Exam 5: Cash or Liquid Asset Management

Overdraft protection is an automatic loan made to your checking account whenever your account does not contain enough cash to cover the checks that you have written against it.

Electronic funds transfer applies to which of the following?

With the Check 21 Law, there is really no reason to reconcile your check book anymore.

Name the three Cs of choosing a financial institution.

Tony just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401K pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. -Tony would like to have $10,000 for a house downpayment five years from now. How much money would he need to save every quarter in an investment that pays 8% APR compounded quarterly?

The Marshall family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. -What would be your suggestion for the next account John and Shelia should open?

Keeping your funds in liquid assets is riskier than keeping them in illiquid assets and therefore investors require a higher expected rate of return on liquid assets.

What are the four questions you should answer when looking for a financial institution?

With the new Check 21 Law, it is important to make sure that funds are available immediately in your checking account because checks clear automatically and funds are withdrawn immediately.

Deposit-type financial institutions are commonly referred to as mutual funds and brokerage firms.

The Marshall family is very conservative financially. They have a retirement plan where John works and share a joint checking account at their bank. They keep a lot of money in their checking account to cover short-term needs and emergencies. Both of them want to step up to a higher interest rate than a checking or savings account pays, and at the same time stay with their bank. -Which of the following is not an advantage of a CD as a cash management alternative for John and Shelia?

With online banking and EFT, many people don't really need checks anymore. If you seldom need a paper check for transactions, what option is available to you that may be cheaper than maintaining a checking account?

Liquid assets allow you to cover unplanned expenses without having to interrupt your long-term investments or liquidate any tangible assets.

Tony just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401K pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. -What recommendations would you give Tony concerning his cash management?

You are considering the purchase of one of two different investments. Investment A is tax exempt and pays 6%. Investment B is taxable and pays 8.33%. You live in a state that imposes no income taxes and are in a 28% federal tax bracket and want to earn the highest after tax return possible. Which of the following is true? (round to two decimal places)

Tony just received his checking account statement from his bank. He has a NOW account with free checking that pays 0.75% APR on the balance and requires a $500 minimum balance. His statement shows that he currently has a balance of $3,950. In looking at his statement he notices that his car payment check for $400 is still outstanding, and that his recently received payroll deposit of $3,600 had not posted at the time the statement was created. His normal living expenses average $1,500 per month including his car payment. Other than his car loan, he rarely writes any checks as he prefers to use his debit card and ATM card for day-to-day living expenses. He pays his credit card balance in full every month. Other than his checking account he does not own any investments. He has always dreamed of owning a house, and would like to buy one within the next five years. He has access to a 401K pension plan at work where his employer will match contributions up to 6% of his salary. He currently contributes 2% of his salary to this plan. -What would you recommend to Tony concerning his cash management?

What is the FDIC?

You are examining two different MMMfs. Fund A is tax-exempt and pays 7%. Fund B is taxable and pays 9.5%. You live in a state that imposes no income taxes and you are in the 25% federal tax bracket. Which of these two alternatives is better?

Savings accounts are insured at the ________ level.

Is EFT always a good thing? List some potential problems with EFT.