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Exam 22: Appendix B: Managing Risk

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Question 51

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The money a worker invests in a 401(k)retirement account reduces that worker's present taxable income.

A) True
B) False

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Question 52

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One way to motivate yourself to start saving is to visualize your goals and think about how much money it will take to achieve them.

A) True
B) False

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Question 53

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Withdrawals from an IRA prior to age 59½ generally are subject to taxes and a penalty.

An advantage of both traditional and Roth IRAs is that both the income invested and the earnings from these investments are never taxed.

If your personal liabilities exceed your assets,your are on the road to financial security.

Borrowing money for ordinary expenses is a necessary part of life.

The goal of accumulating capital is to allow an individual to:

A Roth IRA allows workers who qualify to get an up-front deduction for any money they invest in the plan.

Describe the major steps involved in estate planning.

Buying a _______ is often an attractive strategy for young couples,since they can live in one unit and rent the other half to supplement their income,while taking tax deductions on interest and real estate taxes.

Although he has a good health insurance policy,Ken is concerned that a serious accident or lengthy illness would still be devastating to his family because of the lost income and other expenses not covered by his policy.Ken would probably be interested in obtaining:

A Keogh retirement plan would be used by a(n)

Recent demographic trends suggest that the financial condition of the Social Security program soon will begin to improve.

A traditional IRA allows workers who qualify the opportunity to deduct from their reported income the money they put into a qualified retirement account.

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. -Once Ira and Penny achieved a more solid financial foundation,they began to consider the purchase of a home.From a financial standpoint,a sound strategy for them to consider would be to:

Many employers offer health insurance coverage for their full-time employees.

The Social Security program was established in:

During the first few years of a home mortgage,almost all the payments go for interest on the loan.This high interest is a reason it is better for young people to rent rather than buy.

Real estate people agree that the key to getting the optimum return on the purchase of a home is:

Your personal balance sheet will reflect the same fundamental accounting equation as the balance sheet for a business: assets = liabilities + owners' equity.