Question 1

Once Ira and Penny achieved a more solid financial foundation, they began to consider the purchase of a home. From a financial standpoint, a sound strategy for them to consider would be to
A) buy a large house in a modest neighborhood.
B) buy a house in one of the best areas of town, even if they can afford only a relatively small house.
C) buy a house that will minimize their total real estate taxes.
D) make sure that their house payments are less than the rent they were paying on their old apartment.

Accepted Answer

The key to housing values is location. It is usually a better investment to buy a small house in a great neighborhood than to buy a bigger house in a less desirable part of town.

Question 2

Connor is worried that his health may soon deteriorate to the point where he will no longer be able to take care of his own finances. One way he could ease his mind would be to
A) name an executor to his will.
B) prepare a durable power of attorney.
C) transfer title to all of his real estate and financial assets to a relative he trusts.
D) invest all of his financial assets into a Keogh plan.

Accepted Answer

A durable power of attorney is a document that gives an individual you name the power to take over your finances if you become incapacitated.

Question 3

Describe the major steps involved in estate planning.

Accepted Answer

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Question 4

Thomas contributed $2,800 to a Roth IRA. He is currently in the 25% tax bracket. How will his contribution affect his income tax for the current year?
A) It will reduce the amount of taxes he owes in the current tax year by $700.
B) It will increase the amount of taxes he owes in the current year by $700.
C) It will reduce the amount of taxes he owes in the current year by $2,100.
D) It will have no effect on the amount of taxes he owes this year.

Accepted Answer

A contribution to a Roth IRA does not reduce taxes in the year of the contribution. The advantage of a Roth IRA is that the withdrawals are not taxed (at least as long as they occur after age 59½.)

Question 5

What advice might a personal financial advisor offer a recent college graduate desiring to become financially secure?

Accepted Answer

The answer of What advice might a personal financial advisor...

Question 6

How does term insurance differ from whole life insurance? Describe the newer types of life insurance that have been offered in recent years.

Accepted Answer

The answer of How does term insurance differ from whole...

Question 7

Compare the basic features of the traditional IRA and Roth IRA.

Accepted Answer

The answer of Compare the basic features of the traditional...

Question 8

One of the first things the financial planner is likely to have them do would be to
A) open an individual retirement account (IRA).
B) borrow money to pay for their excess expenses.
C) take inventory of their financial position.
D) return to school and pursue a graduate degree.

Accepted Answer

Preparing a personal balance sheet and income statement will allow the couple, as well as the financial planner, to gain better insights into the couple's financial situation.

Question 9

As their situation began to improve, the financial adviser began discussing investment strategies with Penny and Ira. He suggested that they might want to invest in the stock market. He surprised them by saying that they should try to buy stocks during a major downturn in the market-just when most people were trying to sell. This statement suggests that the financial advisor agreed with the
A) ontrarian approach to investing.
B) concept of "buying short."
C) use of leverage in the stock market.
D) random walk theory of investment strategy.

Accepted Answer

When it comes to investing, contrarians go against the grain. They tend to buy when most others are selling. The logic of this approach is that the best time to buy stock is when prices are low-i.e., when the market is in decline.

Question 10

What are the advantages of investing in a home?

Accepted Answer

The answer of What are the advantages of investing in...

Question 11

Claire has contributed to a Roth IRA for the last several years. She is now in her late sixties and has just retired. She plans to withdraw $3,000 this year from her Roth IRA. If she is in the 25 percent tax bracket, how much tax will she have to pay on her withdrawal?
A) $ 750
B) $1,000
C) $2,250
D) She will not owe any taxes on this withdrawal.

Accepted Answer

The Roth IRA does not offer an up-front tax advantage when the contributions are made. The advantage of this newest IRA is that the withdrawals of earnings from the Roth IRA are tax-free.

Question 12

In saving for retirement, Penny could take advantage of the unique tax shelter offered only to small-business owners in a
A) 401(k) plan.
B) simple IRA plan.
C) Roth plan.
D) Keogh plan.

Accepted Answer

The Keogh plan is like an IRA for entrepreneurs. It offers the same tax shelter that an IRA does, but allows for a greater sum of money to be contributed each year tax-free.

Question 13

Identify and discuss the six steps that individuals can take to gain control of their personal finances.

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Question 14

Terrence is in the 30% tax bracket. What is the after-tax cost of a $3,000 contribution to his traditional IRA account?
A) $900
B) $1,440
C) $2,100
D) zero

Accepted Answer

Contributions to a traditional IRA create a tax shelter in the same year the contribution is made. The taxes on the $3,000 would have been $900 ($3,000 × 30%). Therefore, the after-tax cost of the $3,000 contribution is $2,100 ($3,000 - $900).

Question 15

By using the financial planner's advice, Penny and Ira were able to find ways to cut back on their spending and began to live more modestly. They began to have a few hundred dollars left over each month after handling their normal expenses. Which of the following is the first thing they should do with their extra money?
A) buy one nice household item that they will both enjoy as a reward for their thriftiness
B) pay off their debts, starting with the ones that have the highest finance costs
C) start a savings account at a local bank
D) buy bonds in a major corporation

Accepted Answer

Saving and investing money is certainly a desirable goal, but before doing so Ira and Penny should pay off any debts, especially those with high interest rates, such as credit cards. Many credit cards charge interest rates in double digits. Paying off a credit card that charges 17 percent is essentially like earning a 17 percent tax-free return on an investment. In recent years few bonds, much less bank savings accounts, have come close to matching that sort of return.

Quiz 24: Appendix: Managing Personal Finances

Once Ira and Penny achieved a more solid financial foundation, they began to consider the purchase of a home. From a financial standpoint, a sound strategy for them to consider would be to

Connor is worried that his health may soon deteriorate to the point where he will no longer be able to take care of his own finances. One way he could ease his mind would be to

Describe the major steps involved in estate planning.

Thomas contributed $2,800 to a Roth IRA. He is currently in the 25% tax bracket. How will his contribution affect his income tax for the current year?

What advice might a personal financial advisor offer a recent college graduate desiring to become financially secure?

How does term insurance differ from whole life insurance? Describe the newer types of life insurance that have been offered in recent years.

Compare the basic features of the traditional IRA and Roth IRA.

One of the first things the financial planner is likely to have them do would be to

What are the advantages of investing in a home?

Claire has contributed to a Roth IRA for the last several years. She is now in her late sixties and has just retired. She plans to withdraw $3,000 this year from her Roth IRA. If she is in the 25 percent tax bracket, how much tax will she have to pay on her withdrawal?

In saving for retirement, Penny could take advantage of the unique tax shelter offered only to small-business owners in a

Identify and discuss the six steps that individuals can take to gain control of their personal finances.

Terrence is in the 30% tax bracket. What is the after-tax cost of a $3,000 contribution to his traditional IRA account?