at the end of the twentieth year if the deposits earned an annual rate of return of 6% each year? a. $14729.44 b. $16553.52 c. $9540 d. $10876.31

B - $16553.52

You purchased 100 shares of I-Tech stock for $40 per share 3 years ago. If you sold those shares today at the current market price of $150 per share, what would your capital gain on the sale, ignoring commissions? a. $3667 b. $110 c. $11000 d. $7333 e. None of the above

C - $11000

Arnold Diaz Arnold learned something very valuable as a teenager from his dad. He was told to invest $1,000 at 12% interest at age 20 and leave it alone until age 65. Arnold's dad knew that one strategy that wealthy people use is to exercise self-discipline to never touch this long - term plan. Arnold is very happy he applied his dad's advice. If Arnold were to leave his money in the account until he was 68, by approximately what amount would the balance increase between his 62nd and 68th year? a. 160457 b. 1096471 c. 113667 d. 1973

C - $113667

Arnold Diaz Arnold learned something very valuable as a teenager from his dad. He was told to invest $1,000 at 12% interest at age 20 and leave it alone until age 65. Arnold's dad knew that one strategy that wealthy people use is to exercise self-discipline to never touch this long - term plan. Arnold is very happy he applied his dad's advice. If he sticks to this plan, Arnolds savings will have grown to approximately ______ by age 62. a. $163987 b. $1125945 c. $116723 d. 9646

C - $116723 N - 42 I/Y - 12 PV - 1000 PMT - 0 FV - ???

Suppose that you want to create a "college fund" for your newborn child and place $300 in a bank account at the end of each of the next 20 years. If the account earns an annual rate of return of 7%, how much will be in that account at the end of the twentieth year? a. $11828.32 b. $12977.53 c. $12298.65 d. $13178.20 e. $13420.00

C - $12298.65

Arnold Diaz Arnold learned something very valuable as a teenager from his dad. He was told to invest $1,000 at 12% interest at age 20 and leave it alone until age 65. Arnold's dad knew that one strategy that wealthy people use is to exercise self-discipline to never touch this long - term plan. Arnold is very happy he applied his dad's advice. If his savings account had earned a more conservative 9% annual rate of return, Arnold's savings would be approximately ______ less by age 68. a. $4132 b. $62585 c. $167805 d. $1871663

C - $167805 Which is $230390 (12%) - $62585 (9%)

What is the present value of $500 received at the end of each of the next 5 years worth to you today at the appropriate discount rate of 6%? a. $1105 b. $1850 c. $2106 d. $2778

C - $2106 You have to find PV, but first you have to find future value. Step one N - 5 I/Y - 6 PV - 0 PMT - 500 FV - ??? which will be -2818.55 then using the same setup delete PMT so it looks like this Step two N-5 I/Y - 6 PV - ??? PMT - 0 FV - -2818.55 This will give you the answer $2106

The ____ Principle states that a dollar today is worth more than a dollar in the future. a. adjusted value of money b. annuity value of money c. time value of money d. discounted value of money e. future value of money

C - time value of money

You invest $1,000 at age 20 at 12%. By the time you are 62 you will have amassed approximately? a. $67214 b. $47040 c. $504000 d. $116723

D - $116723

Three year ago you purchased a share of CompUTech stock for $4, which you could sell today at the current market price of $150. What would be your capital gain on the sale, ignoring commissions? a. $154 b. $150 c. $4 d. $146 e. cannot determine from info provided

D - $146

If your bank pays you interest in the form of an annual rate of return of 10% over each of the next five years, how much will your balance be if you make annual deposits of $400? a. $2248.37 b. $2644.20 c. $2516.31 d. $2442.04

D - $2442.04

Mark borrows $15,000 to buy a new car. His loan has an annual interest rate of 6.5%, compounded monthly, and his monthly payment is $293.49. If instead his loan had an interest rate of 8%, how much more will he have paid in interest when he finished repaying his loan in 60 months? a. $3249 b. $225 c. $304.15 d. $639.60

D - $639.60

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? a. the time value of money b. mind games and your money c. waste not want not - smart spending matters d. stuff happens, the importance of liquidity

D - stuff happens, the importance of liquidity

Which of the following would offset your tax liability in a direct dollar for dollar manner and may actually increase your tax refund beyond the amount paid during the tax year? a. tax deduction b. tax adjustment c. tax exemption d. tax credit e. none of the above

D - tax credit

Being financially secure involves balancing what you earn with a. your retirement plans. b. your current level of debt. c. your investments d. what you spend

D - what you spend

Sly's Used Cars just sold you a clunker (you need to get to class on time). You financed the $4728.48 purchase price for 24 months. They said your payment would be $250. What interest rate did they charge you (assume monthly compounding)? a. 10% b. 12% c. 16% d. 19% e. 24%

E - 24%

How would an income statement benefit one in creating a financial plan? a. Know where one's money is going b. determine if money is available for saving or investment c. spot problem areas of overspending d. determining whether one is earning more than one spends e. all of the above

E - all of the above

Which of the following is a relevant question to ask a financial planner? a. What are your credentials and professional designations? b. Would you show us a similar financial plan you have done for someone else? c. will you provide us with a written estimate of your services and their cost? d. Would you provide us with references? e. All of the above

E - all of the above

In Chapter One, Principle Three deals with the time value of money. Why is this principle so important financial planning? a. it allows us to determine how much money we will need to achieve our future goals. b. it shows us how important time and interest rats are in accumulating wealth c. it helps us determine our savings needs today in order to meet our retirement goals d. it shows us the impact of inflation on our money over time e. all of the above are important in financial planning

E - all of the above are important in financial planning

Which of the following is not an income tax filing status? a. married filing jointly and surviving spouses b. single c. head of household d. married filing separately e. all of the above are income tax filing statuses

E - all of the above are income tax filing statuses

What are common factors found in an effective financial plan? a. effective financial plans should be flexible to allow for changes in situation b. effective financial plans should provide sufficient liquidity to meet unexpected needs c. effective financial plans should provide insurance protection from catastrophic events d. effective financial plans should help minimize paying taxes e. all of the above are necessary in an effective financial plan

E - all of the above are necessary in an effective financial plan

You have learned that a budget a. includes both actual and estimated expenses b. is a plan for controlling cash inflows and cash outflows c. is a process of setting spending goals for the upcoming month or year d. can be pretty simple or pretty sophisticated e. all of the above are true about budgets

E - all of the above are true about budgets

Based on the Life Cycle of Financial Planning, when would be a good time to review and possibly adjust an effective financial plan? a. when the stock market goes up b. when you get married c. when you have children d. a really effective financial plan doesn't need to be adjusted e. both B and C are correct answers

E - both B and C are correct answers

What is the significance of the financial life cycle? a. to help you to compare your situation with other people's situation b. to allow you to be more proactive in dealing with expected changes in the future and take steps today to prepare for them c. to better understand how your financial needs will most likely change over time d. to help you realize that your original plan is sufficient and doesn't need to change e. both B and C are significant aspects of the financial life cycle

E - both B and C are significant aspects of the financial life cycle

Which of the following steps is not considered to be part of the personal financial planning process as outlined in the text? a. implement your plan b. develop a plan of action c. define your financial goals d. evaluate your financial health e. none of the above

E - none of the above

Diversification allows you to reduce risk, but still provides consistently high returns. True or False

False

Factors that impact the returns of all assets in the market such as the national unemployment rate or inflation rate are a type of risk that can be eliminated through diversification True or False

False

The Federal Insurance Contributions Act (FICA) tax deducted from your salary goes to pay for unemployment insurance. True or False

False

The Lifetime Learning tax credit is designed to help all taxpayers get at least a two-year degree. True or False

False

The amount of current income that you earn today isn't relevant to setting your long term goals for the future. True or False

False

The house that you are leasing from the landlord is a good example of a tangible asset that you would list on your balance sheet. True or False

False

The most important aspect of choosing a career is the amount of income that career will generate over your lifetime. True or False

False

To determine your level of net worth, subtract your liabilities from your positive net equity. True or False

False

Women are more likely to have a pension than men. True or False

False

Your money grows faster as the compounding period becomes longer. True or False

False

Generally speaking, saving a little money on a regular basis when you are young can result in a large final payoff. True or False

True

Having a negative net income every once in awhile is not such a bad thing as long as you have planned for it. True or False

True

Proper financial planning can help you use your current income to achieve your long term financial goals True or False

True

The I/Y key on a financial calculator stores the information for the interest rate or the discount rate per period. True or False

True

Which of the following is a source of tax-free income? a. welfare benefits b. federal income tax refunds c. child support payments d. earnings on your IRA e. all of the above

e. all of the above

Patty currently has $9,000 in monetary assets. Her total annual living expenses are $36,000 per year. She has a $12,000 balance on her car loan and she has $45,000 equity in her house. What is her month's living expenses covered ratio? a. 3.0 times b. 1.125 times c. 3.75 times d. Not enough information to answer this question

A - 3.0 times Divide $36,000 by 12 = $3000 $9,000/$3,000 = 3 times

Adrian Clemons Adrian is a single man and wants to save up enough money to put as a down payment on a new house in 5 years. He has read that the best way to purchase a house is with 20% down payment. He has a large income and very little debt right now so he can afford to save a substantial amount of money every month. He is asking for some advice to help him reach his goal. Adrian just found a very nice house today that is currently selling for $150,000. Based on an inflation rate of 5% in the local real estate market, how much will this house sell for in 5 years? a. $191,442 b. $187,500 c. $204,650 d. $157500

A - $191442

Suppose that you invested $100 in a bank account that earned an annual rate of return of 10%. How much would you have in that bank account at the end of 10 years? a. $259.37 b. $293.74 c. $214.46 d. $279.23 e. $238.55

A - $259.37

As a future graduation present, your uncle has just placed $6,000 in a bank account that will earn an annual rate of return of 6%. How much will be in that account when you graduate in four years? a. $7574.86 b. $7731.55 c. $6247.70 d. $7790.63 e. $6752.56

A - $7574.86

Assuming that you can afford a car payment of $400 for 36 months, which of the following is closet to the annual interest rate you would need on a loan to borrow $12,000 for a new car? a. 12.25 % b. 12.99% c. 10.99% d. 11.26%

A - 12.25%

what is the interest rate earned on a deposit that grew from $250 to $502.84 over the last 5 years? a. 15% b. 13% c. 11% d. 9%

A - 15%

Hector and Maria Montez Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in 3 years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments. Savings accounts $1,200 Checking account $800 Credit card balance $1000 Car loan balance $12000 car market value $8000 Furniture; market value $2000 Stocks and bonds $10,000 Assuming that they have no current bills other than those that are listed, what is their current ratio a. 2 times b. 0.50 times c. 0.59 times d. 1.69 times e. Not enough information

A - 2 times monetary assets $2000/current debt $1000 (credit card) = 2 times

Someone has offered you the opportunity to purchase an IOU. The IOU will pay back a total of $500 in three years. How much would you be willing to pay for that IOU today if you want to earn an annual rate of return of 16% a. $320.33 b. $292.63 c. $422.63 d. $380.45

A - 320.33

You just purchased a vacant lot for your future son-in-law's home for $30,000. You financed that amount over 120 months. What wold your monthly payment be if your interest rate was 12% compounded monthly? a. $430.41 b. $389.21 c. $231.22 d. $189.02

A - 430.41

Using the Rule of 72, if it will take approximately 12 years for you money to double, at what annually compounded interest rate is it invested? a. 6% b. 8% c. 9% d. 12%

A - 6%

What would be the interest rate on a loan of $39927.10 that you paid off with annual payments of $10,000 for each of the next five years? a. 8% b. 10% c. 15% d. 21% e. 26%

A - 8%

What would be the interest rate on a loan of $9981.78 that you paid off with annual payments of $2500 for each of the next five years? a. 8% b. 10% c. 15% d. 21% e. 26%

A - 8%

Below are several people and their current ratios. If they were to lose their jobs today, which one would probably experience financial stress and pressures the quickest? a. Elmo has a current ratio of 0.5 times b. Andy has a current ratio of 2.1 times c. Dee has a current ratio of 1 times d. There is not enough information to answer this question

A - Elmo has a current ratio of 0.5 times

Suppose that you are a 20 year old college student. What stage of the financial life cycle are you currently in? a. Stage 1: wealth accumulation b. Stage 2: the golden years c. Stage 3: the retirement years d. Stage 4: the formative years e. Stage 5: the educational years

A - Stage 1: wealth accumulation

Income that comes from wages or a business is called _______. a. active income b. portfolio income c. investment income d. passive income e. none of the above

A - active income

When a loan is paid off in equal installments, this is called an ____ loan a. amortized b. reverse annuity c. balloon d. discounted e. none of the above

A - amortized

From the list below choose the item that is not a permissible tax deduction. a. auto, truck, or van loan interest b. home equity loan interest on debt up to $100,00 c. interest on money borrowed to invest, within the IRS limits based on investment income d. unreimbursed job-related expenses and tax preparation costs within the IRS limits e. state, local, and real estate taxes

A - auto, truck, or van loan interest

One's _____ is found by dividing total debt or liabilities by total assets. a. debt ratio b. current ratio c. net worth d. asset ratio e. none of the above

A - debt ratio

Is it possible to create a retirement estate of $585,000 instead of $310,000 without requiring much more to be invested every month? a. depends upon the interest rate or return you earn on investment as well as the number of years until retirement. b. absolutely not c. probably not with inflation working against you d. there is not enough information available to answer this question

A - depends upon the interest rate or return you earn on investment as well as the number of years until retirement.

Jacob has written down his short-term goals for the next year on his goals worksheet. So far he has prioritized his goals, and he has determined a feasible due date by which he wants to have achieved his goals; according to the textbooks, the final step Jacob needs to complete in his goals process is to _____ a. determine an appropriate cost for each of his listed goals. b. contact his financial adviser for approval of his goals c. post his goals worksheet on his refrigerator so he can see it every day d. email himself a copy of the goals worksheet in case he loses the paper copy of the worksheet

A - determine an appropriate cost for each of his listed goals

What is the main factor in determining your potential income level? a. education and skills that you have attained b. who you know in your company administration c. the size of the company you work for d. your age and years of employment

A - education and skills that you have attained

When you are involved in _____ planning, you are planning for your eventual death and the distribution of your wealth to your heirs. a. estate b. beneficiary c. prenatal d. actuarial e. one of the above

A - estate

An expenditure over which you have no control and are obligated to make is a a. fixed expenditure b. repeating expenditure c. long-term expenditure d. contractual expenditure e. constant expenditure

A - fixed expenditure

A one time investment of $200 at a 10% annual rate of return yields $242 in two years. The $242 is known as the a. future value b. annuity value c. principal plus interest d. compound value e. present valuer

A - future value

The dollar value of an investment at some future point in time is also known as a. future value b. present value c. the time value of money d. calculated value e. compounded annuity

A - future value

When including an asset like a car on your balance sheet a. list its value as given in a blue book or site like www.edmunds.com b. list the amount it would cost to purchase a new model of this vehicle c. list the original purchase price of the vehicle d. none of the above

A - list its value as given in a blue book or site like www.edmunds.com

George and Betty, a middle - aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement. Gross monthly income: $8,000 Income taxes withheld monthly: $2,300 Monthly interest income from investments: $100 Monthly insurance payments $700 Monthly housing expenses: $4,500 Monthly food expenses: $800 Miscellaneous expenses: $400 What is their current savings ratio? a. negative 10.3 percent b. 10.3 percent c. zero d. none of the above

A - negative 10.3 percent savings ratio = income available for savings and investments/income available for living expenditures (-600) / (8000 - 2300 + 100) = -.103 -600/5800 = 0.103 or 10.3 percent

Which of the following statements about women is true? a. over 90% of all women will take sole responsibility for their financial decisions at some point in their lives. b. They generally earn more than their male counterparts. c. They make up a minority of the elderly people who live in poverty. d. They generally qualify for more from Social Security income. e. All of the above are true statements.

A - over 90% of all women will take sole responsibility for their financial decisions at some point in their lives.

Chapter 1 discusses ten principles that for the foundation of personal finance. The principle that considers the value of compound interest is the _______ principle a. time value of money b. pay yourself first c. all risk is not equal d. competitive inflation adjustment e. none of the above

A - time value of money

What aspect of financial planning might you discuss with a friend who buys fancy coffee drinks twice a day, visits the mall at least once a week for recreational shopping, and prefers impulse buying to carefully researched purchasing? a. Waste not, want not - smart spending matters b. mind games and your money c. nothing happens without a plan d. just do it

A - waste not, want not - smart spending matters

You have been saving for five years toward the purchase of a new mountain bike. You placed $600 in a bank account and have earned an annual rate of return of 12%. How much do you now have in your bank account? a. $978.70 b. $1057.41 c. $1138.70 d. $1293.71

B - $1057.41

You have just remembered that four years ago you placed $1000 in a bank account. if the bank was paying an annual rate of return of 8% during that time, how much should you have in your forgotten account? a. $1321.92 b. $1360.49 c. $1253.03 d. $1301.92

B - $1360.49

At the end of each year for ten years you deposit $750 in an account that earns an annual rate of return of 12%. What is the present value of these deposits? a. $5241.48 b. $4237.67 c. $4482.63 d. $4329.39 e. $3161.55

B - $4237.67

You wish to make a charitable contribution of $2000 to a qualified organization. You are currently in the 28% marginal tax bracket. By how much would this contribution lower your tax bill assuming your other itemized deductions exceed the standard deduction? a. $1440 b. $560 c. $2000 d. $280 e. cannot determine from the information provided

B - $560

How much can you borrow today if you can make payments of $3600 a year for the next five years and interest rate is 10%? a. $18978.36 b. $13646.83 c. $17949.67 d. $15797.84 e. $12235.32

B - 13646.83

Jah-Malya can afford a car payment of $400 per month for 48 months at an annual rate of 8.25 percent interest. Which of the following is closest to the amount she will be able to borrow for a new car? a. $22656 b. $16306 c. $4741 d. $12997

B - 16306

Suppose that you want to purchase a car today. You can afford payments of $400 per month and want to pay the loan back over the next five years. Assuming no down payment is required, how much can you borrow if the bank will charge you annual percentage rate of 12% compounded monthly? a. $24667.87 b. $17982.02 c. $16726.68 d. $18220.18 e $25008.90

B - 17982.02

Kareem currently has $6,000 in monetary assets and currently has $2,000 in current liabilities. What is his current ratio now? a. 3 percent b. 3 times c. .334 percent d. .334 times

B - 3 times $6000/$2000 = 3 times

Assume that you have a marginal tax rate of 28%, a state income tax rate of 4%, and have a city income tax rate of 1%. The tax for Social Security and Medicare is 7.65%. What would be the effective marginal tax rate on you last dollar of earnings? a. 32 percent b. 40.65 percent c. 28 percent d. 33 percent e. cannot determine from the information provided

B - 40.65 percent

You currently have $11167 in your savings account. What interest rate do you need to earn in order to have $20,000 in the account in 10 years? a. 10% b. 6% c. 8% d. There is not enough information to solve this question

B - 6%

What is the present value of a $1000 payment at the end of each of the next 10 years discounted back to the present at 5%? a. $9112 b. $7722 c. $8775 d. $5098

B - 7722

B - American Opportunity tax credit

Who will end up with the largest amount of money invested at 9% over the next 42 years? a. Jerry saves nothing for the first 14 years and then saves $1200 per year for the remaining 28 years. b. Jim saves 1200 per year for the first 14 years and then stops putting any new money into the account for the remaining 28 years. c. John saves nothing for the first 10 years and saves $1200 per year for the next 14 years and then puts no more into the account during the last 14 years. d. Jeremy saves nothing for the first 14 years and then saves $1500 per year for the 14 years then stops putting any new money into the account for the remaining 14 years. e. John saves nothing for the first 10 years and saves $1500 per year for the remaining 32 years.

B - Jim saves 1200 per year for the first 14 years and then stops putting any new money into the account for the remaining 28 years.

Below are several people and their current ratios. If they were to lose their jobs today, which one would have more time and more choices until they find their next job? a. Sally has a current ratio of 0.85 times b. Leroy has a current ratio of 2.5 times c. Bob has a current ratio of 1 times d. There is not enough information to answer this question.

B - Leroy has a current ratio of 2.5 times This means he could pay his bills 2 1/2 times before he ran out of money

Which stage in the Financial Life Cycle is the longest in terms of years? a. Stage 2 b. Stage 1 c. Stage 4 d. Stage 3

B - Stage 1

Which financial planning document should you use to measure your current level of wealth? a. budget b. balance sheet c. statement of financial ratios d. cash budget e. income statement

B - balance sheet

Assets you own, including such items as stocks, bonds, or real estate, are commonly termed _____. a. intangible assets b. capital assets c. monetary assets d. current assets e. none of the above

B - capital assets

One's _____ is found by dividing monetary assets by current liabilities and is a good measure of liquidity a. debt ration b. current ratio c. net worth d. net cash flow

B - current ratio

Expenditures that are subtracted in an effort to calculate the lowest possible taxable income are called _____. a. fixed expenses b. deductions c. exemptions d. capital expenses e. none of the above

B - deductions

For a typical consumer, one difference between the stage 2 in the Financial Life Cycle and stage 3 in the Financial Life Cycle is that: a. during stage 3 you will earn more than you spend; whereas during stage 2 you will spend more than you earn b. during stage 2 you will earn more than you spend; whereas during stage 3 you will spend more than you earn

B - during stage 2 you will earn more than you spend; whereas during stage 3 you will spend more than you earn

An expenditure over which you have no control, are obligated to make, and is generally at a constant level each month is called a ______ expenditure a. variable b. fixed c. stationary d. discretionary e. none of the above

B - fixed

If you are an unmarried taxpayer, with at least one child or dependent living with you, your filing status should be a. surviving spouse b. head of household c. married filing separately d. single e. none of the above

B - head of household

In order for your financial plan to be realistic and attainable it needs to be based upon your a. budget b. income level c. number of tax deductions, exemptions, exclusions, and credits d. balance sheet e. none of the above

B - income level

A statement that records where your money has come from and where it has gone over some period of time is called an a. statement of net worth b. income statement c. balance sheet d. none of the above

B - income statement

An economic condition in which rising prices reduce the purchasing power of money is termed a. cash erosion b. inflation c. deflation d. stagflation e. none of the above

B - inflation

Deductions calculated using the federal tax form "Schedule A" which are totaled and then subtracted from taxable income are called _____. a. personal expenditures b. itemized deductions c. personal exemptions d. standard deductions e. none of the above

B - itemized deductions

Items on the balance sheet that represents amounts owed to others are termed a. expenses b. liabilities c. revenues d. assets e. none of the above

B - liabilities

Step 3 of the personal financial planning process is to "Develop a Plan of Action" According to your text, which of the following is not one of the "common concerns" that should guide all financial plans? a. minimization of taxes b. long-term profitability c. protection d. flexibility e. liquidity

B - long-term profitability

The percentage of the last dollar you earn that goes toward your taxes is your a. base tax rate b. marginal tax rate c. average tax rate d. tax deferral rate e. none of the above

B - marginal tax rate

Maria is very proud of herself for having $3,000 in her savings account that pay 3% interest. She currently has a balance of $1,800 on her credit card account that charges 18% interest. Maria thinks she is making a wise financial decision by keeping her money in her savings account instead of paying off her credit card balance. What financial principle from Chapter 1 would you use to give her advice? a. the time value of money b. mind games and your money c. just do it d. taxes affect personal financial decisions

B - mind games and your money

One of the following items would not go on a balance sheet. Which one is it? a. automobile loan balance b. mortgage payment paid c. student loan balance d. credit card balance owed e. current balances owed on your utility bills

B - mortgage payment paid

The current value in today's dollars of a future sum of money is called a. discounted value b. present value c. compounded value d. future value e. adjusted value

B - present value

According to the Rockefeller Foundation report, which of the following issues do Americans rank as number one in terms of causing the most concern? a. medical expenses b. retirement c. debt e. unemployment

B - retirement

Suppose you have just retired, have accumulated many luxury goods over the years, still owe a mortgage on your home, still have unpaid travel expenses on your credit cards, and have helped your adult children financially. Your spouse has recently passed away, and you miss his/her contribution to the household income. Which step in the personal financial planning process have you neglected? a. develop your financial health b. review your progress, reevaluate, and revise your plan. c. define your financial goals d. develop a plan of action e. implement your plan

B - review your progress, reevaluate, and revise your plan

Suppose that you have been operating a marketing business out of your home. It has recently expanded beyond belief. Since you have neglected your personal finances for some time, what would you do as a first step? a. Rent a separate office for your business activities b. Separate your personal finances from the business finances c. Purchase a software program to handle both your business and personal finance at the same time d. Include your personal finances with the business finances to save time

B - separate your personal finances from the business finances

Income on which the payment of taxes is postponed until some future date is called _____. a. tax-delayed b. tax-deferred c. tax-postponed d. tax-tardy e. none of the above

B - tax-deferred

The amount of income taxes that you actually pay is based upon your a. AGI b. taxable income c. taxable income minus exemptions and deductions d. gross income

B - taxable income

Leroy went shopping today and used his Visa card to buy a new sweater. He wrote a personal check to pay for a new video game. He bought some snack food using cash. Which of these purchases are difficult to track and monitor on his budget? a. The video games because he did not add a budget category for electronics b. the snacks because cash transactions don't leave a paper trail c. the sweater because it costs more than what he budgeted for clothing this month d. all of the above

B - the snacks because cash transactions don't leave a paper trail

How much did you borrow if your annual payments are $5000 for the next seven years and the interest rate is 9%? A. $36002.17 b. $19140.20 c. $25164.76 d. $27797.84

C - $25164.76

Mark borrows $15,000 to buy a new car. His loan has an annual interest rate of 6.5%, compounded monthly, and his monthly payment is $293.49. How much will he have paid in interest when he finished repaying his loan in 60 months? a. $1575.50 b. $43.49 c. $2609.40 d. $17609.40

C - $2609.40

Suppose that Cheryl's only assets are an automobile worth $10,000 and a checking account with a $5,000 balance. Her only liabilities are a student loan balance of $2,000 and a balance of $8,000 on her car loan. What is her net worth? a. $10,000 b. $8,000 c. $5,000 d. $2,000 e. none of the above

C - $5,000 $10,000 + $5,000 - $2,000 - $8,000 = $5,000

Your great-aunt wants to help with your college graduation party. She has just placed $5000 dollars in a bank account that will earn 6%. If you graduate in four years, how much will be on deposit? a. $6142.96 b. $7120.89 c. $6312.38 d. $5960.47

C - $6312.38

You have just placed $500 in a bank account that earns an annual rate of return of 6%. How much will you have in that bank account after 6 years? a. $652.48 b. $787.66 c. $709.26 d. $758.66 e. $801.68

C - $709.26

Hector and Maria Montez Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in 3 years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments. Savings accounts $1,200 Checking account $800 Credit card balance $1000 Car loan balance $12000 car market value $8000 Furniture; market value $2000 Stocks and bonds $10,000 a. $13,000 b. $(13,000) c. $35,000 d. $9,000 e. $22,000

C - $9,000 Monetary assets - $2,000 Investments - $10,000 Car - $8000 Personal Property - $2000 Total Assets- $22,000 Current Credit card $1000 Long-term Automobile loan $12000 Total Liabilities $13,000 $22,000 - $13,000 = $9000

Henry currently has $1250 in monetary assets and also has $1250 in current liabilities. What is his current ratio? a. 0 b. 200 percent c. 1 time d. 1 percent

C - 1 time $1250/$1250 = 1 time

By the Rule of 72, what annual interest rate would be required to turn $100 into $200 in approximately six years? a. 4% b. 8% c. 12% d. 16%

C - 12%

According to your text what percentage of Americans could only go 2 weeks without experiencing financial hardships? a. 40% b. 50% c. 20% d. 30%

C - 20%

What is the annual interest rate earned on a deposit that grew from $60 to $111.06 over the last 8 years? a. 14% b. 12% c. 8% d. 6%

C - 8%

What is the interest rate earned on a deposit that grew from $60 to $111.06 over the last 8 years? a. 14% b. 12% c. 8% d. 6%

C - 8%

The major reason to make a financial plan is to a. allow for a surplus b. see where you are overspending or underspending c. achieve your financial goals d. serve as a tax planning guide e. account for your spending

C - achieve your financial goals

Arnold Diaz Arnold learned something very valuable as a teenager from his dad. He was told to invest $1,000 at 12% interest at age 20 and leave it alone until age 65. Arnold's dad knew that one strategy that wealthy people use is to exercise self-discipline to never touch this long - term plan. Arnold is very happy he applied his dad's advice. Suppose the investment rate of return were 18%. At this rate, when would Arnold reach the $1,000,000 mark? a. at age 42 b. at age 54 c. at age 62 d. at age 68

C - at age 62

A plan for controlling and forecasting your cash inflows and cash outflows is called a a. balance sheet b. statement of changes in financial position c. cash budget d. income statement e. none of the above

C - cash budget

After retirement starts, which aspects of financial planning becomes paramount? a. maintaining a regular pattern of saving b. long-term borrowing commitments c. estate planning d. effects of inflation

C - estate planning

John Madrid put $1,000 into a mutual fund yielding an 18% Annual Rate of Return. Using the Rule of 72 calculate approximately how long will it take to double in value. a. three years, four months b. three years, seven months c. four years d. four years, four months e. five years

C - four years

Assets that you purchase for the purpose of accumulating wealth to satisfy your financial goals are called a. monetary assets b. intangible assets c. investment assets d. all of the above are correct

C - investment assets

Which of the following would be included on a personal income statement? a. Buying a flat screen TV on credit b. Giving a friend and IOU for money you borrowed c. Making a payment to your credit card company d. all of the above

C - making a payment to your credit card company

Bert bought a used car last month for $1,200. He just found out he needs a new transmission that will cost $1,800 to install. He is asking you for advice as to what he should do. What financial principle from Chapter 1 would you use to base your advice on? a. Waste not, want not, smart spending matters b. Protect yourself from major catastrophes c. mind games and your money d. none of the above wold be correct

C - mind games and your money

Chapter 1 discusses ten principles that form the foundation of personal finance. The principle that considers the importance of insurance is the _____ principle a. agency problem - beware the sales pitch b. all risk is not equal c. protect yourself against major catastrophes d. time value of money

C - protect yourself against major catastrophes

Chapter 1 discusses ten principles that for the foundation of personal finance. The principle that considers the fact that one expects to earn additional return for increasing investment risk is the _____ principle. a. mind games and your money b. nothing happens without a plan c. risk and return go hand in hand d. the best protection is knowledge

C - risk and return go hand in hand

Charlie is 64 years old and is looking forward to his retirement next year. He currently has all of his 401K retirement money invested in the stock market. What financial principle from Chapter 1 does he need to understand better? a. nothing happens without a plan b. knowledge is the best protection c. risk and return go hand in hand d. stuff happens, the importance of liquidity

C - risk and return go hand in hand

Laticia is 22 years old and she has all of her savings in a Certificate of Deposit at the bank that currently pays an annual 3% yield. The account is protected by the FDIC so it is virtually risk free. She hopes to use her savings for a down payment on an new house in ten years. Inflation in house prices in her area has averaged 5% per year. What financial principle from Chapter 1 does she need to pay better attention to? a. nothing happens without a plan b. waste not, want not, smart spending matters c. risk and return go hand in hand d. all of the above are correct

C - risk and return go hand in hand

This helpful investment rule-of-thumb tells you approximately how many years it takes for a sum of money to double in size. a. rule of future value b. rule of annuity doubling c. rule of 72 d. rule of 100 e. rule of compound interest

C - rule of 72

Your money will grow or compound ____ as the number of compounding periods per year becomes ____. a. faster; larger b. faster; smaller c. slower; larger d. slower; compounded e. none of the above are correct

C - slower; larger

which of the following adheres to the financial principle "just do it?" a. It's much easier to save than to spend b. Pay yourself last c. The amount you can spend is what's left after you put aside your savings. d. all of the above

C - the amount you can spend is what's left after you put aside your savings

George and Betty, a middle - aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement. Gross monthly income: $8,000 Income taxes withheld monthly: $2,300 Monthly interest income from investments: $100 Monthly insurance payments $700 Monthly housing expenses: $4,500 Monthly food expenses: $800 Miscellaneous expenses: $400 a. $1600 b. $1700 c. $(500) d. $(600) e. Not enough information available to answer question.

D - $(600)

What is the present value of an annual payment of $1500 discounted back 15 years at an annual rate of return of 3%. a. $13,449.87 b. $10663.87 c. $12334.56 d. $17906.90

D - $17906.90

Suppose that you want to create a "retirement party fund" for yourself and place $50 in a bank account for each of the next 20 years. if that account earns an annual rate of return of 7%,, how much will be in your retirement party fund at the end of the 20th year? a. $1529.70 b. $2679.22 c. $1032.57 d. $2049.77

D - $2049.77

What is the future value of a series of $500 annual payments received at the end of each of the next 5 years' worth if they are invested at an annual rate of return of 6%? a. $2176.65 b. $3309.76 c. $1223.44 d. $2818.50

D - $2818.50

Suppose that you want to purchase some land to build a homestead in the future. You can afford payments of $5000 each year and want to pay the loan back over the next 20 years. Assuming no down payment is required, how much can you borrow if the bank will charge you an annual interest rate of 12%? a. $48231.47 b. $100985.45 c. $160262.21 d. $37347.22

D - $37347.22

You and your spouse have earned salary and wages of $41750. In addition you have municipal bond interest income of $600 and savings account and certificate of deposit interest income of $800. You paid a total of $600 in interest on your student loan. Using only this info, what is your total income for tax purposes? a. $43150 b. $41750 c. $42350 d. $42550 e. none of the above

D - $42550

Adrian Clemons Adrian is a single man and wants to save up enough money to put as a down payment on a new house in 5 years. He has read that the best way to purchase a house is with 20% down payment. He has a large income and very little debt right now so he can afford to save a substantial amount of money every month. He is asking for some advice to help him reach his goal. Assume that Adrian will need $30,000 for his 20% down payment in 5 years. Which of the following is closest to the amount that he will have to save every year in an investment that pays 9% compounded annually? a. $5187 b. $6003 c. $4884 d. $5013

D - $5013

Contributing $2000 into a tax-deferred retirement plan in a 28% tax bracket will save a. $70 b. $140 c. $280 d. $560 e. it depends on the exemptions and deductions claimed

D - $560

Claudia has $4,500 automatically deducted for insurance from her annual salary of $60,000. Additionally $7,500 is deducted each year in taxes. When preparing her personal income statement, what figure should Claudia enter for her income? a. 52,500 b. $48,000 c. $55,500 d. $60,000

D - $60,000

Your daughter has been saving $500 a year for each of the last 10 years for her "sweet sixteen" party. How much is now in her party account (at the end of the tenth year) if she earned an annual rate of return of 6%? a. $7680.04 b. $5300.00 c. $8714.84 d. $6590.40

D - $6590.40

Suppose that you placed $500 in a bank account at the end of each year for the next 10 years. How much would be in that account at the end of the tenth year if the deposits earned an annual rate of return 8% each year? a. $5400.00 b. $7774.51 c. $8079.46 d. $7243.28 e. $6355.04

D - $7243.28

Alysha currently has $500 in monetary assets and currently has $5000 in current liabilities. What is her current ratio now? a. 100 percent b. .100 percent c. 10 times d. .10 times

D - .10 times $500/$5000 = .10 times

Your great-uncle placed $500 a year in a bank account for your "college fund" for each of the last 18 years. How much is now in your college account (at the end of the eighteenth year) if your account earned an annual rate of return of 6%? a. $15546.18 b. $16427.17 c. $15413.80 d. $15452.83 e. $15175.17

D - 15452.83

Suppose that you had deposited $100 in a bank account for each of the last 5 years. How much did you earn if there is now (at the end of the fifth year) $758.92 on deposit? a. 10% b. 16% c. 19% d. 21% e. 23%

D - 21%

One day as you were going through some old memorabilia, you discovered an old savings account in which you placed $100 twenty years ago. When you checked out the account, it currently had a balance of $320.71. What rate of interest did you earn? a. 12% b. 10% c. 8% d. 6%

D - 6%

Using the Rule of 72, approximately how long will it take to double your money if you invest it at 8% compounded annually? a. 6 months b. 9 months c. 6 years d. 9 years e. It depends on the amount of the initial investment

D - 9 years

George and Betty, a middle - aged couple, have watched their savings account dwindle over the years. They both make good incomes and can't understand why they aren't saving more each month. Below is their financial information to complete an income statement. Gross monthly income: $8,000 Income taxes withheld monthly: $2,300 Monthly interest income from investments: $100 Monthly insurance payments $700 Monthly housing expenses: $4,500 Monthly food expenses: $800 Miscellaneous expenses: $400 George and Betty ask you for financial advice. What wold you tell them to do? a. They should hire a Certified Financial Planner to assist them. b. Nothing. With their income they are in good shape financially c. They need to live within their means d. Both A and C would be good advice for them

D - Both A and C would be good advice for them

Suppose that Doug's only assets are an automobile worth $10,000 and a checking account with a $5,000 balance. His only liabilities are a student loan balance of $12,000 and a balance of $9,000 on his car loan. What is his net worth? a. $21,000 b. $15,000 c. $6,000 d. Doug is currently insolvent e. None of the above statements are correct

D - Doug is currently insolvent

Suppose that you just completed your first year of college with $11,000 in loans and plan to borrow the maximum each year from now until graduation. You have never accounted for the way you spend your money, do not have a budget, and want to insure that you will be able to repay your loans after college. What is the most important thing you can do right now? a. visit your career counselor at school b. talk to your parents about an allowance c. ask a friend who took the Personal Finance course for advice d. immediately begin to develop a personal financial plan

D - Immediately begin to develop a personal financial plan

Which of the following statistics concerning women are NOT true? a. 80% of all widows who are now living in poverty were not living in poverty while their husbands were still alive. b. About 75% of the elderly people living in poverty are women. c. Almost half of all single elderly women get most of their income from Social Security d. Only 22% of women 65 and older received pension benefits, versus 29% of men, and the median amount of the women's pension income was over twice that of men.

D - Only 22% of women 65 and older received pension benefits, versus 29% of men, and the median amount of the women's pension income was over twice that of men.

Butch Baird sold his stock in Brenner Corporation for a price less than what he paid for it. Butch will experience a. bracket creep b. a capital gains tax c. a capital loss tax d. a capital loss e. a capital gain

D - a capital loss

A source of tax-free income is a. inheritances b. foreign income incurred by U.S. citizens living and working abroad c. interest on municipal bonds d. All of the above are sources of tax-free income

D - all of the above

Excise taxes a. are imposed on specific purchases, such as alcohol and cigarettes b. are referred to as "sin taxes" in some cases c. are often aimed at reducing the consumption of the items being taxed. d. all of the above

D - all of the above

What should you do with your goals on a frequent basis throughout your lifetime? a. modify them b. prioritize them c. put them in writing d. all of the above

D - all of the above

Which questions do financial ratios help you answer? a. Do I have adequate liquidity to meet emergencies? b. Am I saving as much as I think I am? c. Do I have the ability to meet my debt obligations? d. all of the above e. only A and B above

D - all of the above

your base income tax liability can be determined by a. using the IRS tax tables provided in the instruction booklet b. using the alternative minimum tax worksheet, aimed at preventing the wealthy from paying little or no taxes c. using the IRS rate schedules for taxable incomes greater than $100,000 d. all of the above e. none of the above

D - all of the above

While reviewing your current financial plan, you discover that you most likely won't achieve your long term financial goals. What should you do now? a. look at increasing your income b. look at revising your goals c. look at cutting back on your expenses d. all of these would be realistic things to do

D - all of these would be realistic things to do

Janet and Bob Emmerson Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities 6 years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions. Additional items that may reduce the Emmersons' tax burden might include a. adjustment for the interest on their college loans b. the child credit c. earned income credit d. both A and B e. none of the above because their income is too high

D - both A and B

The movement into a higher tax bracket as a result of inflation increasing wages is called _____. a. bracket shifting b. bracket migration c. bracket climbing d. bracket creep e. none of the above

D - bracket creep

Suppose that you wanted to calculate a financial ratio to measure your liquidity. You would most likely use the ____ ratio a. savings b. debt c. long-term debt coverage d. current e. none of the above

D - current ratio

Which of the following would you calculate if you were concerned about your financial resources with regards to unplanned money emergencies? a. long-term debt coverage ratio b. liability ratio c. debt ratio d. current ratio e. none of the above

D - current ratio

The concept that emphasizes that people should not put all their eggs in one basket is a. the farmers analogy b. the time dimension of investing c. liquidity is first d. diversification reduces risk e. the curse of competitive investment markets

D - diversification reduces risks

In Chapter 4, Dianne Taylor won a 2011 Honda Accord on "The Price is Right" TV show. She has to pay taxes on her prize. The taxes are based on the car's ____ value. a. invoice b. manufacturer's suggested retail price c. residual d. fair market

D - fair market

Liabilities are best described as a. assets that depreciate over time b. monetary items of value that you own c. your net worth d. financial debts and obligations that you owe e. intangible obligations

D - financial debts and obligations that you owe

The current ratio is a measure of liquidity. What information does it tell you? a. it tells you how many current assets you own free and clear b. it tells you how much your debt payments for the current period are c. it tells you what portion of your total liabilities are current liabilities d. it tells you how many times you can pay off your current liabilities by using your liquid assets

D - it tells you how many times you can pay off your current liabilities by using your liquid assets

A ______ is a book or notebook or a type of document found on a computer program in which one records ones expenditures. a. cash budget b. blue book c. income statement d. ledger e. none of the above

D - ledger

What would happen to your net worth if you sold a tangible asset you owned for $1,000 and used the money to pay off your credit card balance for $1,000? a. Since your assets decreased, your net worth would decrease by $1,000 b. Your net worth would increase by $500 c. since your liabilities decreased, your net worth would increase by $1,000 d. none of the above are correct

D - none of the above are correct Because the change is zero

A personal income statement is prepared a. on an accrual basis b. on a cash basis c. based on actual cash flows d. only B and C above e. all of the above

D - only B and C above

In 2008, the Bear Stearns Company collapsed could not be saved and was sold to JP Morgan Chase for $10 per share, a price far below its pre-crisis 52 - week high of $133.20 per share. Prior to the collapse, many of the company's employees had all of their retirement money invested only in Bear Stearns common stock. This was a very risky financial strategy for just such a reason. What if the company dissolves? What financial principle from Chapter 1 did they need to understand better? a. just do it b. The time value of money c. Nothing happens without a plan d. Risk and return go hand in hand

D - risk and return go hand in hand

Without recognizing _____ it is impossible to understand compound interest, which allows investments to grow over time. a. the time value of money b. the importance of liquidity c. that risk and return go hand in hand d. that taxes affect personal finance decisions

D - the time value of money

The common thread among investment assets is a. they must be easily turned into cash with little or no loss in value b. they are purchased for one's personal use, like a vehicle or residence c. they provide the necessary liquidity in case of an emergency d. they are purchased for the purpose of generating wealth

D - they are purchased for the purpose of generating wealth

An expenditure over which you have control, are not obligated to make, and may vary from month to month is called a _____ expenditure a. liquid b. fixed c. vacillating d. variable e. none of the above

D - variable

Fair market value refers to a. what you paid when you purchased an asset b. how the price of an asset has changed since its original purchase. c. what an asset will be worth at some point in the future d. what an asset could be sold for today.

D - what an asset could be sold for today

Why might someone choose to use itemized deductions instead of taking the standard deduction offered by the IRS? a. you may have a lower tax liability if you itemize instead of using the standard deduction b. MostComputer Tax Software automatically itemizes deductions c. Married taxpayers must use the itemized deductions only d. It is easier to calculate your itemized deductions versus the standard deduction e. both B and C are correct

D - you may have a lower tax liability if you itemize instead of using the standard deduction

What is a smart thing for married women to do regarding their personal financial situation? a. be involved in decisions regarding their husband's employee benefits and retirement plans. b. See a financial planner about any specific concerns c. make sure their plan recognizes that women live longer than men and that half of all marriages end in divorce. d. all of the above are correct e. only A and C are correct

D- all of the above are correct

You just purchased a vacant lot for your future home for $50,000 and financed that amount over 96 months. If your interest rate is 9.25% compounded monthly, which of the following is closest to your monthly payment? a. $810.92 b. $853.60 c. $744.55 d. $767.23 e. $739.02

E - $739.02

Hector and Maria Montez Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in 3 years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments. Savings accounts $1,200 Checking account $800 Credit card balance $1000 Car loan balance $12000 car market value $8000 Furniture; market value $2000 Stocks and bonds $10,000 What is their month's living expenses covered ratio?

E - Not enough information to answer this question

Why is it more difficult for women to plan for their retirement than it is for men? a. Women generally earn less income and pay less into Social Security than men do. b. on average, men die younger than women. c. Women rely on defined - benefit plans more than men do. d. all of the above are correct e. Only A and B are correct

E - Only A and B are correct

The economic downturn that began in 2008 had which negative consequences? a. There was a dramatic increase in unemployment rates. b. financial markets were disrupted c. consumers found it difficult to borrow money from lending institutions. d. All consumers increased their wealth e. Only A, B, and C are correct

E - Only A, B, and C are correct

A solid understanding of personal finance will a. enable you to protect yourself from an incompetent investment adviser. b. allow you to take advantage of changes in the economy. c. help you understand the importance of planning for your financial future d. give you the ability to make intelligent investments e. all of the above

E - all of the above

Daisy is a divorced single parent who is currently paying back a college loan, attending graduate school part-time, and working full-time earning $42,000. She has custody and provides all support for her child. Which of the following adjustments, deductions, or credits might apply to her? a. child and dependent care credit b. lifetime learning tax credit c. child tax credit d. adjustment for student loan interest e. all of the above

E - all of the above

Evaluating your financial health consists of a. preparing a personal balance sheet b. determining what you are worth c. preparing a personal income statement d. determining where your money comes from and where it goes e. all of the above

E - all of the above

Personal financial planning can help you to a. minimize your chances of personal bankruptcy. b. deal with unplanned health issues. c. have enough money for a comfortable retirement. d. minimize your tax payments to Uncle Sam e. all of the above

E - all of the above

Practical uses of an income statement include a. spotting problem areas of overspending b. knowing where your money is going c. determining whether you are earning more than you spend d. determining if money is available for saving or investment e. all of the above

E - all of the above

Under what conditions should people hire a professional financial planner? a. when they start receiving late payment penalties from their creditors b. when it is apparent their financial planning skills are limited c. when they run into complex tax or legal issues d. when they need someone to improve or validate the plan they prepared themselves e. all of the above

E - all of the above

Which factors affect your choice between claiming itemized deductions and the standard deduction? a. ease and simplicity of filing b. more deductible expenses this year than last year, as a result of unforeseen circumstances or planned "bunching" of deductions c. home ownership, as mortgage interest may exceed the standard deduction d. year long record keeping to thoroughly and accurately document itemized deductions e. all of the above

E - all of the above

Which financial planning tools and techniques will be helpful to a couple planning for how much money to start saving for their retirement? a. future values b. reinvesting c. compound interest d. present values e. all of the above

E - all of the above

Which of the following are permissible itemized deductions? a. home mortgage interest b. medical and dental expenses c. gifts to charity d. casualty and theft losses e. all of the above

E - all of the above

Which of the following financial documents would you use to create a financial plan? a. income statement b. balance sheet c. cash budget d. budget e. all of the above

E - all of the above

Which of the following might be found on an income statement? a. income taxes paid b. interest and dividends c. wages and salaries d. payroll taxes paid e. all of the above

E - all of the above

Which of the following statements about portfolio income from investments that are not held in a tax-deferred account, is accurate? a. It must be reported on your tax return b. it is normally in the form of dividends and interest c. it may be taxed at a lower rate than wages and salaries are d. it is also called investment income e. all of the above

E - all of the above

Which of the following typically occur during stage one of the financial life cycle? a. home purchase b. initial goal setting c. insurance planning d. saving for goals e. all the above

E - all of the above

Why should you care about the power of compounding and the time value of money? a. it is critical to obtaining your future financial goals. b. the sooner you start saving for retirement, the less you have to save each year. c. It is possible to build a large estate for yourself, spouse, and children. d. You may outlive your social security and employer's retirement plan. e. all of the above

E - all of the above

Why should you care about the power of compounding and the time value of money? a. it is critical to obtaining your future goals. b. the sooner you start saving for retirement, the less you have to save each year. c. it is possible to build a larger estate for yourself, spouse, and children d. you may outlive your Social Security and employer's retirement plan. e. all of the above

E - all of the above

You need to review your progress, reevaluate, and revise your plan (step 5) because a. your family situation may change from time to time b. your employment situation changes from time to time c. your net worth will change over time d. your financial needs change over your life-cycle e. all of the above are good reasons to periodically review your financial plan.

E - all of the above are good reasons to periodically review your financial plan.

Jorge currently has a debt ratio of 37 percent and Joses' is 102 percent. They both have the same take home pay every month. How can we describe their current financial situation? a. Jorge probably has more money available to enjoy every month. b. Jose is currently insolvent c. Jose probably doesn't have much money available to enjoy every month d. Jorge is currently solvent e. all of the above are true based on their ratios

E - all of the above are true based on their ratios The lower the percent the more solvent the person is - meaning the more money they have coming in compared to the money going out for bills

Understanding how tax planning affects your personal finances is actually important for most taxpayers, not just the wealthy, because a. many people pay higher taxes or receive smaller refunds than they need to b. many people don't take advantage of all the deductions and tax credits they are entitled to c. the average American spends close to 1/3 of the year earning the money necessary to pay his or her taxes d. Only choices A and B e. All of the above choices

E - all of the above choices

Hector's month's living expenses covered ratio is currently 0.25 months. He just broke his leg and will not be able to work for 6 weeks. What most likely will Hector experience without a paycheck for 6 weeks? a. He may have to liquidate some of his tangible or investment assets to keep current on his monthly bills b. he doesn't have to worry because he has plenty of money in his savings accounts c. He may have to borrow some money to keep current on his monthly bills d. There is not enough information to answer this question. e. Both A and C are realistic possibilities for Hector

E - both A and C are realistic possibilities for Hector 0.25 is not enough to cover even one month of expenses.

FICA deductions from your paycheck are for which mandatory federal insurance programs? a. Medicaid b. Social Security c. Medicare d. unemployment benefits e. both B and C

E - both B and C

When measuring your current financial condition it is important to create a. positive net income b. a personal balance sheet c. an income statement d. positive net worth e. both B and C are required

E - both B and C

Which of the following statements applies to obtaining an undergraduate college degree? a. They are expensive and rarely pay off in increased earnings b. It may be the single best investment you will ever make c. 70% of wealthy householders had earned a college degree d. There is no relationship between personal wealth and earning a college degree e. both B and C above

E - both B and C above

Which of the following are not typically found on a balance sheet? a. current market value of home b. mortgage interest payments c. monetary assets d. interest earned on a CD at the bank e. both B and D are not found on a balance sheet

E - both B and D are not found on a balance sheet

Wilma Rudolph was given a cost of living raise and a merit raise at work this year. her federal income taxes will be paid at 25% instead of 15%. Wilma has experienced. a. an opportunity to change her filing status. b. the inflation trap c. a capital gain d. a higher personal exemption rate e. bracket creep

E - bracket creep

Who must file a federal income tax return? a. all heads of household b. only those who have to file a state income tax return c. everyone with an earned income during the year d. all American Citizens e. individuals whose income meets federal guidelines

E - individuals whose income meets federal guidelines

Which one of the following is not one of the five basic steps in personal financial planning? a. evaluate your financial health b. develop a plan of action c. define your financial goals d. implement your plan e. let an accountant review your plan

E - let an accountant review your plan

A perpetuity is an annuity where the payments a. increase due to inflation b. are delayed until maturity c. stop at maturity d. accrue until maturity e. never stop

E - never stop

Hector and Maria Montez Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in 3 years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments. Savings accounts $1,200 Checking account $800 Credit card balance $1000 Car loan balance $12000 car market value $8000 Furniture; market value $2000 Stocks and bonds $10,000 What is their month's living expenses covered ratio? a. 1.69 months b. 0.5 months c. 2.44 months d. 2 months e. Not enough information

E - not enough information Monetary assets/annual living expenditures

Which of the following will be the best type of record keeping system to use in maintaining financial records? a. manual method with pencil and notebook b. computer software c. the CPA's system d. Any record system out there will do e. one you will actually use

E - one you will actually use

Your net worth, or your general level of financial worth, is found by a. subtracting current liabilities from monetary assets b. subtracting your expenses from your income c. dividing your monetary assets by your current liabilities d. dividing monthly debt (less mortgage payment) by monthly income e. subtracting your liabilities from your assets

E - subtracting your liabilities from your assets

Which type of record keeping system is best to use with personal finances? a. pencil and a notebook b. the one you did yourself c. the one your accountant suggested d. computerized e. the one that you will use

E - the one that you will use

By allowing the interest that you earn on an investment to stay in the investment and to earn interest on the interest you have already earned is called what? a. the power of present value b. the power of future value c. the power of time d. the power of simple interest e. the poser of compound interest

E - the power of compound interest

An expenditure that you can control over time and that you can manage is a a. short-term expenditure b. constant expenditure c. fixed expenditure d. adjustable expenditure e. variable expenditure

E - variable expenditure

A debt ratio is aimed at determining if you have adequate liquidity to meet emergencies. True or False

False

A dollar received in the future is worth more than a dollar received today. True or False

False

A financial plan is only concerned with your future earnings and expenses. An examination of your current financial situation is not so important. True or False

False

A progressive tax rate is one that decreases as you make more income. True or False

False

A well educated and trained employee is virtually guaranteed job security in today's corporations. Therefore he or she doesn't need to worry about keeping his or her skills updated and current. True or False

False

Adjusted gross income is your total gross income adjusted for inflation. True or False

False

An annuity is a series of unequal dollar payments coming at the end of each time period for a specified number of time periods. True or False

False

As a percentage, there are more elderly men living below the poverty line today than there are elderly women living below the poverty line. True or False

False

As long as a financial planner is certified you need not worry about his ability to provide you with the correct financial plan for your situation. True or False

False

Charlie is starting to save for his retirement now at age 20. If inflation averages 4% annually until his retirement age and he earns an annual rate of return of 4% on his investments during this period, then he should be able to enjoy a very comfortable retirement when he is retired. True or False

False

Having negative net income will not effect your net worth True or False

False

If you are in a 25% tax bracket then every dollar of your AGI will be taxed at 25%. True or False

False

In 2005 you purchased a stamp collection for $75 and you sold it this year for $150. Legally, you don't need to pay any taxes on this transaction. True or False

False

In 2011 you purchased $1500 of IBM stock and you sold it this year for $1200. Since you lost money on this transaction, there is no valid reason to include this on this year's tax return. True or False

False

Insolvency results from taking in more than you consume financially. True or False

False

It is never a good idea for both spouses to be actively involved in and aware of the family's finances. This can lead to arguments. True or False

False

It is not realistic for a 20 year old person to accumulate one million dollars by the time they reach 65 years of age. True or False

False

Most individuals will reach their financial goals without planning or budgeting. True or False

False

Tax credits reduce your AGI dollar-for-dollar. To compute the tax savings multiply the tax credit by the marginal tax rate. True or False

False

Today, most Americans over the age of 65 have adequate savings and income available to them during retirement. True or False

False

When comparing two different investment opportunities the investor should always choose the investment that minimizes the total amount of taxes paid. True or False

False

Hector and Maria Montez Hector and Maria Montez are trying to figure out their current financial health. They have listed the following items from their most recent statements. They will pay off their car loan in 3 years. Their gross household income is $3,800 per month. They receive $75 month in interest income from their investments. Savings accounts $1,200 Checking account $800 Credit card balance $1000 Car loan balance $12000 car market value $8000 Furniture; market value $2000 Stocks and bonds $10,000 What is their debt ratio? a. 1.69 times b. 59 percent c. 169 percent d. 0.59 times e. 2 times

Monetary assets - $2,000 Investments - $10,000 Car - $8000 Personal Property - $2000 Total Assets- $22,000 Current Credit card $1000 Long-term Automobile loan $12000 Total Liabilities $13,000 Total Liabilities $13,000/Total assets $22,000 = 0.591 or 59%

A personal exemption is an approved deduction that you can make on your tax return for each person supported by the income shown on your tax return. True or False

True

All else being equal, an increase in inflation will cause investors to require a higher rate of return on an asset. True or False

True

An income statement tracks the amount of money you have a coming in and going out over some period of time, like a month or a year. True or False

True

Before you can hope to achieve your financial goals, you will need to first measure your current financial health and develop a plan and a budget. True or False

True

For most tax payers, their average tax rate is lower than their marginal tax rate. True or False

True

If you set your calculator to the "end" mode your calculator will assume cash flows occur at the end of each time period. True or False

True

In an amortized loan the earlier payments have a larger portion of the payment going to pay interest and a smaller portion of the payment to pay down the principle. True or False

True

It is important to take a close look at the recent economic downturn as a means to understand how vulnerable American's finances are. True or False

True

Present value lets us compare dollar values from different time periods. True or False

True

Small changes in the interest rate can have a dramatic impact on future values. True or False

True

The earlier you begin saving for your retirement, the easier it will be to reach your financial goals for retirement. True or False

True

The impact of taxes are an important consideration in most of the financial decisions that you will make. True or False

True

The interest charged on your credit card statement should be listed on your personal income statement as a variable expense. True or False

True

The most important factors in reaching your financial goals are the return on your investments and the length of time you have until you need your money. True or False

True

The present value of a financial asset is what you should be willing to pay today for that financial asset.

True

Using financial ratios helps you quickly compare and analyze the raw data found in your personal income statement and balance sheet. True or False

True

With a mortgage loan of $150,000 at an annual percentage rate of 6% for 30 years, you will pay over $150,000 in interest before your loan ends. True or False

True

Time Value of Money calculations can be made much easier through the use of a financial calculator. True or False

True~

Bang Nguyen Bang Nguyen recently graduated from college and started working in a good job. He has little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions. Standard deduction for 2011: $5800 Personal exemption: $3700 Tax brackets for 2011: $0 to $8500 = 10% $8501 to $34500 = 15% $34501 - $83500 = $25% Bang's average tax rate for 2011 is closest to which of the following? a. 10% b. 15% c. 12.5% d. 25%

a. 10% (I don't believe this is accurate, but if you should get this question answer 10%)

Which indicates the correct order for completing your tax returns? a. determine gross income, subtract deductions, claim exemptions, calculate total tax b. subtract deductions, calculate total tax, claim exemptions, determine gross income, subtract adjustments c. claim exemptions, calculate total tax, subtract deductions, subtract adjustments, determine gross income d. none of the above

a. determine gross income, subtract deductions, claim exemptions, calculate total tax

For the Taylors they are allowed to take a tax credit of $1000 per dependent child off their _____. a. total tax owed b. exemptions counted c. net income d. adjustments retained

a. total tax owed

Bang Nguyen Bang Nguyen recently graduated from college and started working in a good job. He has little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2008. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2008. He is just completing his tax return for 2008. Based on the information below, answer the following questions. Standard deduction for 2011: $5350 Personal exemption: $3500 Tax brackets for 2008: $0 to $7825= 10% $7826to $31850 = 15% $31850- $77100 = $25% What is Bang's AGI for 2008? a. $29900 b. $38750 c. $37375 d. $35250

b - $37375 38750 x .98 = 37975 - 600 = 37375

A compound annuity uses the principle of a. reinvesting and present value b. reinvesting and compound interest c. compound interest and present value d. compound interest and future value e. amortization and reinvesting

b - reinvesting and compound interest

Dang Nguyen currently makes $30,000 per year and is in a 25% tax bracket. If he contributes $2400 to his 401K plan at work, by how much will this lower his taxable income? a. $7500 b. $2400 c. $600 d. Not enough info

b. $2400 this one you are looking at taxable income

Bang Nguyen Bang Nguyen recently graduated from college and started working in a good job. He has little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions. Standard deduction for 2011: $5800 Personal exemption: $3700 Tax brackets for 2011: $0 to $8500 = 10% $8501 to $34500 = 15% $34501 - $83500 = $25% What is Bang's gross income for 2011? a. $35250 b. $38750 c. $29900 d. not enough info to determine

b. $38750

Bang Nguyen Bang Nguyen recently graduated from college and started working in a good job. He has little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2008. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2008. He is just completing his tax return for 2008. Based on the information below, answer the following questions. Standard deduction for 2011: $5350 Personal exemption: $3500 Tax brackets for 2008: $0 to $7825= 10% $7826to $31850 = 15% $31850- $77100 = $25% What is Bang's marginal tax rate for his current level of taxable income? a. 10% b. 15% c. 12.5% d. 25%

b. 15%

If you're in the 15% marginal tax bracket, what is the equivalent taxable yield on an 8% municipal bond? a. 6.96% b. 9.41% c. 8.7% d. 8.15%

b. 9.41% (1 - .15 marginal tax rate) = .85 .08/.85 = .0941

Richard and Katrina Bajorshik Katrina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four year old's. Before the twins were born, Katrina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011. Gross income $98712 Student loan interest $1965 Katarina's traditional IRA $1500 Total itemized deductions $14987 Standard deduction for 2011 $11600 Personal exemption amount $3700 Marginal tax bracket 25% If their income does not exceed the phase-out level of $110,000 in 2011, by how much will the child tax credit reduce their tax liability? a. Their tax liability will be reduced by $2000 b. Their tax liability will be reduced by $3000 c. Their tax liability will be reduced by $750 d. Their tax liability will be reduced by $2150

b. Their tax liability will be reduced by $3000

Andy Bernatelli For many years Andy paid someone else to file his income tax return. After taking a personal finance course at his local college, Andy feels he is ready to tackle it on his own for tax year 2012. Andy is single with an income of $35,000 and has no dependents. He has little interest income from savings, does not have a personal IRA, and plans to itemize deductions. Andy owns a home and travels a lot with his job. He pays some of his own work-related expenses because his employer does not pay for all of them. His only personal investment include 1,000 shares of stock he inherited from his uncle, which he does not intend to sell for many years because the blue-chip company has a strong history of dividend income and share price appreciation. However, he does contribute monthly to his 401(k) plan at work. To help Andy with his tax planning, he should carefully track and maintain records for all of the following expenses during the tax year except ______. a. state and local income taxes, real estate taxes, and personal property taxes b. price appreciation, or increases from January 1 to December 31, for 1000 shares of stock he owns. c. all job related expenses, especially those that are and are not reimbursed by his employer d. all expenses for prescribed health care needs that are not covered by insurance e. all of the above

b. price appreciation, or increases from January 1 to December 31, for 1000 shares of stock he owns.

You know you are insolvent when a. your expenses exceed your income b. your net worth is negative c. your assets are less than your liabilities d. your debt ratio is too high e. both B and C above

both B and C above

The purpose of using financial ratios is to a. save space on your financial statements b. share your financial figures with your advisers c. better understand how you are managing your financial resources d. help to analyze your raw data to compare how well you are doing e. both C and D above

both C and D above

What is the future value of a stream of $800 annual payments worth to the investor at the end of 10 years if these payments are invested at an annual rate of return of 8.5%? a. $13667.88 b. $13334.90 c. $11868.08 d. $12195.22

c - $11868.08

c - $95247 $98712 - $1965 - $1500 = $95247

Latisha is a single person who makes $40,000 per year. This year she paid $2,000 in student loan interest, $1500 in medical expenses, $7200 in rent and $4800 in car loan payments. She contributes $3600 per year to her 401K plan at work. Give her some tax advice. a. People who have medical expenses should always itemize their deductions. b. Single people should always take the standard deduction. c. Calculate your taxes using both methods to see which provides the greater deduction. d. You should itemize if you pay interest, since interest of any kind is tax deductible.

c - Calculate your taxes using both methods to see which provides the greater deduction.

Car loans and mortgage loans are typical annuities in the form of a. payment loans b. maturity loans c. amortized loans d. compound loans

c - amortized loans

Richard and Katrina Bajorshik Katrina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four year old's. Before the twins were born, Katrina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011. Gross income $98712 Student loan interest $1965 Katarina's traditional IRA $1500 Total itemized deductions $14987 Standard deduction for 2011 $11600 Personal exemption amount $3700 Marginal tax bracket 25% Kat worked as an ER nurse and knows the demands for the job is high. However, prior to returning to work, when the twins enter kindergarten, she will need to take classes on the latest technological advancements. Which of the following tax planning strategies should they consider as they plan their financial future? a. When Kat returns to school, they should track school - related expenses and determine eligibility for the Lifetime Learning credit b. While the children are under age 13, they should track expenses and determine eligibility for the child and dependent care credit. c. Both A and B are legitimate tax planning strategies that the couple should consider. d. Neither A nor B is a tax planning strategy that is relevant to this couples situation.

c - both A and B

Bang Nguyen Bang Nguyen recently graduated from college and started working in a good job. He has little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions. Standard deduction for 2011: $5800 Personal exemption: $3700 Tax brackets for 2011: $0 to $8500 = 10% $8501 to $34500 = 15% $34501 - $83500 = $25% What is Bang's taxable income for 2011? a. $35250 b. $37375 c. $27875 d. $29900

c. $27875 $37375 (agi) - $5800 - $3700 = $27875

Huong currently makes $30,000 per year and is in a 20% tax bracket. If he contributes $1800 to his 401K plan at work, by how much will this lower his tax liability? a. $1800 b. $6000 c. $360 d. not enough info

c. $360 1800 * .20 = $360 this one you are looking at tax liability

Bang Nguyen Bang Nguyen recently graduated from college and started working in a good job. He has little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions. Standard deduction for 2011: $5800 Personal exemption: $3700 Tax brackets for 2011: $0 to $8500 = 10% $8501 to $34500 = 15% $34501 - $83500 = $25% What will Bang's total tax liability be for 2011? a. $2852.50 b. $4278.75 c. $3756.25 d. $7131.25

c. $3756.25 Taxable income is $27875 the first $8500 is taxed at 10% 8500*10% = $850 the remaining (27875-8500=19375) 19375 is taxed at 15% 19375*15% = $2906.25 For a combined total of $3756.25

The least expensive, most accurate, and easily accessible source of help with filing your tax return properly is a. an independent professional tax specialist b. one of the computer programs, such as TurboTax, MacInTax, or TaxCut c. IRS Publication 17, Your Federal Income Tax d. a nationally affiliated professional tax specialist, such as with H&R Block

c. IRS Publication 17, Your Federal Income Tax

Andy Bernatelli For many years Andy paid someone else to file his income tax return. After taking a personal finance course at his local college, Andy feels he is ready to tackle it on his own for tax year 2012. Andy is single with an income of $35,000 and has no dependents. He has little interest income from savings, does not have a personal IRA, and plans to itemize deductions. Andy owns a home and travels a lot with his job. He pays some of his own work-related expenses because his employer does not pay for all of them. His only personal investment include 1,000 shares of stock he inherited from his uncle, which he does not intend to sell for many years because the blue-chip company has a strong history of dividend income and share price appreciation. However, he does contribute monthly to his 401(k) plan at work. Andy can qualify for all of the following except the _____ a. real estate property taxes deduction b. mortgage interest payments deduction c. lifetime learning credit d. deduction for unreimbursed job-related expenses that are in excess of 2 percent of AGI e. andy can qualify for all of the above to reduce his tax liability

c. lifetime learning credit

c. should calculate theirs taxes itemizing and taking the standard deduction to see which is greater.

Richard and Katrina Bajorshik Katrina and Richard are a busy young couple with a son, Caleb, who is 6 and twin daughters, Stacy and Casey, who are actively exploring the world as four year old's. Before the twins were born, Katrina and Richard bought their first home with plenty of indoor and outdoor space for a growing young family. The Bajorshiks are concerned about their 2011 tax issues, but they are also committed to planning for the future of their family. Next year Richard should be able to pay off the remaining balance of his law school student loans. Contributing to Richard's Roth IRA is an annual priority. The following information reflects tax year 2011. Gross income $98712 Student loan interest $1965 Katarina's traditional IRA $1500 Total itemized deductions $14987 Standard deduction for 2011 $11600 Personal exemption amount $3700 Marginal tax bracket 25% Although Richard and Kat are a happily married couple, they joke that they could not possibly remarry for at least two years following the year of the death of the other spouse because a. the surviving spouse would lose the exemption amount for the deceased spouse. b. the surviving spouse would have to file as head of household c. the surviving spouse would lose the tax advantage of married filing jointly status, assuming at least one child was still a dependent and the surviving spouse was paying more than half the cost of keeping up the home. d. neither spouse has sufficient life insurance to provide for the family.

c. the surviving spouse would lose the tax advantage of married filing jointly status, assuming at least one child was still a dependent and the surviving spouse was paying more than half the cost of keeping up the home.

Suppose that you are not able to complete your tax returns by April 15. Which of the following statements is most accurate? a. you may have an extension, and the taxes are not due until the extension expires b. you do not have to pay interest on any taxes due on April 15, provided that you have filed for and have an approved extension prior to April 1 of the tax year. c. you can apply for an automatic extension - no questions asked, but you must enclose a check in payment for estimated taxes due. d. You must provide adequate need in tax court, requesting extension of the deadline. e. none are true

c. you can apply for an automatic extension - no questions asked, but you must enclose a check in payment for estimated taxes due.

If you made a mistake, an amended tax return may be filed on Form _____. a. 1040 b. 1040A c. 1040EZ d. 1040X e. 1040ZX

d. 1040X

Janet and Bob Emmerson Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities 6 years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions. Since their taxes are becoming more complex, Bob and Janet are concerned about making a mistake or getting audited. They should a. remember that the key to winning an audit is good records to verify the tax form information b. choose an independent tax specialist to prepare their taxes, because there is more consistency in their training and the quality of their work than that of nationally affiliated specialist c. consult IRS Publication 17, Your Federal Income Tax, the IRS toll-free "hotline," or one of the self-help tax publications to learn more about their tax situation. d. Only choices A and C e. All of the above choices.

d. Only choices A and C

Gross income is another name for ____ income a. expected b. value added c. net d. total

d. total

When considering a principal residence as a tax shelter, remember that you can a. maintain and improve your home, as $500,000 of capital gains for couples and $250,00 of capital gains for single filers is exempt from taxation b. purchase a home and deduct the mortgage interest c. take out a home equity loan to pay for other debts, such as auto financing d. use all of these e. only A and C

d. use all of these

e. $65147 (I do not know how this number was obtained) sorry

Andy Bernatelli For many years Andy paid someone else to file his income tax return. After taking a personal finance course at his local college, Andy feels he is ready to tackle it on his own for tax year 2012. Andy is single with an income of $35,000 and has no dependents. He has little interest income from savings, does not have a personal IRA, and plans to itemize deductions. Andy owns a home and travels a lot with his job. He pays some of his own work-related expenses because his employer does not pay for all of them. His only personal investment include 1,000 shares of stock he inherited from his uncle, which he does not intend to sell for many years because the blue-chip company has a strong history of dividend income and share price appreciation. However, he does contribute monthly to his 401(k) plan at work. Which of the following tax planning strategies could Andy consider to reduce his future tax bills? a. establish a home equity line to finance other consumer credit, such as an auto purchase b. invest in municipal bonds to receive tax-exempt income c. carefully track and maintain records for all itemized deduction categories to insure he is maximizing his itemized deductions. d. contribute as much as possible to a tax-deferred retirement account, such as his 401(k) e. All of the above would be strategies available to Andy to reduce his future taxes.

e. All of the above would be strategies available to Andy to reduce his future taxes.

Bang Nguyen Bang Nguyen recently graduated from college and started working in a good job. He has little money invested in a stock that pays no dividends. He lives in an apartment, is single, and has no dependents. He has a $22,000 student loan balance and he paid $600 interest in 2011. He is considering going back to school part-time for some additional computer classes. He does not have a personal IRA and he contributed 2% of his $38,750 salary to his 401K plan at work for 2011. He is just completing his tax return for 2011. Based on the information below, answer the following questions. Standard deduction for 2011: $5800 Personal exemption: $3700 Tax brackets for 2011: $0 to $8500 = 10% $8501 to $34500 = 15% $34501 - $83500 = $25% Based on Bang's completed tax return, what advice would you give him to lower his tax liability for 2012? a. he should definitely take the computer classes in 2012 b. he should sell his stock c. he should increase his contributions to his 401K plan at work d. he should get a roommate and claim him as a dependent e. Bot A and C are good advice

e. Both A and C are good advice

Janet and Bob Emmerson Janet and her husband, Bob, are facing a totally new income tax situation this year. She is a corporate accountant and Bob is an engineer. Their gross salaries total $89,000. Janet and Bob graduated from four-year universities 6 years ago and are still paying off large college loans. She is attending school part-time now to prepare for the CPA exam. The Emmersons incurred considerable expenses in the process of adopting an infant this year, and also have the ongoing expense of daycare. In January of last year they closed on their new home. Although trained as an accountant, Janet's work has not involved income tax preparation. Help them consider the following questions. With a growing family, Janet and Bob know they should start investing more to provide for a secure future. Which of the following issues should they consider as they plan? a. qualified dividends and capital gains are taxed at a lower rate than ordinary income b. contributions to tax-deferred retirement accounts avoid taxes in the current year and grow tax-free until the time of withdrawal. c. interest paid on money borrowed to invest is an itemized deduction. d. municipal bond earnings are exempt from federal income tax. e. all of these

e. all of these

Which of the following is a reason or reasons for the IRS to audit you tax return? a. you were audited in the past b. there is something suspicious on your return c. you were randomly selected as a matter of routine audits d. you earn a lot of money e. any or all of the above

FMGT - TEST 1

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