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Exam 22: Appendix B: Managing Risk

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Question 1

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Variable annuities offer investment choices identical to mutual funds.

A) True
B) False

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Question 2

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Trends in the number of workers contributing to the Social Security system and the number of workers drawing benefits from the system suggest that future generations will:

A) have more frequent cost-of-living adjustments.
B) see significant improvements in the level of benefits.
C) face a later retirement age in order to qualify for full Social Security benefits.
D) not be allowed to invest in private pension plans.

E) B) and C)
F) A) and D)

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Question 3

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The younger you are when you buy term life insurance,the lower the premiums tend to be.

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

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

Zach quit his job to open his own Internet consulting business.He now realizes that he no longer has the benefit of a corporate retirement system.He should consider investing in a(n) :

A _______ is a document that names a guardian for your children,states how you want your assets distributed,and names an executor to handle your estate when you die.

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

Bonnie and Clyde are newly married college graduates.Both have jobs with bright futures.One strategy that they could use to accumulate capital for investment purposes,would be to:

A comparison of variable life insurance to a standard whole life plan would reveal that:

The value of education is often exaggerated when searching for a good job.

A good manager of personal finances,like a good businessperson,uses borrowed funds whenever possible.

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. -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?

When you prepare your personal balance sheet,remember that your ________ is equal to your total assets minus any liabilities you have.

Investments in IRA accounts:

The new simple IRA plans allow employees of ________ companies to contribute larger amounts than the traditional IRA.

Managing the finances of a household is similar to managing the finances of a small business.

Many small-business owners invest in 401(k)plans for their retirement.

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

Shuichi graduated from college two years ago.He has already accumulated enough money in his savings account and money market to meet basic contingencies,and now wants to begin investing a portion of each paycheck to earn a high rate of return over the long run.His best choice as a young recent graduate would be to put money into a bank savings account regularly.