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Exam 23: Bonus C: Managing Your Personal Finances

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Question 131

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Which of the following is least likely to result from the problems facing the Social Security system?

A) an increase in the age at which full Social Security benefits are received
B) cuts in benefits
C) reductions in Social Security taxes
D) reductions in cost of living adjustments

E) A) and B)
F) All of the above

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Question 132

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Bob has decided to contribute $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.

E) B) and C)
F) All of the above

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Question 133

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After marriage,one great financial strategy is to live on one income and to save the other.

Ricardo desires to reduce his current taxable income and save for retirement.He should consider a traditional IRA.

The factor likely to have the greatest impact on how fast the value of a home appreciates over time is the:

Annette and Ron just got married.They received some very expensive wedding gifts including some beautiful silverware and jewelry.Their homeowner's policy:

For a young person,one of the worst places to invest money for the long-term is:

Buying a duplex and living in one side,while renting the other side,generally turns out to be more trouble than it is worth,since you have to satisfy not only your own needs,but also the needs of the renters.

One benefit of a simple IRA is that it allows:

One disadvantage of having credit cards for personal use is that:

IRA funds are not available for withdrawal until you are 59 ½ years old.

The tax-deferred investment plan that allows employees to save part of their income for retirement is called a(n) :

If you have minor children,the first step in estate planning is to select their guardian.

Monica expects to be in a much higher tax bracket when she retires than she is now,so she wants to invest in a retirement account in which her withdrawals will be tax-free.One way for her to achieve this is through a traditional IRA.

Purchasing ________ insurance is a relatively low cost way of protecting yourself from lost income due to an accident or prolonged illness.

Mini-Case Ira Roth and Penny Weiss met and married in the early 1990s,during their days at State University.Both came from families with limited financial resources.They had to work at part-time jobs during school,and still needed student loans to help pay for their college education.Ira and Penny shared a strong work ethic and had a great desire to succeed financially and enjoy the good life. Penny and Ira quickly experienced financial success in the latter half of the booming 1990s.Ira used his marketing major and extensive knowledge of computers to obtain a high-paying job in a successful dot-com business.Penny,who cleaned homes to earn money during college,used her experience to start her own business.Her entrepreneurial spirit surprised Ira and their friends,and she built a successful cleaning business with a growing base of residential clients and even a few commercial customers.She soon had to hire several part-time employees to keep up with demand.With money rolling in,Ira and Penny began to live the good life,buying an expensive new car,a state-of-the-art home entertainment center,and expensive wardrobes.As busy as they were,and as hard as they both worked,they often found it easier to dine at a nice restaurant rather than fix meals at home. When the dot-com bubble burst in the early 2000s,Ira was lucky enough to keep his job,but was forced to take a significant pay cut.The economic downturn forced some of the households and businesses that used Penny's company to cut back on professional cleanings,so her business suffered too.Soon the couple was struggling to pay the rent on their upscale apartment.They began relying on credit cards to cover expenses,but after a few months the credit limits on their cards had been reached.They fell behind in paying off their student loans and started getting some unpleasant calls from bill collectors.The stress and frustration led to arguments that began to threaten their personal relationship.With their personal finances out of control,Ira and Penny knew that they had to make changes to save not only their financial dreams,but also their marriage.However,they were at a loss as to where to start.Family members encouraged them to seek the advice of a financial planner.The couple reluctantly agreed that this was something they needed to do. -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 adviser agreed with the:

Which of the following would be included as an asset in the preparation of a personal balance sheet?

Lucy has prepared her personal balance sheet and found that her total assets are $54,000 and her total liabilities (largely college loans) are $48,000.This indicates that Lucy's:

________ life insurance offers pure insurance protection for a given period of time.

During the most recent drop in stock prices,Homer took the opportunity to buy a wide variety of stocks even though many of his friends and relatives were selling.Homer's investment strategy appears to be consistent with contrarian views.