Question 1

Social Security is ____________.

Accepted Answer

A)  a pension plan only 
B)  an insurance plan only 
C)  a combination of a pension and insurance plan 
D)  an involuntary intergenerational transfer 
A)  a pension plan only 
B)  an insurance plan only 
C)  a combination of a pension and insurance plan 
D)  an involuntary intergenerational transfer

Question 2

No taxes are paid on withdrawals made during retirement from a _________.

Accepted Answer

A)  traditional IRA 
B)  Roth IRA 
C)  401k 
D)  403b plan 
A)  traditional IRA 
B)  Roth IRA 
C)  401k 
D)  403b plan

Question 3

A safe driver who drives faster as a result of purchased collision car insurance would be an example of the ___________ problem.

Accepted Answer

A)  moral hazard 
B)  adverse selection 
C)  Texas hedge 
D)  actuarial error 
A)  moral hazard 
B)  adverse selection 
C)  Texas hedge 
D)  actuarial error

Question 4

Contributions to a traditional IRA are __________ and contributions to a Roth IRA are ____________.

Accepted Answer

A)  not tax deductible; not tax deducible 
B)  tax deductible; tax deductible 
C)  tax deductible; not tax deductible 
D)  not tax deductible; tax deductible 
A)  not tax deductible; not tax deducible 
B)  tax deductible; tax deductible 
C)  tax deductible; not tax deductible 
D)  not tax deductible; tax deductible

Question 5

If you wish to tilt your savings toward later years you might be well advised to purchase which of the following types of readily available insurance?

Accepted Answer

A)  Career failure insurance 
B)  Disability insurance 
C)  Unemployment insurance 
D)  Moral hazard insurance 
A)  Career failure insurance 
B)  Disability insurance 
C)  Unemployment insurance 
D)  Moral hazard insurance

Question 6

The Social Security Primary Insurance Amount formula favors ______.

Accepted Answer

A)  older workers 
B)  high income workers 
C)  younger workers 
D)  low income workers 
A)  older workers 
B)  high income workers 
C)  younger workers 
D)  low income workers

Question 7

An employee uses his firm's 401(k)plan.If he decides to contribute $11,000 per year and pays an effective tax rate for all items at 28%,what is the reduction in her take home pay each year?

Accepted Answer

A)  $3,080 
B)  $4,210 
C)  $7,920 
D)  $11,000 
A)  $3,080 
B)  $4,210 
C)  $7,920 
D)  $11,000

Question 8

Contributions to a _____________ are not tax deductible.

Accepted Answer

A)  traditional IRA 
B)  Roth IRA 
C)  401k plan 
D)  403b plan 
A)  traditional IRA 
B)  Roth IRA 
C)  401k plan 
D)  403b plan

Question 9

You can tax shelter only one-half of your retirement savings.You want to invest one-half of your savings in bonds and one-half in stocks.How much of the bonds and how much of the stocks should you allocate to the tax sheltered investment?

Accepted Answer

A)  Stock and bond investments should be equally invested in both tax sheltered and non-sheltered accounts. 
B)  You should place all the stocks in tax sheltered accounts and all the bonds in non-sheltered accounts. 
C)  You should place all the bonds in tax sheltered accounts, and all the stocks in non-sheltered accounts. 
D)  It makes no difference how you allocate your stock and bond investments among tax sheltered and non-sheltered accounts. 
A)  Stock and bond investments should be equally invested in both tax sheltered and non-sheltered accounts. 
B)  You should place all the stocks in tax sheltered accounts and all the bonds in non-sheltered accounts. 
C)  You should place all the bonds in tax sheltered accounts, and all the stocks in non-sheltered accounts. 
D)  It makes no difference how you allocate your stock and bond investments among tax sheltered and non-sheltered accounts.

Question 10

Sharon decides to put $5,000 into her IRA at age of 25. She will continue to invest the same amount for the next 6 years and then stop contributing. Assume 10% annual return.
-How much money will Sharon have in her IRA when she is ready to retire at age of 62?

Accepted Answer

A)  $554,856 
B)  $623,245 
C)  $738,578 
D)  $814,527 
A)  $554,856 
B)  $623,245 
C)  $738,578 
D)  $814,527

Question 11

In 2009,the income cap on social security taxes was set at _____ with an exemption of _____.

Accepted Answer

A)  $200,000; $10,000 
B)  $153,600; $7,600 
C)  $106,800; $0 
D)  $96,000; $10,000 
A)  $200,000; $10,000 
B)  $153,600; $7,600 
C)  $106,800; $0 
D)  $96,000; $10,000

Question 12

An insurance company plans to sell annuities to investors.Based on actuarial calculations,an investor has a 15 year life span and they want a $30,000 per year annuity,payable at the end of each year.If the insurance company uses a 4% assumed investment rate,how much should the annuity cost?

Accepted Answer

A)  $296,928 
B)  $312,236 
C)  $333,552 
D)  $353.982 
A)  $296,928 
B)  $312,236 
C)  $333,552 
D)  $353.982

Question 13

Withdrawals from a traditional IRA prior to age ___ are taxable and must pay a ___ tax penalty.

Accepted Answer

A)  59 ½; 10% 
B)  62; 5% 
C)  65; 7 ½ % 
D)  63 ½; 5% 
A)  59 ½; 10% 
B)  62; 5% 
C)  65; 7 ½ % 
D)  63 ½; 5%

Question 14

Which one of the following is not likely to be subject to adverse selection?

Accepted Answer

A)  Health insurance providers 
B)  Lifetime annuity providers 
C)  Life insurance providers 
D)  Social Security 
A)  Health insurance providers 
B)  Lifetime annuity providers 
C)  Life insurance providers 
D)  Social Security

Question 15

In planning for retirement,an investor decides she will save $2,000 every year for 25 years.At a 7% return on her investment,how much money will she have at the end of 25 years?

Accepted Answer

A)  $119,015 
B)  $125,316 
C)  $126,498 
D)  $128,420 
A)  $119,015 
B)  $125,316 
C)  $126,498 
D)  $128,420

Question 16

Currently,the maximum combined taxable income of a retired household that avoids having to pay any taxes on a portion of their Social Security benefit is ______.

Accepted Answer

A)  $15,000 
B)  $32,000 
C)  $45,000 
D)  $75,000 
A)  $15,000 
B)  $32,000 
C)  $45,000 
D)  $75,000

Question 17

Suppose you have maxed out your allowable contributions to your tax sheltered retirement plans and you still want to shelter income.The best choice of investment for you to minimize the tax bill is to invest in _________.

Accepted Answer

A)  a bond portfolio 
B)  stocks with high dividend yields 
C)  a blended stock and bond portfolio containing zero coupon bonds 
D)  stocks with low or zero dividend yields 
A)  a bond portfolio 
B)  stocks with high dividend yields 
C)  a blended stock and bond portfolio containing zero coupon bonds 
D)  stocks with low or zero dividend yields

Question 18

The U.S.income tax code is generally _____.

Accepted Answer

A)  regressive 
B)  progressive 
C)  flat 
D)  peaked 
A)  regressive 
B)  progressive 
C)  flat 
D)  peaked

Question 19

Sharon decides to put $5,000 into her IRA at age of 25. She will continue to invest the same amount for the next 6 years and then stop contributing. Assume 10% annual return.
-How much money will Sharon have in her IRA after 6 years?

Accepted Answer

A)  $30,000 
B)  $35,575 
C)  $38,578 
D)  $41,451 
A)  $30,000 
B)  $35,575 
C)  $38,578 
D)  $41,451

Question 20

An investor can earn a 6% nominal rate of return but inflation is expected to be 3%.If the individual invests $2,000 per year for 20 years the real future value of their investment is ________.(All investments occur at year end).

Accepted Answer

A)  $73,571 
B)  $66,334 
C)  $53,251 
D)  $48,732 
A)  $73,571 
B)  $66,334 
C)  $53,251 
D)  $48,732

Exam 21: Taxes,inflation,and Investment Strategy

Social Security is ____________.

No taxes are paid on withdrawals made during retirement from a _________.

A safe driver who drives faster as a result of purchased collision car insurance would be an example of the ___________ problem.

Contributions to a traditional IRA are __________ and contributions to a Roth IRA are ____________.

If you wish to tilt your savings toward later years you might be well advised to purchase which of the following types of readily available insurance?

The Social Security Primary Insurance Amount formula favors ______.

An employee uses his firm's 401(k)plan.If he decides to contribute $11,000 per year and pays an effective tax rate for all items at 28%,what is the reduction in her take home pay each year?

Contributions to a _____________ are not tax deductible.

You can tax shelter only one-half of your retirement savings.You want to invest one-half of your savings in bonds and one-half in stocks.How much of the bonds and how much of the stocks should you allocate to the tax sheltered investment?

Sharon decides to put $5,000 into her IRA at age of 25. She will continue to invest the same amount for the next 6 years and then stop contributing. Assume 10% annual return. -How much money will Sharon have in her IRA when she is ready to retire at age of 62?

In 2009,the income cap on social security taxes was set at _____ with an exemption of _____.

An insurance company plans to sell annuities to investors.Based on actuarial calculations,an investor has a 15 year life span and they want a $30,000 per year annuity,payable at the end of each year.If the insurance company uses a 4% assumed investment rate,how much should the annuity cost?

Withdrawals from a traditional IRA prior to age ___ are taxable and must pay a ___ tax penalty.

Which one of the following is not likely to be subject to adverse selection?

In planning for retirement,an investor decides she will save $2,000 every year for 25 years.At a 7% return on her investment,how much money will she have at the end of 25 years?

Currently,the maximum combined taxable income of a retired household that avoids having to pay any taxes on a portion of their Social Security benefit is ______.

Suppose you have maxed out your allowable contributions to your tax sheltered retirement plans and you still want to shelter income.The best choice of investment for you to minimize the tax bill is to invest in _________.

The U.S.income tax code is generally _____.

Sharon decides to put $5,000 into her IRA at age of 25. She will continue to invest the same amount for the next 6 years and then stop contributing. Assume 10% annual return. -How much money will Sharon have in her IRA after 6 years?

An investor can earn a 6% nominal rate of return but inflation is expected to be 3%.If the individual invests $2,000 per year for 20 years the real future value of their investment is ________.(All investments occur at year end).

Investments: Background and Issues

Asset Classes and Financial Instruments

Securities Markets

Mutual Funds and Other Investment Companies

Risk and Return: Past and Prologue

Efficient Diversification

Capital Asset Pricing and Arbitrage Pricing Theory

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Bond Prices and Yields

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation

Financial Statement Analysis

Options Markets

Option Valuation

Futures Markets and Risk Management

Portfolio Performance Evaluation

Globalization and International Investing

Hedge Funds

Investors and the Investment Process

Filters

Contributions to a traditional IRA are and contributions to a Roth IRA are __.

In 2009,the income cap on social security taxes was set at _ with an exemption of _.

Withdrawals from a traditional IRA prior to age _ are taxable and must pay a _ tax penalty.