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Finance Flashcards

Personal Finance

When estimating your retirement savings goal in today’s dollars, the amount saved must be higher to adjust for inflation. True
A beneficiary designation can, and should, be made on your retirement accounts, life insurance policies, bank and credit union accounts, and investment accounts. True
The salary-reduction pension plan specifically designed for employers with 100 or fewer employees is called a SIMPLE IRA
The type of employer retirement plan in which the benefit is determined by a formula that generally includes the worker’s average pay and the number of years worked for the company is called a ____ plan. Defined-Benefit
Workers who are not active participants in an employer-sponsored retirement plan can deduct contributions to their IRA accounts from their gross income, within specified limits, when filing their federal income taxes True
A positive aspect of defined-benefit plans is that the plans include disability and survivor’s benefits
When a worker retires, other members of his or her immediate family may also be eligible to receive Social Security retirement benefits. True
An annuity is a good choice as an investment option within an IRA or inside your employer’s 401(k) plan as you save for retirement. False
Which of the following pension plan features is (are) especially important to younger workers who anticipate changing jobs more frequently? Vesting and Portability
Transfers at the death of a spouse usually are very uncomplicated because spouses generally own property together under Joint tenancy with right of survivorship
____ is not a community property state. New York
Which of the following people would receive an asset should the beneficiary die before the owner of the asset? Contingent beneficiary
A retirement plan that is self-directed means that the employee decides. Both B and C – how much the employee will contribute to the plan, and how much the employer will contribute to the plan
The process by which employees obtain nonforfeitable rights to their retirement benefits that cannot be taken away in case of dismissal or resignation is called Vesting
An employee stock-ownership plan allows the employees to regularly purchase shares of stock in the company at discounted prices. False
You will earn money each year off your tax-deferred retirement accounts without having to pay taxes until the funds are withdrawn. True
In which of the following is the retirement plan contribution for the employee dependent on the financial success of the employer? Profit-Sharing
When estimating your retirement savings goal in today’s dollars, the amount saved must be higher to adjust for inflation True
All of your employment income is subject to the FICA tax. False
A(n) ____ is intended for taxpayers with self-employment income and owners of small businesses. SEP-IRA
The ____ is a computation of how much income the investor might pocket from rent each year before mortgage payments as a percentage of the purchase price. Rental Yield
If you put money into collectibles, limit your investment to no more than 20 percent of your portfolio False
Investors choose derivatives both to reduce risk by hedging against losses and to take on additional risk by speculating.
Projected gross income for an income-producing real estate investment is computed as gross rental income less vacancies and unpaid rent.
Which of the following is true regarding futures trading? Futures contracts are generally highly leveraged
Timesharing should be considered vacation plans rather than real estate investments. True
Which is not a characteristic of a true timeshare arrangement? Grants legal real estate ownership to the purchaser
Paul’s marginal tax bracket is 28 percent. He has taxable income of $5,000 on his real estate investment. His tax liability on this income is $1,400
When directly owning a real estate investment, the actual title is held by the investors. True
A disadvantage of real estate investment is -Large initial investment-Financial risk-Illiquidity
A mutual fund can be arranged to keep its proceeds out of probate, in case of the owner’s death. True
A mutual fund whose objective focuses on growth in the value of the securities invests in companies expected to show average or better growth with steady or rising dividends. False
Deferred loads are a set percentage of the value of your portfolio False
Investing in a mutual fund rather than an individual stock reduces Random Risk
Which is not a method for taking your funds out of a mutual fund? Borrowing against your fund account
Index funds are Unmanaged
Publications that offer comparative performance information about mutual funds generally rank each fund according to one-year and ten-year performance only. False
Mutual fund quotations normally include the NAV, YTD Percentage Return, and the fund’s expense ratio. False
No-load funds may have “service fees” of 0.25 percent or less. True
A charge that often decreases 1 percent each year the investor owns shares in the fund is called a Back-end load
A mutual fund that provides the investor with some income and a good chance for long-term price appreciation has a ____ objective. Growth and income
Which of the following is (are) a unique advantage(s) of investing in a family of funds? Exchange privileges
Target-date retirement funds are recommended for those who wish to actively manage their own investments. False
A growing number of mutual fund companies now offer an option of A shares or B shares or C shares. Which of the following is true about the different classes. Each class has a different fee structure
Compounding is attained in mutual fund investing through automatic reinvestment of dividends
The measure of a fund’s expenses expressed per dollar of the assets under management is its expense ratio
Net asset value increases when the value of the underlying securities increases
Value funds specialize in securities of companies that are underpriced
The Amalgamated Fund has assets with a market value of $25 million dollars, liabilities of $1 million dollars and 10 million shares outstanding. Its net asset value is $2.40
Net Asset Value formula NAV = (market value of assets – market value of liabilities) / number of shares
Closed-end investment companies issue a limited and fixed number of shares
A ____ does not take effect until a specified event occurs, usually physical or mental incapacitation. durable power of attorney
A(n) ____ refers to treatment preferences and the designation of a surrogate decision maker in the event that a person should become unable to make decisions on her or his own behalf as a result of coma, dementia, brain tumor or other serious medical condition. advanced medical directive
Social Security disability income payments are available to covered workers who are either partially or totally disabled. False
Drawbacks of an HMO include limited choice of physicians
Employers are more likely to offer short-term rather than long-term disability income insurance as a free employee benefit. True
Which of the following types of disability income insurance policies will only provide benefits if you can no longer perform the occupation you had at the time you became disabled? own-occupation policy
A person who wants to continue health insurance coverage through your COBRA rights must pay the full premiums plus a 2 percent administrative fee
An HRA is a tax-deductible savings account into which individuals and/or their employers can deposit tax-sheltered funds for use to pay medical bills including the deductibles and other out-of-pocket costs required by a high-deductible plan. False
A living will is a written statement indicating that its signer does not wish extraordinary medical measures to be taken if he or she has no reasonable expectation of recovery from a desperate medical problem. True
The disability income insurance feature that provides a reduced level of benefit when you suffer a partial disability is called a residual clause
To qualify as a high-deductible health care plan, the deductible must be at least $1,000
A legal document in which individuals designate another person to make health care decisions on their behalf if they are incapable of making their wishes know is called a health care proxy
One cannot rely on worker’s compensation to cover your health care needs because it covers only job-related injuries and illnesses
HMOs have dollar limits on their coverage. False
A group of physicians and hospitals who have banded together to offer a health insurance contract in areas where there is no available HMO is called a provider-sponsored network
Medicare is the only federal health care program currently in place. False
The maximum annual deposit into a health savings account is ____ for an individual and ____ for a family. $3,300 / $6,500
The major financial loss resulting from premature death is the Lost income of the deceased
After a divorce, the noncustodial parent will have no need for life insurance on their former spouse. False
The death benefit of a life insurance policy is always the same amount as the face value. False
Whole life insurance is a form of cash-value life insurance that provides lifetime insurance protection and expects you to pay premiums for life. True
A living benefit clause provides dollar benefits to the insured prior to death if the insured is terminally ill
An automatic premium loan provides an open-ended line of credit from which the policyholder can borrow money. False
Universal life insurance provides both the pure protection of term insurance and the cash-value buildup of whole life insurance. True
The ____ method of comparing the costs of life insurance policies assumes the policy will be cashed in at the end of a certain period of time rather than remaining in force until death. interest-adjusted cost index
The major reason that people buy life insurance is to protect the person whose life is insured. False
Antonio and Trina are a young couple with two small children, Jason (age four) and Claudia (age two). Trina is an account executive for a brokerage firm while Antonio has taken a couple years off from his profession as a civil engineer to work on an MBA degree. Right now Antonio and Trina’s budget is very tight, as they are accustomed to living on two incomes, but Trina’s employer has just circulated employer benefit information, so Antonio and Trina believe this is a good time to evaluate their life insurance needs. They have listed the financial information they believe is relevant.Current life insurance (Antonio) $ 75,000Current life insurance (Trina) $ 50,000Assets available for living expenses 0Present value of Social Security benefits if Antonio dies $132,397Present value of Social Security benefits if Trina dies $151,905Antonio’s income before he went back for the MBA $ 45,000Trina’s income $ 50,000Percent of income that needs to be replaced 75 percentProjected final expenses $7,000Projected readjustment-period needs $5,000Projected debt-repayment needs $ 15,000Projected college-expenses $ 80,000Number of years income replacement is needed 20Assumed rate of return on invested funds 5 percentAppropriate interest rate factor 12.5NARRENDRefer to Figure 12-1. Antonio and Trina decide to purchase a $300,000 policy on Trina and a $250,000 policy on Antonio. How much would these policies cost if they were $0.92 per $1,000 of coverage for Tina and $0.98 per $1,000 for Antonio? $521
Cash dividends are paid only on participating life insurance policies. True
Determining the magnitude of possible losses from a premature death can be complicated. The best method is the needs-based approach
A life insurance policy irrevocably lapses when the premium is not paid by the stated due date. False
With decreasing term insurance, often the face amount of coverage declines annually while the premiums also decline False
Jonna purchased a $25,000 cash value policy with a guaranteed insurability option that can be exercised a maximum of four times at $25,000, each over the next 12 years. Which of the following statements is false? Jonna will have to prove she is still insurable each time she exercises a purchase option
The premiums for a $100,000, 20-year, decreasing term policy would be less than the premiums for a $100,000, 20-year policy with a fixed face value, other things being equal. True
The policyholder may increase or decrease the amount of premium paid with a variable life insurance policy True
Debt payments can be handled through either debt-repayment needs or ____ needs. income-replacement
If you invest the difference in the cost of term insurance and that of another type of policy, you will always be ahead financially. True
A risk premium constitutes the difference between the riskier investment’s return and the totally safe return on the T-bill. True
To employ leverage, you should borrow funds to make an investment with the goal of earning a rate of return in excess of the after-tax costs of borrowing. True
By investing in alternatives that are higher on the investment pyramid, one is exposed to ____ risk to his or her capital and ____ risk of loss. increasing ; decreasing
An investment that can be sold quickly but only by making price concessions suffers from ____ risk. marketability
A long-term investor generally has a high-risk investment philosophy. False
To earn the best returns, you should be invested in the market for only a handful of days each year. True
Common stock investments are most vulnerable to ____ risk market volatility
Ownership investments generally produce capital gains
The average share price is the actual cost basis of the investment used for tax purposes. False
Generally speaking, there is a trade-off between risk and rewards on investments. True
Investors that follow a(n) ____ strategy buy a widely diversified mix of stocks and/or mutual funds, reinvest the dividends, and hold on to those investments almost indefinitely. Buy-and-hold
Short-term investors are usually more interested in current income than capital gains True
Historically, both common stock and corporate bonds have performed well in times of inflation. False
Using borrowed funds to make an investment is called Leverage
The basis for the buy-and-hold philosophy is that investments go up over time and it is best to think long-term after selecting well positioned investments. True
A limited management account allows workers saving for retirement through an employer-based plan to have the benefits of asset allocation without doing the reallocations themselves. True
Four strategies of portfolio management for long-term investors are portfolio diversification, asset allocation, buy-and-hold, and dollar-cost averaging
People seeking aggressive returns should consider investing in Any of these- fast growing companies, stock-index and commodity futures, high-yielding junk bonds
Financial risk relates to the possibility that the investment will fail to pay a return to the investor. True
Diversification ____ risk, and leverage ____ risk. decreases ; increases
Growth companies typically pay little or no cash dividends. True
A bond is an interest-bearing negotiable certificate of long-term debt issued by Any of these- the federal government, a corporation, a municipality
Companies that consistently pay out higher than average cash dividends are classified as ____ stocks. income
NARRBEGIN: Figure 14-2Figure 14-2Toni and Felix are considering buying stock. They would like to purchase 600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past year:Annual earnings $ 100,000Shares of stock 10,000Corporate assets $1,500,000Corporate liabilities $ 800,000Cash dividends (annual) $ 5,000Market price of stock $ 35Growth rate 8 percentNARRENDRefer to Figure 14-2. What is Sudsy Soap’s dividend per share? $0.50
If Moody’s downgrades a bond, which of the following would fall? market price
Ginnie Mae and Freddie Mac bonds are examples of ____ bonds. federal agency
NARRBEGIN: Figure 14-2Figure 14-2Toni and Felix are considering buying stock. They would like to purchase 600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past year:Annual earnings $ 100,000Shares of stock 10,000Corporate assets $1,500,000Corporate liabilities $ 800,000Cash dividends (annual) $ 5,000Market price of stock $ 35Growth rate 8 percentNARRENDWhat is Sudsy Soap’s P/E ratio? 3
If you redeem an I bond within the first five years, you will forfeit the 3 most recent months’ interest; after five years, you will forfeit the 12 most recent months’ interest. False
Genie Corporation recently declared a three-for-one stock split. Before the split the stock was worth $100 per share. If you owned 100 shares before the split occurred, you now own ____ shares worth approximately ____ per share. 300 ; $33
Secured bonds are always safer than unsecured bonds. False
Dividend Yield Cash Dividend per share/ market price
Dividends per share Total cash dividend / shares of stock
Income stocks are typically more volatile than the market as a whole. False
Federal income tax on interest earned on a Series EE U.S. government savings bond may be deferred until the bond is redeemed. True
NARRBEGIN: Figure 14-3Figure 14-3Use the following stock listing for transactions on December 12 to answer the questions:[ED: the red colored cells must be merged and the word “net” deleted]52 NetHigh WeeksLow Stock Div Yld % P/E Vol 100s Last Chg44.75 25 QPZ .30 0.7 26 3289 44.25 +0.75NARRENDRefer to Figure 14-3. What was QPZ’s closing price on December 12? $44.25 per share
Hill Country Pools, Inc., had after-tax earnings of $750,000 and paid out dividends of $325,000. There are 275,000 shares of Hill Country Pools common stock outstanding with a current market value of $27 a share and no preferred stock. What is the dividend payout ratio for this company? 43 percent
A week order is good for five business days False
A disadvantage for a buyer who places a limit order is that the investor might miss an excellent opportunity if the stock price rises. True
NARRBEGIN: Figure 14-2Figure 14-2Toni and Felix are considering buying stock. They would like to purchase 600 shares of Sudsy Soap stock at $35 a share. Sudsy Soap had the following figures for the past year:Annual earnings $ 100,000Shares of stock 10,000Corporate assets $1,500,000Corporate liabilities $ 800,000Cash dividends (annual) $ 5,000Market price of stock $ 35Growth rate 8 percentNARRENDWhat is Sudsy Soap’s dividend yield? 1.4%
A stop order instructs a stockbroker to sell your shares at the market price if a stock declines to or below a specified price. True
NARRBEGIN: Figure 14-3Figure 14-3Use the following stock listing for transactions on December 12 to answer the questions:[ED: the red colored cells must be merged and the word “net” deleted]52 NetHigh WeeksLow Stock Div Yld % P/E Vol 100s Last Chg44.75 25 QPZ .30 0.7 26 3289 44.25 +0.75NARRENDRefer to Figure 14-3. What was QPZ’s closing price on December 11? $44.25 per share
During times of high mortgage interest rates, real estate investors can expect a positive cash flow. False
The prudent investor limits high-risk investments to less than ____ percent of his or her overall investment mix. 10
High-risk investments include​ All of these- futures contracts, options, collectibles
Puts allow the holder of the contract to sell an asset at a specific striking price for a certain time period before the expiration date. True
When directly owning a real estate investment, the actual title is held by the investors.​ True
A hedge fund​ Can profit in times of market volatility as well as in a falling market
Planting trees and shrubs on your rental property is an example of a capital improvement.​ True
Ownership costs include the cost of capital improvements as well as the original cost of the property.​ False
The writer of a put may incur a loss when the market price of an optioned asset rises above the striking price. False
In a zero-sum game, the overall return actually becomes ____ if transaction costs are included.​ negative

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