## 147 terms

### T/F: The recent trend is for the federal government and corporations to shift more responsibility to the individual with respect to providing for their financial future

True

### Assume you bought a 5 year certificate of deposit (CD) last year which pays 5%. If you decide to cash out of your CD before 5 years, then the bank will impose a severe penalty by reducing the interest you receive. Assume today you could buy a 5 year CD and receive 7% due to rising interest rates. You wish to cash out of your 5% CD and invest at a higher rate, but the penalty is too severe. This situation is an example of ______ risk.

Liquidity

### T/F: There is no correlation between the methods and techniques necessary to make money in a business as compared to the methods and techniques necessary to make money as an individual.

False

### What is the first step in the financial planning process?

Determine your current financial condition

### T/F: Individuals should generally be careful when considering financial advice from those in the financial services industry since often times there can be a conflict of interest.

True

###
Several years ago, selected new autos had an average cost of $12,000, and today, the average cost is $17,400.

What is the total rate of increase for these autos between the two time periods?

45%

###
You just received a copy of an email from an unknown investment advisor to a client recommending the purchase of a stock. The email appears to have been sent to you by mistake.

What is your best course of action?

Do nothing. This is probably a scam. Do not trust the information in this email. Do not believe the advice from the broker.

### Using the Rule of 72, approximately how long does it take for your money to double in value if you earn a 35% annual return?

2.06

###
A UCF graduate is getting a masters degree at night. The graduate expects to receive an annual salary of $6,000 per year more as a result of getting a masters degree. The graduate plans to work for 40 years, so he/she will earn $240,000 more in their lifetime ($6,000 x 40 years).

What is the present value of a stream of $6,000 payments for 40 years based on an annual interest rate of 7%? Assume the $6,000 is paid annually at the END of the year. By the way, if it costs say $25,000 today to get a masters degree, do you think a graduate degree is a smart economic move if your salary goes up by $6,000 per year?

$79,990, yes get the masters degree, the net present value of this decision is $54,990

### A UCF graduate is offered a salary of $35,000 in the year 2012 and expects to receive 3% raises each year. What would be his/her salary in 2016?

$39,393

### A UCF graduate is earning $38,000 a year in Orlando, and has an offer to move to a city where the cost of living is 12% higher. What would be the minimum salary this graduate would need to maintain the same standard of living?

$42,560

###
Assume you make $50,000/year and save 6% of your monthly salary ($250/month) in your 401-K account. Your employer will match 3% of your salary per month (at the end of the month) and deposit it in your 401-K account for 30 years. You expect this account to earn an 10% return.

What is the future value of the 401-K account in 30 years?

$847,683

### What is the AFTER TAX value of a $5,000 company car, assuming a 25% marginal tax rate? (Note that if your employer provides you with a car, the personal use of the car will be added to your W-2, and you will have to pay taxes, thus cars are a "Pre-tax" benefit).

$3,750.00

### A UCF graduate has two job offers. Job 1 pays $36,500 with a $4,400 non-taxable benefit, while Job 2 pays $34,700 and has a $6,100 non-taxable benefit. What is the PRE-TAX value of each job assuming the graduate is in a 10% marginal tax bracket?

Job 1: $41,389 Job 2: $41,478

###
Assume the following for a 401-K plan.

Annual salary = $60,000

Monthly salary = $5,000

Pay date = End of each month

Amount you save in 401-K = 5% of salary

Amount of employer match = 4% of salary

How much will you have in the 401-K plan after 40 years assuming a 8% investment return?

$1,570,953.52

### In general, experts advise that one must save _____ of your salary in order to have sufficient funds to maintain your standard of living in retirement (this % would include both your 401-K savings and the employer match and other savings).

15-18%

###
Which of the following is TRUE?

A. More and more employers are using credit reports as hiring tools.

B. Federal law does NOT require applicants to be told if credit histories are being used in the hiring process.

C. Federal law requires that job applicants must be told if credit histories are being used in the hiring process.

D. It is against the law for employers to use credit reports as hiring tools.

E. Answers a and c are true

E. Answers a and c are true

###
Liquid assets: $14,670

Current liabilities: $2,670

Long term liabilities: $66,230

Investment assets: $8,340

Household assets: $90,890

What is this person's net worth?

$45,000

### If a student has a new worth of $50,000 and liabilities of $20,000, what are his/her total assets?

$70,000

### Ima Knight has budgeted $300 for food, $400 for insurance, and $500 for gifts. Ima's actual expenses were $200 for food, $300 for insurance and $500 for gifts. What is Ima's total budget variance?

A positive $200 (under budget)

###
Assume the following:

Assets = $100,000

Liabilities = $75,000

Net Worth = $25,000

Monthly credit payments = $1,440

Take home pay = $7,200

What is the debt ratio and debt payments ratio for this individual?

Debt ratio = 3.0

Debt payments ratio = .20

### Most of the information in your credit file may be reported for only ______ years (if you have not declared bankruptcy).

7

###
A homeowner paid $75,000 for his/her house and after several refinancings now owes $140,000 on the mortgage. The house is currently worth $160,000.

A bank will provide home equity loans up to 85% of the value of the house. What is the maximum amount the homeowner could borrow on a home equity loan?

$0

###
Experts advise that your debt payments to take home pay ration should not exceed 20%. A homeowner has the following monthly income and expenses:

Gross salary: $2,000

Taxes/social security: $340

Visa card payments: $35

Mastercard payments: $30

Discover card payments: $20

Auto loan payments: $385

What is the homeowner's "debt payments to take home pay" ratio?

28.3%

### A UCF graduate has $7,000 of debt excluding her house and a net worth of $30,000 ($21,000 excluding her house). What is the graduate's debt to net worth ratio exclusive of the house? Experts say the ideal target ratio should not exceed 1 (100%)

33.3%

### A UCF student (who has not taken FIN 2100) decides that he really needs a large screen HD TV for football season. The student goes to a "rent to own" center and agrees to rent a TV for $50 per month (end of month). After 36 months, the student will own the TV. Assuming that the student could buy the same TV today for $1,000, what is the effective interest cost of renting the TV?

43%

###
A student borrows $500 for one year, and is charged $50 in interest. He/she also pays a fee of $10 for the loan.

What is the total cost of financing and the APR?

$60 financing cost with a 12% APR

### A student has two credit card offers. Credit card "A" has an 18% per annum interest rate with no fee, while credit card "B" has a 12% per annum interest rate with a $50 annual fee. If the student maintains an average balance at month end in excess of $______, he/she should select the card "B" which has a lower rate with an annual fee. (i.e. what is the break-even point?)

$833.33

### A student takes a $200 cash advance on his credit card in January. The cash advance fee is 2% of the amount withdrawn. In addition, he/she does not pay off the $200 balance on the credit card at month end. The credit card carries an 18% per annum interest rate. The student just received his February credit card statement. Assuming the beginning January 1 balance was zero, how much money could the student have saved in January had he/she not taken out the cash advance?

$7

###
You are shopping for a TV, and three stores carry the same model for $300 each. Each store charges 18% interest per annum, has a 30 day grace period, and sends out their bills on the first of the month. Each store calculates the finance charge using different methods:

Store A Average daily balance method

Store B Adjusted balance method

Store C Previous balance method

Assume you bought the TV on May 5, and made one payment of $100 on June 15. What is the cost of financing with Store A for the month of June?

$3.75

### Using the same information as the previous card, what is the cost of financing with Store B in the month of June?

$3.00

### Using the same information as the previous two cards, what is the cost of financing with Store C in the month of June? (By now you should know which one of these methods is best, and which two to avoid!)

$4.50

###
If you finance a car with a dealer, most likely you'll pay interest calculated with the "add on interest" or "tack on interest" method (which not surprisingly works to the favor of the dealer). During the life of the loan, interest is paid on the full amount borrowed, even though some principal is paid back each month. A student buys a car as follows:

Down payment- $2,000

Amount financed- $9,000

Total cost of car- $11,000

Finance charge- Add on interest @11% per annum over 4 years (48 months)

What is the monthly payment and APR of this loan using your HP 10BII?

$270/month with an APR of 19.2%

###
A Navy petty officer needs cash and goes to a paycheck advance company for some money. He/she agrees to pay $550 in two weeks (when his/her paycheck arrives) in exchange for $500 today.

What is the interest rate implicit in this loan?

Hint: this is a TVM problem, and the payments per year should be listed as 365, with n=14.

249%

###
You currently are spending $50/year renting a pressure washer to clean you house. The cost of a new pressure washer is $300. If you bought the pressure washer, how many years would it take to obtain full payback on your original investment relative to renting (use a simple payback calculation)?

Note: Payback is a useful, but simplistic way to evaluate a purchasing decision, that does not consider the time value of money.

A quick payback implies a better deal, while a slower playback is not as good. But what if the pressure washer had to be replaced every 3 years at a cost of $300 each time? Buying would not be a better deal than renting.

6 years

###
Using the same information as the last card, assume that the pressure washer had to be replaced every 10 years. So your decision is to rent each year at $50 per year, or spend $300 now, which would save you $50 per year for 10 years. Assume the appropriate discount rate (interest rate or i) is 8%.

The same type of analysis used by corporations to evaluate capital investments would also apply to this buy/rent decision. Be sure you are in the right mode.

Calculate the present value of a stream of payments of $50 at the beginning of the year for 10 years at 8% and compare it to the $300 cost. By doing so you conclude:

(Note you could also do an NPV analysis, but be sure you net the initial cash flows for time period 0 i.e. $300 minus $50 = $250 and then use 9 Ns for the 50 payment)

It is better to buy now, with a net savings of $62.34

### Your favorite cereal (standard 18 oz box) is sold for $3.78 at your local grocery. The local wholesale club packages two giant 22 oz. boxes of the same cereal (which must be bought together) for $9.68. The wholesaler list a per package cost of $4.84 rather than a list a per ounce cost (this is a common tactic used to confuse consumers). Which is the better buy on a per ounce basis?

The grocery store's price is 21 cents per ounce, 1 cent better

###
What is the annual cost per mile of operating a car given the following information?

Annual miles driven: 12,300

Gas cost:

-Average miles/gallon: 24

-Average cost of gas/gallon: $3.35

Annual depreciation: $2,500

Interest: $650

Insurance: $680

License: $65

Repairs/oil: $370

Parking: $498

53 cents

### An advantage of buying a car over leasing a car is:

Buying can be cheaper in the long run and there are no mileage restrictions when buying a car

### You have been given a choice of paying $19,000 for a new GM car with a $3,000 cash rebate (net cost of $16,000 which you finance separately), or zero percent financing for 48 months with no cash rebate. What is the implicit rate of interest in this deal?

8.69%

###
You are considering the purchase of a hybrid Honda Civic. Assume that you drive 12,000 per year, and will keep the auto for 10 years, at which time the car will have zero trade-in value. Assume the cost of gas is $2.49/gallon. The "normal" model gets 34 miles per gallon, while the "hybrid" model gets 50 miles per gallon. The hybrid model cost $21,850 while the normal model costs $18,260. All other operating costs are the same. You can invest your money at a 6% interest rate (i.e. use a 6% discount rate).

Given these assumptions, is it a good economic decision to purchase the hybrid?

Hint: Calculate the annual gas cost for each car then take the difference (or savings) per year. Next calculate the PV of the annual savings (END MODE) and compare the gas cost savings in today's dollars to the cost difference for the two vehicles. You could also do a NPV analysis, with the car cost difference being used for cash out time period 0, and the savings entered in the CFj key for ten years.

No, don't buy the hybrid. The PV of the savings is $2,070 which is less than the cost difference. You need a greater savings to economically justify the purchase of this hybrid (i.e. the NPV is negative).

###
You subscribe to XM Radio and pay $12 at the end of each month (which equates to $144 per year). You plan to keep this service for the next five years.

Assume you have plenty of cash in your emergency reserve fund, which is in a bank account earning 4% interest per annum. XM Radio offers you a deal whereby you can prepay two years worth of service for $230, payable today. Given these assumptions,

You are better off to prepay XM for the next two years.

###
Chrysler recently offered the following deal for a Jeep Commander:

$1,000 cash rebate at closing PLUS 2,400 gallons of gas at $1.99/gallon over a three year period (or 66.67 gallons per month END for three years).

What is the present value of this deal assuming that gas prices will be $2.99 per gallon over the next three years and using a 6% interest rate?

$3,192, and if gas prices average more than $3.00/gallon, then the value of the deal to the buyer will increase

###
A spender UCF graduate likes the prestige of a Lexus IS 250. Saver UCF graduate drives a Corolla. The internet shows that the five year cost of owning a 2010 Lexus IS 250 is $42,814 while the five year cost of owning a 2010 Corolla is $24, 607, an $18,207 difference over five years. On an annual basis, this would equate to the Lexus costing $3,641.40 more per year.

Assume our UCF saver invests the savings of $3,641.40 per year (end of year) for 40 years and earns 11% per year (interest compounded annually). How much will the saver have in his/her retirement account as a result of driving lower cost cars throughout his/her lifetime?

$2,118,661.44

### A common advantage associated with home ownership is

Appreciation of the house's value over long periods of time

###
Which of the following statements is false?

A. Mortgage interest on a primary residence is fully deductible for mortgages up to $1 million

B. Points paid on a new mortgage are fully deductible in the year incurred

C. Points paid on a refinancing are fully deductible in the year incurred

D. In most cases, interest on a home equity loan is fully deductible in the year incurred

C

###
Which of the following monthly payments go to an escrow account?

A. Principal

B. Interest

C. Property taxes

D. Homeowners insurance

E. Answers c and d are correct

E. Answers c and d are correct

### Bill and Hillary each buy a house and take out a $100,000 loan. His house is in New York and her house is in Washington D.C. Bill takes out a conventional 30 year fixed rate mortgage, and Hillary opts for a conventional 15 year fixed rate mortgage. Which of the following correctly summarizes how Bill's mortgage is different from Hillary's (all other things being equal)?

Bill's 30 year mortgage has a higher interest rate, lower monthly payments and higher overall interest payments. It builds equity more slowly than Hillary's mortgage

### What is a disadvantage of using an adjustable rate mortgage (ARM) compared to a fixed rate mortgage?

If interest rates rise, ARM interest rates will also increase after the lock in date and your mortgage payments (principal and interest) are not fixed for the term of the loan with an ARM as they are with a fixed rate mortgage.

###
A bank offers you a thirty year $175,000 mortgage at 6.75% with two points payable at closing.

The monthly payment is $1,135.05

What is the effective interest rate on this loan?

6.95%

###
Assume you receive the following mortgage:

Amount borrowed= 175,000

Annual interest rate= 6.5%

Term=30 years

What is the monthly payment and how much of the payments in year 5 go toward interest?

Monthly payment = $1,106.12

Interest in year 5 = $10,738.39

### A homeowner can save $130.00 per month for the next 15 years by refinancing at a new 4% fixed mortgage rate. What is the present value of the savings that would be used to compare against the current cost of refinancing?

The present value of the savings is $17,574.98. If closing costs were less than this amount, refinancing would be a good deal if you remain in the house 15 years

###
Assume the following:

Annual Salary= $65,000

Estimated monthly property taxes & insurance = $500

Mortgage interest rate= 6.0%

Mortgage term= 30 years

Down payment= 10%

Refer to the Chapter 9 textbook exhibits on housing affordability and mortgage payment factors.

Using the formula in the book, what is the affordable home purchase price using the above assumptions?

$242,284

### A situation in which one person is held responsible for the actions of another is:

Vicarious liability

### Driver classification includes information on a person's ______ and is used to set auto insurance rates

Driving habits

### T/F Homeowners insurance does not cover flood damage. Insurance must be purchased separately and is sold by the National Flood Insurance Program (NFIP)

True

### T/F With respect to auto insurance, you should NOT file a claim if the repair cost is less than the deductible

True

###
A homeowner was robbed and lost $3,500 in jewelry and $3,800 in silverware. The homeowner's policy covers up to $1,000 of losses for jewelry and up to $1,500 in losses for the silverware with no deductible.

How much is homeowner's recovery from the insurance company?

$2,500

###
What amount would a person with actual cash value coverage receive for two-year old furniture that was destroyed by a fire?

Assume the furniture has a $4,000 replacement cost today and an estimated life of 10 years.

$3,200

###
A driver has 25/50/10 auto coverage. He/she is in an accident (and at fault) resulting in two bodily injury claims of $50,000 each.

How much must the driver pay of the $100,000 in claims?

$50,000

### A driver has 50/100/15 auto coverage. He/she is in an accident (and at fault) resulting in $5,000 of damage to a parked car and $15,000 damage to a store. How much must the driver pay of the total claims?

$5,000

###
A married couple spends $800 a year in insurance with three separate companies. Their agent will give them a 10% discount if they consolidate their policies with her firm.

Over the next 10 years, what is the future value of the savings benefit, assuming a 6% rate, with annual savings deposited at the end of the year?

$1,054.46

### The cost of long term care, such as a prolong stay at a nursing home, is

generally not covered by Medicare

### Which health insurance plan is administered by each state within certain broad federal requirements and guidelines?

Medicaid

### You have elected to deposit $120 per month in your flexible spending plan next year. Assuming a 25% tax bracket, how much in qualifying medical expenses would you have to incur to break even on your deposits to the flexible spending plan next year?

$1,080

###
A UCF graduate makes $700 per week and has a disability plan that pays 70% of his/her salary after the first four weeks of disability.

If the graduate is disabled for 17 weeks, how much will he/she receive from the insurance company?

$6,370

### A family has health coverage that pays 80% of medical expenses after the first $500 of qualifying expenses. If the family incurs $1,200 of medical expenses during the year, how much will their insurance company pay of the total claims incurred?

$560

###
Your employer has offered you a choice of a lower cost HMO plan or a higher cost standard health insurance plan. Next year you will need physical therapy and want to compare the cost of the therapy under the two plans.

The standard health insurance plan pays 65% of therapy after a $200 deductible, while the HMO will pay the full cost of the therapy as long as you pay a $15 co-payment per visit.

Assume you need 10 therapy sessions that will cost $50 each for the high cost plan ($15 for HMO).

How much would you save using the HMO vs. the traditional health insurance plan?

$155

###
With respect to comprehensive major medical insurance, which statement is INCORRECT?

A. It is offered without a separate basic plan.

B. It's a type of major medical insurance with a low deductible.

C. It's all inclusive health insurance.

D. Deductibles often run around $2,000 to $3,000

D

### Under the rules of COBRA, how long can you continue medical coverage under your former spouse's medical plan after a divorce (assuming the former spouse works at a company with more than 20 employees)?

36 months

### T/F: Most group health policies have a coordination of benefits provision, which is a method of integrating the benefits payable under more than one health insurance plan so that benefits are limited to no more than 200% of allowable expenses (e.g. if you and your spouse each have health insurance which covers each other, then you can collect no more than twice the claim since you each are paying premiums).

False

### With respect to federal tax law, life insurance proceeds paid to a beneficiary:

Are excluded from taxable income, bur included in the taxable estate (unless a life insurance trust has been established)

### Which life insurance provision ensures that you will not have to forfeit all accrued benefits?

Non-forfeiture clause

### You and your spouse make $28,000 per year, have an $100,000 mortgage, owe $10,000 on auto loans, owe $5,000 on student loans, and owe $3,000 on credit cards. You estimate funeral costs at $5,000. How much life insurance should you carry using the DINK method?

$64,000

### A couple has two children ages 4 and 7 only one spouse has income. Using the "non-working" spouse method, they should have _____ of life insurance.

$140,000

### A couple currently spends $40,000 per year for all their living expenses. Only one spouse works while the other spouse stays at home with the chidden. Upon the death of the working spouse, they want a life insurance policy whereby the proceeds could be invested in a tax-free municipal bond fund that would yield enough tax-free cash each year to pay the entire $40,000 of expenses (i.e. the non-working spouse would not have to return to work, and there would be sufficient funds on his/her death to leave some inheritance to the kids). They assume that the yield on municipal bond funds will be 5%. How much insurance should they purchase?

$800,000

### How much life insurance would you need using the easy method for a family with $40,000 in gross income?

About $200,000

### Life insurance is usually sold not bought, because the life insurance industry has a vested interest in selling you high commission, high cost ______ policies

Whole life

### What percentage of the first year premiums on a whole life insurance policy go to the agent's commission?

80%

### A parent is evaluating a $250,000 term life policy vs. a $250,000 whole life policy. Over the next 25 years, the term policy will cost $10/month, and build no cash values. The insurance agent informs the parent that the whole life policy will cost $100 per month, but will build guaranteed cash values of $75,000 at the end of 25 years. The parent assumes that he/she can invest the $90 per month difference in a mutual fund and earn 9% per year for the next 25 years. What is the future value of the mutual fund at the end of 25 years assuming end of the period deposits of $90 per month at a 9% interest rate; and how does it compare to the whole life cash value investment return (ignoring taxes)?

The mutual fund will be worth $100,900.97, implying that the return on the whole life policy is less than 9%

### A UCF grad has gross monthly income of $3,200 and net take home pay of $2,800 per month, which approximates his/her monthly living expenses. What is the minimum amount should have in his/her emergency fund?

$8,400

### Which of the following investments would have the greatest potential for risk?

Options or commodities

### A $1,000 corporate bond has a 9.5% coupon rate. Since issuance, interest rates have fallen for comparable bonds to 8%. What would be the market value of the bond now that interest rates have fallen (i.e. what would you have to pay for this bond today in order to achieve the same yield)?

$1,187.50

### T/F: An investor can reduce both systematic and non-systematic risk in a stock portfolio by increasing the number of individual stocks held in the portfolio.

False

### Which best describes cash dividends paid by corporations?

Dividends generally come from after-tax earnings of the corporation, and are taxed again when received by an individual at a 15% maximum rate.

### An investor has 220 shares of Exxon/Mobil stock, which pays a quarterly dividend of $0.40 per share. What is his/her quarterly dividend payment?

$88.00

### An investor has 360 shares of Walmart, which just declared a 2 for 1 stock split. On the day before the stock split, the shares were trading at $80 per share. The day after the split,

The investor wil have 720 shares trading at around $40 per share

### An investor bought 100 shares of JNJ stock for $28.50 per share plus a commission of $10. He/she sold the stock after two years for $38 per share and again paid a commission, this time for $10. The investor received dividends while holding the stock of $0.46 per share per quarter (a total of eight quarters). What is the total gain and annual return on this stock?

$1,298 gain, 20% annual return.

### Refer to the previous card. With respect to the investor's stock transaction assuming all dividends received were "qualifying":

The separate gain on the stock is treated as a long-term capital gain, and both the capital gain and qualifying dividend income are now taxed at lower favorable rates.

###
What is the equity risk premium for small company stocks given the following assumptions:

Return on small company stocks=12%

Return on Treasury bonds= 5%

Inflation rate= 3%

7%

### An investor bought a stock for $40 per share. It now trades for $90 per share and pays an annual dividend of $1 per share ($0.25 per quarter). What is the current dividend yield on this stock?

1.11%

### ABC Corp. has earnings of $300,000,000 with 100,000,000 shares outstanding. ABC's earnings per share would be _____?

$3

### Knight Corp.'s stock trades at $60. It has a book value of $15 per share and earnings per share of $3.00. What is the PE ratio for Knight Corp.?

20

### A government security issued in minimum units of $100 with maturities that are 4-week, 13-week, 26-week, and 52-week is called a

Treasury bill

### Zero coupon bonds would be best suited for

a 35 year old woman with a high risk tolerance and no need for current income

### A $1,000 bond carries a 7.55% coupon. The bond currently trades at $1,100. What would the annual interest payment be on this bond?

$75.50

### What is the comparable pre-tax yield on a municipal bond yielding 5.2% assuming a marginal tax bracket of 25%?

6.93%

### A $1,000 bond has an annual 9.5% coupon and trades for $860. It has 10 years to maturity. What is the current yield and yield to maturity?

11.05% yield with an 11.98% yield to maturity

### A $1,000 bond was issued five years ago with an 8% coupon. If interest rates fall for comparable bonds, you would expect the fair market value of the bond to

Increase

### You plan to invest $100 per month in an S&P 500 index fund for the next 40 years, and are trying to decide whether to use an ETF or an open ended mutual fund. Which option would be the most advisable? (assume that the ETF and open ended index mutual fund have the same expense ratio, but the broker will charge you a $5 commission for each trade, while the mutual fund will not charge you a commission if purchased directly from the mutual fund)

Opening an account with a mutual fund family, then investing in an open ended S&P 500 index mutual fund each month.

### When you sell shares of a mutual fund, how do you determine the basis of the shares held?

You may use either the specific identification or average cost method

### Payments made to a fund's shareholders that result from the sales of securities in the fund's portfolio are called

Capital gains distributions (either short term or long term)

### ABC fund has a 4.55 front-end sales load and a net asset value of $40. You plan to invest $16,000. How many more shares would you have received if the fund did not have a sales load?

18

### A mutual fund has a 1% operating expense ratio, and you just invested $22,000. How much of your investment will go toward paying the operating expenses of the mutual fund this year?

$220

### You buy 100 shares of a mutual fund for $10 per share at the beginning of the year. The fund subsequently makes a $0.75/share dividend distribution. At year-end, the fund is worth $15 per share. What is the total return on your investment?

$575 or 57.5%

###
Assume the following mutual fund transactions:

Year | Invest | Price per share

2007 $3,000 $40

2008 $3,000 $50

2009 $3,000 $60

2010 $3,000 $55

How many shares do you now own and what is the average cost per share?

239.5455 shares with an average cost per share of $50.09

### By the time you turn 60, a large percentage of your net worth will likely consist of

Equity in your primary residence

### You have net passive activity losses of $10,000 related to an investment in a real estate partnership. Which statement is true with respect to your federal tax return?

Net passive activity losses are carried forward to future tax returns and available to offset future passive activity gains

### Which of the following is a disadvantage of direct investments in real estate, such as rental property?

The investment can be illiquid

### Gold prices are more likely to rise

During wars or other periods of significant geopolitical uncertainty

### You buy a property for $200,000 in cash and sell it at the end of the year for $240,000. What is your gain and return on investment?

$40,000 and 20%

### You buy a property for $200,000. You pay $20,000 in cash and borrow $180,000 interest free! At the end of the year, you sell the property for $240,000. What is your gain and return on investment?

$40,000 and 200%

### With respect to Roth IRAs and Traditional IRAs, which statement is true?

Roth IRA contributions are non-deductible, but earnings grow tax free

### Which investment would generally be inappropriate for a 25 year old with a traditional IRA invested for his/her retirement?

A substantial and permanent investment in money market mutual funds

### What important matter should you always assess before changing jobs?

Your current vesting status on the company 401-K plan; Your current vesting status on the company defined benefit pension plan; Your current vesting status on the company stock option plan

### A UCF graduate has a traditional IRA and plans to take the money out prior to age 59 1/2 in order to pay off some accumulating credit card debt. The graduate will pay:

A 10% penalty on the total withdrawn, plus will owe taxes on the amount withdrawn based on his/her marginal tax rate

### T/F: Social security payments are always tax free since they are primarily a return of your money, which was previously deducted from your paycheck

False

### Fidelity Investment recently recommended that individuals save at least _____ years of their final salary before retiring

8

###
A UCF graduate saves $300 at the end of each month in a Roth IRA for 40 years (retirement date), earning 9% annually. How much money will be in the account at the end of 40 years, and how long will the money last if the graduate withdraws $15,000 at the end of each month at the retirement date, assuming the investments continue to earn 9% annually?

HINT: Once you calculate the FV of the savings, this will be your PV for the second part of the problem where you solve for n.

Value of account in 40 years = $1,404,396: Account will run out of money in 162 months

###
Calculate the first and second year ANNUAL payment that you could withdraw for a "growing annuity" using the following assumptions:

Interest rate= 8%

Inflation rate= 4%

Remaining life expectancy= 27 years

Amount invested at retirement date= $450,000

First withdrawal taken at the end of the year

Hint real rate:

((1 + interest rate) divided by (1 + inflation rate)) - 1

Year 1 = $27,084 year 2 = 28,167

### What document is generally used to name the guardian of your minor children in the event that both you and your spouse should die?

A last will and testament

### Which type of trust would be used for young adult children, where the deceased parents wish to ensure that the principal of the trust is maintained for a long period of time?

A spendthrift trust

### What happens if you die without a will

The courts will determine how your assets will be distributed based on state law

### What are your options for managing your property after your death if your children are still relatively young?

Name a property guardian in your will;

Name a custodian under the Uniform Transfers to Minors Act;

Set up a trust for each child;

Set up a "pot or family trust" for your children

### Which of the following is true with respect to wills?

If your state allows holographic wills, you don't need witnesses;

You must date and sign the will;

The will must be signed by at least two witnesses (for states that do not allow holographic wills);

In most states, witnesses can not be heirs

### T/F: A living will or advance health care directive documents your wishes in the event that you become so physically or mentally disabled that you are unable to act on your own

True

### If you and your spouse or anyone else own property as ______, each individual is considered to own a proportionate share for tax purposes, and only your share is included in your estate

Tenants in common