Final Exam Flashcards by Beth Weigandt

Ch. 1
True or False:
Pre-authorized checking helps to build discipline in savings.

True

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Ch. 1
True or False:
The first thing you should save for is your retirement fund.

False

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Ch. 1
True or False:
Your first baby step is to pay off all of your debt.

False

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Ch. 1
True or False:
A money market is the best place for your emergency fund.

True

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Ch. 1
True or False:
A sinking fund is what really makes money grow over time.

False

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Ch. 1
True or False:
Dave’s 80/20 rule says that personal finance is 80% knowledge and 20% behavior.

False

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Ch. 1
True or False:
Rate of return matters when it comes it compound interest.

True

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Ch. 1
True or False:
If we used a race analogy to describe building wealth, it would be most like a sprint.

False

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Ch. 1
True or False:
You should invest 10% of your household income into Roth IRAs and pre-tax retirement plans.

False

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Ch. 1
True or False:
Murphy’s Law is more likely to strike if you are prepared for the unexpected events that occur throughout life.

False

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Ch. 1

Place your emergency fund in this type of account: _______

Money Market

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Ch. 1

Baby Step 1 is _______.

$500-$1,000

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Ch. 1

The typical American has a _______ savings rate.

Negative

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Ch. 1

Saving must become a _______.

Priority

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Ch. 1

The emergency fund is not a big _______.

Earner

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Ch. 1

A fully funded emergency fund is _______ months of expenses.

3-6

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Ch. 1

Pay yourself _______.

First

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Ch. 1

Use the _______ approach instead of borrowing to purchase things.

Sinking fund

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Ch. 1

The percentage by which your money grows is called the _______.

Rate of Return

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Ch. 1

_______ says that whatever can go wrong will go wrong.

Murphy’s Law

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Ch. 1
The saving habits of Ben and Arthur best illustrate what principle of saving?
a. Rate of return maters
b. the amount of the initial investment is the key.
c. The length of time money is invested matters.
d. Both a and c.

d. Both a and c.

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Ch. 1
What is the most sensible way to buy a $4,000 car?
a. Put a down payment of $500 and use 90 days same-as-cash to pay the balance.
b. Use the sinking fund approach and save $400 a month for ten months
c. Shop around for the best interest rate before taking out a $4,000 loan
d. Ask your parents to co-sign a loan at your credit union.

b. Use the sinking fund approach and save $400 a month for ten months

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Ch. 1
Which is the correct order of priorities for your money?
a. Give, save, pay bills
b. Pay bills, save, give
c. Save, pay bills, give
d. It is not important which order you follow as long as you do these 3 things.

a. Give, save, pay bills

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Ch. 1
Which is not a key to saving money?
a. Your income 
b. Making savings a habit and a priority 
c. Discipline 
d. Focus

a. Your income

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``` Ch. 1 Which of the following is now reason to save? a. Emergency fund b. Purchases c. Pay off debt d. Wealth building ```

c. Pay off debt

Ch. 1 How much money should Lisa and Joe have in their emergency fund if they have a $3,000 credit card bill and a mortgage? a. 3-6 months of expenses b. 10% of their credit card balance c. $1,000 d. No emergency fund until the credit card is paid off.

c. $1,000

Ch. 1 Even though a savings account is fine when you are just beginning to save, why is a money market a better place to keep your emergency fund? a. A saving account is a bit too easy to access b. Typically, money markets average a higher interest rate than a savings account. c. A money market is accessible and generally has check writing privileges if needed. d. All of the above

d. All of the above

Ch. 1 A good way to build discipline and get into the habit of saving is: a. Pre-authorized checking b. Avoid daily expenses such as coffee c. Always pack a lunch and save the cost of eating out d. Have your parents remind you

a. Pre-authorized checking

Ch. 1 The Baby Steps can best be described as: a. A systematic process for getting out of a financial mess b. A series of seven sequential steps that help you plan, save and manage money. c. A series of steps that will work in good times and in bad times. d. All of the above

a. All of the above

``` Ch. 1 For most people, (excluding students) a fully funded emergency fund will be about: a. $1,000 b. $3,000-$5,000 c. $5,000-$10,000 d. $10,000-$15,000 ```

d. $10,000-$15,000

``` Ch. 1 If you invest $1,000 at 12% interest, how much money will be in the account after two years, compounded annually? a. $1,120 b. $1,240 c. $1,254.40 d. $1,300.40 ```

c. $1,254.40

``` Ch. 1 Savings is about: a. Making more money and discipline b. Pride and greed c. Emotion and contentment d. Contentment and earning more money ```

c. Emotion and contentment

``` Ch. 1 For which of the following should you save? a. Wealth Building b. Emergency Fund c. Purchases d. All of the above ```

D. All of the above

Ch. 1 Which of the following is true about the concept of saving? a. Savings must become a priority after all bills are paid b. You will save when you make more money. c. You must pay yourself first d. All of the above

c. You must pay yourself first

Ch. 1 A sinking fund approach means: a. Saving and paying cash b. Buying with credit, but paying it off in full before the interest comes due c. Buying with credits, getting low interest rate, and sinking further into debt. d. 90 days same-as-cash

a. Saving and paying cash

Ch. 1 Which statement is most true about a one time investment for 40 years? a. The interest rate doesn't matter as long as you leave it alone for 40 years. b. It is foolish to only make it one time investment c. The annual interest rate does matter when making a one time investment d. All of the above

c. The annual interest rate does matter when making a one time investment

Ch. 1 Which statement is true? a. People spend more money when they pay with cash b. When you pay with cash, you can almost always negotiate a better deal c. When you pay with cash it is hard to negotiate a deal because you didn't use their credit d. Using a credit card is safer than carrying cash around

b. When you pay with cash, you can almost always negotiate a better deal

Ch. 1 What is the next step after you have a fully funded emergency fund? a. Pay off the rest of your mortgage b. Finish paying off the last credit card c. Invest 15% of your income into Roth IRAs and pretax retirement plans d. Work on both a and b at the same time

c. Invest 15% of your income into Roth IRAs and pretax retirement plans

``` Ch. 1 Using the sinking fund approach how much do you have to save to buy a $5000 car next year? a. $275 a month into savings b. $300 a month into savings c. $400 a month into savings d. $416.66 a month into savings ```

d. $416.66 a month into savings

Ch. 1 How much money should you have in your emergency fund if you are working on baby step 2 (pay off all debt)? a. 15% of your household income b. 3-6 months of expenses c. $500 or $1000, depending on your current income d. You should not have an emergency fund until all debt is paid

c. $500 or $1000, depending on your current income

Ch. 2 True or false: Diversification to spread around.

True

Ch 2. True or false: With all investments as the risk goes up the return goes down

False

Ch 2. True or False: Liquidity is the availability of your money

True

Ch 2. True or False: 100% of the ten-year periods in the history of the stock market made money

True

Ch 2. True or False: The difference between saving and investing is the amount of interest you earn on your money

False

Ch 2. True or False: The average mutual fund includes 90 to 200 companies

True

Ch 2. True or False: Real estate is the most liquid of all investments

False

Ch 2. True or False: A share is a piece of ownership and an annuity

False

Ch 2. True or False: A commodity is a savings account with a certificate

False

Ch 2. True or False: Profits that a company distributes to its shareholders are called dividends

True

Ch 2. | Never invest using ______ money

Borrowed

Ch 2. | Oil and Gold are examples of _____.

Commodities

Ch 2. | When investing you should always check the ______ track record.

5-10 year

Ch 2. | You should you saving for ______ term investments

Aggressive

Ch 2. | The availability of your money is called _____.

Liquidity

Ch 2. | Stocks from overseas companies are called _____ growth stock mutual funds

International

Ch 2. | The ______ says that with investments as the risk goes up so should the return

Risk return ratio

Ch 2. | A _____ is a debt instrument where a company owes you money

Bond

Ch 2. | _____ are savings accounts with insurance companies

Annuities

Ch 2. | In _____, investors pool their money

Mutual funds

Ch 2. Which is not true about investments: a. Never invest using borrowed money b. Diversification will help lower the risk c. Always invest only for tax savings purposes d. Never invest only for tax savings purposes

c. Always invest only for tax savings purposes

Ch 2. The risk return ratio says: a. When the rest goes up the return generally will go up b. When the rest goes up the return generally will go down c. When the risk goes up the return generally will go up d. None of the above

c. When the risk goes up the return generally will go up

Ch 2. What is true about investing in single stocks? a. There is a low degree of risk b. There is a high degree of risk c. The risk is the same whether you invest in mutual funds or stocks d. If the stock is from your employer the risk is lower

b. There is a high degree of risk

``` Ch 2. Which is not a good investment? a. Gold b. Committees c. Vatical's d. All of the above ```

d. All of the above

``` Ch 2. A collection of money from different investors which is used to purchase stocks bonds or other investments managed by fund manager: a. Company stock b. Annuities c. Mutual funds d. Bonds ```

c. Mutual funds

Ch 2. The KISS role of investing teaches: a. The more sophisticated the investment the better b. Keep things simple and never buy something you don't understand c. It is normal to have investments you don't understand as long as you have a broker d. None of the above

b. Keep things simple and never buy something you don't understand

``` Ch 2. Which is a type of annuity? a. Variable b. Stable c. Fixed d. Both a and c ```

d. Both a and c

Ch 2. The most aggressive mutual funds tend to be from: a. Companies that are a little younger and growing b. companies that are overseas c. Companies that are older and well-established d. All of the above

a. Companies that are a little younger and growing

``` Ch 2. Your piece of ownership in a company is called: a. Portion b. Dividend c. Profit d. Share of stock ```

d. Share of stock

``` Ch 2. Which of the following funds would be most risky? a. International b. Growth c. Aggressive growth d. Large-cap ```

c. Aggressive growth

Ch 2. What is the best option to do if you begin losing money in your mutual fund? a. Call your broker and switch your funds b. Pull everything out and open a certificate of deposit at the bank c. Leave it alone but stop investing money in the fund d. Leave it alone and continue to invest money in the fund

....

``` Ch 2. Which one is not a risky investment? a. Commodities b. Annuities c. Viatical's d. Futures ```

b. Annuities

Ch 2. Which statement is true about liquidity? a. The more liquid investment is the less return b. The more liquid an investment is the more return c. The less liquid an investment is the less return d. Both a and c

a. The more liquid investment is the less return

Ch. 3 True or False: Pretax means the government allows you to invest money after taxes are taken out

False

Ch. 3 True or False: ESAs are a good way to save for college

True

Ch. 3 True or False: The Roth IRA is an after-tax investment that grows tax-free

True

Ch. 3 True or False: Once you have a fully funded emergency fund, put 10% of your income into retirement plans

False

Ch. 3 True or False: The contribution amount for a Roth IRA into 2008 is $5000

True

Ch. 3 True or False: 457 plans are designed for employees of non-profit organizations such as hospitals and school

False

Ch. 3 True or False: If your money is in a pretax retirement plan you will pay taxes on it when you cash out

True

Ch. 3 True or False: Never roll over your 401(k) when you leave a company

False

Ch. 3 True or False: You should save for college using saving bonds

False

Ch. 3 True or False: Pension plans only work if you participate in them. If you put nothing in you will get nothing out

False

Ch. 3 | A retirement plan for self-employed people.

SEPP

Ch. 3 | A deferred compensation plan

Pension

Ch. 3 | Typical retirement plan found in most companies

401(k)

Ch. 3 | Retirement plan found a nonprofit groups (schools, hospitals)

403(b)

Ch. 3 | Save for college by first using this type of account

Educational savings account

Ch. 3 | Used after you max out the ESA

457

Ch. 3 | Movement of tax-deferred retirement money from one plan to another

Rollover

Ch. 3 | Invest 15% of income for retirement

Baby step 4

Ch. 3 | Manager of a child you UTMA account until he or she reaches age 21

Custodian

Ch. 3 | College funding

Baby step 5

``` Ch. 3 The company Jason works for matches his 401(k) contribution up to 5%. Jason takes advantage of this and contributes $200 per month. At the end of one year how much money will be in his account? a. $1200 b. $2400 c. $4800 d. $5000 ```

c. $4800

Ch. 3 If your company does not provide any type of 401(k) match what is the best investment option? a. Contribute nothing into your 401(k) if there's no match b. Invest the maximum amount allowed in both Roth IRA and then go back and fund the 401(k) to complete 50% of your income c. Fully fund the 401(k) up to 15% of your income d. Find another job with a company that offers a retirement plan

b. Invest the maximum amount allowed in both Roth IRA and then go back and fund the 401(k) to complete 50% of your income

Ch. 3 What definition best explains IRA? a. A type of investment at a bank b. A type of investment of the banker investment firm that has good tax benefits c. The tax treatment on virtually any type of investment d. Investment that uses pretax dollars

c. The tax treatment on virtually any type of investment

``` Ch. 3 Which is an advantage of a Roth IRA? a. Offers more choices b. Grows tax-free c. Higher bracket at retirement d. All of the above ```

d. All of the above

Ch. 3 The primary difference between the Roth IRA and a traditional IRA is: a. The IRA allows a contribution amount of $5000 for non-income producing b. The Roth IRA grows tax-free; the traditional IRA doesn't c. Contributions to your Roth are pretax; contributions to a traditional IRA are after-tax d. A traditional IRA grows tax-free; the Roth IRA doesn't

b. The Roth IRA grows tax-free; the traditional IRA doesn't

Ch. 3 Under what condition are you not able to make a tax-free withdrawal from your Roth IRA? a. Over 59 1/2 years old b. First time home purchase up to $10,000 c. Major career change and temporary drop of income d. Death or disability

c. Major career change and temporary drop of income

Ch. 3 What is the best option for your retirement plan when you leave a company? a. Have the money sent to you and deposit into a new IRA within 60 days b. Do a direct transfer into an IRA c. Leave the plan where it is so I can continue to accrure interest d. Cash out the planet investing good mutual funds

b. Do a direct transfer into an IRA

Ch. 3 If you borrow against your retirement plan under which conditions must you pay it back? a. If you leave the company voluntarily b. If you are forced to leave the company c. If you die d. All of the above

d. All of the above

Ch. 3 If you have $3000 invested into a Roth IRA which is true about your contribution? a. You have already paid taxes on the money so it will grow tax-free b. You will pay taxes only on the growth of $3000 c. You maxed out your contribution d. Both a and b

a. You have already paid taxes on the money so it will grow tax-free

``` Ch. 3 Which of the following are good ideas to save for college? a. Savings bonds b. ESA c. Prepaid college tuition d. Life Insurance ```

b. ESA

``` Ch. 3 Using the rule of 72 how long it will take your money to double at 12% interest a. 6 years b. 7.2 years c. 8 years d. 9 years ```

a. 6 years

Ch. 3 Caleb's company offers a 5% match on the 401(k) if he makes $40,000 annually, what should his investment plan look like? a. $6000 total investment :$2000 in 401(k) and $4000 and a Roth IRA b. $6000 total investment: $6000 in 401(k) c. $6000 total investment: $6000 and a Roth IRA d. $4000 total investment $2000 in a 401(k) and $2000 in a Roth IRA

a. $6000 total investment :$2000 in 401(k) and $4000 and a Roth IRA

Ch. 3 Teresa and Kyle want to open a Roth IRA for their 10-year-old son. what is the current contribution allowed? a. $5000 starting in 2008 b. $2500: a child under 18 can do up to one half the maximum contribution limit c. $0: not eligible if you do not have an earned income d. $2000 per year starting in 2008

c. $0: not eligible if you do not have an earned income

Ch. 3 When seeking a financial counselor to help you with your investments always go with: a. A close family member or friend because you will be helping each other out b. Financial counselor with the heart of a teacher who explained everything to you c. A financial counselor who is sophisticated and uses all the right vocabulary d. A financial counselor who has at least five years experience

b. Financial counselor with the heart of a teacher who explained everything to you

``` Ch. 3 What does baby step 5 say about saving for your children's college? a. Use it certificate of deposit b. Use a pre-pay college tuition c. Use tax favored plans d. Use entrance or saving bonds. ```

c. Use tax favored plans

Ch. 4 True or False: Living without debt in today's society requires a paradigm shift

True

True or False: | Henry Ford and JCPenney were pioneers of the use of credit

False

True or False: | You need a credit card in order to rent cars and check into hotels

False

True or False: | Loaning money to a friend or relative is never a good idea

True

True or False: | The debt snowball begins with your highest interest rate debt debt

False

True or False: | If you absolutely have to loan money to help a friend or relative, cosigning is the way to go

False

True or False: | The typical millionaire drives a reliable used car

True

True or False: Cash advance and title pine businesses charge roughly the same percentage rates and fees on loans as a credit card company

False

True or False: | There is nothing wrong with using a credit card if you pay your balance in full every month

False

True or False: | Spending cash is less painful than using a debit card

False

A widely held but mistaken belief

Myth

Mortgage ones where the interest rate is adjusted periodically

ARM

First charge card in the United States

Diners club

A tax on the poor and people who can't do math

Lottery

The debt snowball

Baby step 2

Most expensive way to finance a new car

Leasing

Using equity in a home as collateral when borrowing money

Home equity loan

A product aggressively marketed to consumers

Debt

A drop in the value

Depreciation

Which following is true about using credit cards: a. It is the same thing as using cash b. When using credit one spends less c. When using credit one spends more d. Using credit neurotically registers as pain

c. When using credit one spends more

What is the best way to buy a car? a. Leasing b. Purchase new at the end of the year c. 0% financing on new or used d. Purchase used (two years or older)

d. Purchase used (two years or older)

How much more do you spend on purchases when you use credit vs. cash? a. 3-5% b. 12-18% c. 10 - 20% d. No different than spending

b. 12-18%

Payday lending in cash advance companies are aggressively targeting which group of people? a. Teens b. Elderly c. College Graduates d. Military

d. Military

It's 80% of millionaires are first-generation rich than one can conclude: a. They started with nothing made smart decisions and became millionaires b. They fell for the Mets that society lives by c. The other 20% are not millionaires d. Both a and b d. All of the above

a. They started with nothing made smart decisions and became millionaires

On average, payday lending cash advance and title pinelands cost the consumer: a. 400% or more annually b. Nothing but the fee if you pay back the loan within 30 days c. Three times the APR of an average credit card d. 100 to 250% annually

a. 400% or more annually

What is the problem with using credit cards if you pay your balance off each month? a. This is the only responsible use of credit b. You are spending an average of 12 to 18% more when you use a credit card c. You are more apt to buy on impulsive rather than thinking about a purchase d. Both b and c

d. Both b and c

Which statement is not true about debt consultation? a. You only have one payment to deal with b. You end up saving money because you were getting a lower interest rate c. Smaller payments equal more time in debt d. Your lower interest loans get rolled into the deal so you end up with minimal savings

b. You end up saving money because you were getting a lower interest rate

Which is true about the marketing of the credit cards to teenagers? a. Teens are the number one target of American credit card companies b. Brand loyalty to your first card is incredible so credit card companies work hard to become the first issuer c. Colleges are losing more students to credit card debt problem than to academic failure d. All of the above

d. All of the above

Which type of mortgage is the best to take out particularly if you're going to be moving in 5 to 7 years? a. Fixed 30-year b. Adjustable Rate Mortgage c. Fixed 15 year d. Balloon mortgage

c. Fixed 15 year

Which of the following is a step out of debt? a. Quit borrowing money b. Sell something c. Using the debt snowball d. All of the above

d. All of the above

The key to building wealth is: a. Staying debt-free b. A good education and income c. Fixed rate 15 year mortgages d. Driving reliable used cars

a. Staying debt free

Which is not part of the debt snowball? a. Pay minimum on all of that except the smallest one b. Put every dollar you can on the smallest debt c. List your debt from highest interest rate to lowest interest rate d. The minimum payment for my paid off debt goes towards the new payment amount the next debt

b. Put every dollar you can on the smallest debt

Which is true about making purchases of credit cards? a. You spent 12 to 18% less when using a credit card b. You spent 12 to 18% more when using a credit card c. You are more likely to experience the "pain" when purchasing with a credit card d. None of the above

b. You spent 12 to 18% more when using a credit card

Which statement is not true about depreciation? a. Depreciation and interest accounts for more than half the annual cost of owning a car b. Depreciation doesn't matter if you pay for something using cash c. I new car loses 40% of its value in the first four years d. Went by and slightly used items you minimize depreciation

b. Depreciation doesn't matter if you pay for something using cash

Why do people think that home equity loans are good? a. Because of the tax refund b. They serve as a substitute for an emergency fund c. It is a good way to consolidate debt d. All of the above

d. All of the above

Kevin has the following debts: Home equity loan, $24,000; Visa, $1200; student loan, $5000; car, $12,000. How should he prioritizes his debt snowball? a. Home equity, Visa, student loan, car b. Visa, car, student loan, home-equity c. Visa, student loan, car, home-equity d. Need the interest rate of each loan to do the debt snowball accurately

c. Visa, student loan, car, home-equity

What is not in regards to making minimum payments on the credit card? a. Minimum payments leave you in debt longer b. A minimum payment is usually a much smaller percentage of the balance than the average interest rate c. As long as you can make minimum payments the balance you owe doesn't matter d. Minimum payments are designed to keep you in debt, therefore making credit card companies more money

c. As long as you can make minimum payments the balance you owe doesn't matter

Why is gazelle intensity so important getting out of the cycle of debt? a. So you don't get stuck and it b. To help build momentum c. Both a and b d. It isn't that important

c. Both a and b

And which type of loan what do you use your house collateral? a. Adjustable rate b. Home-equity c. Balloon mortgage d. 15 year fixed

b. Home equity

The main difference between debit and credit card is: a. A debit card requires that you have the cash available in the account; a credit card doesn't b. Credit card had the visa or MasterCard logo; a debit card doesn't c. A debit card does not offer the same protections as a credit card d. A credit card requires that you have the cash available on the account and debit card doesn't

a. A debit card requires that you have the cash available in the account; a credit card doesn't

How is a debit card like a credit card? a. They both can have a Visa or MasterCard logo. b. A debit card can have a minimum monthly finance charge. c. A debit card can be swiped and require a signature like a credit card d. Both a and c e. All of the above

d. Both a and c