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Exam 21: Taxes, Inflation, and Investment Strategy

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Question 41

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In planning for retirement, an investor decides she will save $17,000 every year for 38 years. At an 8% return on her investment, how much money will she have at the end of 38 years (to the nearest hundred thousand dollars) ?

A) $3,700,000
B) $6,800,000
C) $7,900,000
D) $10,800,000

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

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Question 42

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If you plan for a bequest for your children, your grandchildren, their children, and so on, your planning horizon becomes ________.

A) equal to the life span of your children
B) 100 years, or your lifetime, whichever ends first
C) infinite
D) double what it would have been without the bequest

E) A) and B)
F) None of the above

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Question 43

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Which one of the following is an example of "global" consumption smoothing?

An investor in a 34% tax bracket would be indifferent between a corporate bond with a before-tax yield of 8% and a municipal bond with a yield of ________.

You earned 8% on your corporate bond portfolio this year, and you are in a 15% federal tax bracket. If over your holding period inflation was 3%, your real after-tax rate of return was ________.

A saver who expects to have a higher tax rate after retirement would prefer a ________.

Tax shelters ________.

An insurance company plans to sell annuities to investors. Based on actuarial calculations, an investor has a 30-year life span, and she wants a $70,000-per-year annuity, payable at the end of each year. If the insurance company uses a 3.3% assumed investment rate, how much should the annuity cost?

A retirement plan that offers a tax shelter will defer ________ taxes on contributions and investment earnings.

Contributions to a traditional retirement plan are ________, and contributions to a Roth retirement plan are ________.

If you start saving for retirement only in your later years and your income growth from that point is rapid, then ________.

The fact that the U.S. government provides deposit insurance to banks creates a form of ________, which is at least partially offset by requiring banks to hold more capital if they are riskier.

Taxes are applied to the ________.

The use of a Roth IRA versus a traditional IRA will allow you to ________.