97. (p. 642) Wendy wants to obtain life insurance at the lowest possible cost, but is leery of term insurance because
she has heard the premiums tend to go up every few years. One way for her to avoid this concern would be to
purchase multiyear level-premium insurance.
98. (p. 644) Carrie is trying to find a way to reduce her car insurance premium. She would be well advised to
decrease her insurance policy’s deductible.
99. (p. 644) One strategy used to lower car insurance premiums is to choose a policy with a large deductible.
100. (p. 642) Pete wants life insurance to provide benefits for his family if he were to die. He also wants part of his
premium to go into a savings plan that he will need if he lives to retirement age. His best strategy to achieve
insurance and savings with one premium is term insurance.
101. (p. 644) As a recent college graduate just starting out on his own, Greg needs health, disability, car, and auto
insurance. He may be able to save money by obtaining an umbrella policy.
102. (p. 644) Social Security is the term used to describe the Old Age, Survivors, and Disability Insurance
Program.
103. (p. 644) One problem with the Social Security system is that the number of people retiring and living longer
is declining dramatically.
104. (p. 644) It is likely that young adults today will benefit from the recent trend in the Social Security system to
increase benefits and expand the cost-of-living adjustments.
105. (p. 644) The number of workers paying into Social Security per retired individual receiving benefits is
decreasing.
106. (p. 644) Regardless of potential changes, you can count on Social Security to provide you with a comfortable
retirement.
107. (p. 644) An IRA (individual retirement account) is a tax-deferred investment plan that encourages workers to
save for retirement.
108. (p. 644) A traditional IRA allows workers who qualify the opportunity to deduct from their reported income
the money they put into a qualified retirement account.
109. (p. 664-645) Both the Roth and traditional IRA allow individuals to put as much money as they want into their
retirement account.
110. (p. 645) A Roth IRA allows workers who qualify to get an up-front deduction for any money they invest in
the plan.
111. (p. 644-645) An advantage of both traditional and Roth IRAs is that both the income invested and the earnings
from these investments are never taxed.
112. (p. 644-645) The benefit of opening an IRA while you’re young is the compounding of the money invested
tax-free over your working lifetime.
113. (p. 645) Funds deposited into an IRA cannot be withdrawn until you retire.
114. (p. 645) In order to qualify as a tax shelter, IRA saving plans must be invested in mutual funds.
115. (p. 645) Withdrawals from an IRA prior to age 59½ generally are subject to taxes and a penalty.
116. (p. 644) Earnings from traditional IRA investments are taxable at the time they are earned.
117. (p. 646) A simple IRA, which allows workers to contribute larger amounts than a regular IRA, is available to
employees who work for firms with fewer than 100 employees.
118. (p. 645) The upper limit on the amount that employees can invest in IRAs was $4,000 in 2006 but will
increase up to $5,000 in 2008.
119. (p. 646) The money a worker invests in a 401(k) retirement account reduces that worker’s present taxable
income.
120. (p. 646-647) Employers often match part of the contribution of their employees into a 401(k) retirement plan.
121. (p. 647) Large corporations with at least 500 employees can offer their employees a simple 401(k) retirement
plan that allows for greater contribution maximums.
122. (p. 647) Many small-business owners invest in 401(k) plans for their retirement.
123. (p. 647) The best way to invest in a 401(k) plan is to use all of the money to buy stock in the company where
you work.
124. (p. 647) Keogh plans are intended to help small business owners save for retirement.
125. (p. 647) Keogh plans are most useful for stockholders of major corporations who earn most of their income
from dividends rather than wages or salaries.
126. (p. 647) Employees of small businesses can contribute to a Keogh plan.
127. (p. 644-647) IRAs, 401(k), and Keogh plans all include incentives to encourage saving for retirement.
128. (p. 647) Earnings of Keogh plans are not taxed until the funds are withdrawn from the retirement account.
129. (p. 647) The best financial planners are actually insurance salespeople.
130. (p. 648) If you have minor children, the first step in estate planning is to select their guardian.
131. (p. 648) The person who is named in your will to assemble the assets in your estate, handle taxes, and
distribute the assets is called your proxy.
132. (p. 648) The reason you would prepare a durable power of attorney is to make sure that someone was named
to take over your finances if you become incapacitated.
133. (p. 644) Recent demographic trends suggest that the financial condition of the Social Security program soon
will begin to improve.
134. (p. 644) An individual retirement account (IRA) is a tax-deferred investment plan designed to encourage
135. (p. 644-645) Monica expects to be in a much higher tax bracket when she retires than she is now, so she wants
to invest in a retirement account in which her withdrawals will be tax-free. One way for her to achieve this is
through a traditional IRA.
136. (p. 644) Ricardo desires to reduce his current taxable income and save for retirement. He should consider a
137. (p. 645) IRA funds are not available for withdrawal until you are 59 ½ years old.
138. (p. 646) Roberto has just opened a 401(k) retirement plan. The money he invests in this plan will reduce
Roberto’s present taxable income.
139. (p. 647) Bernie owns a sports trading-card business. He can participate in a Keogh plan to save for his
retirement.
140. (p. 647) Miko is in need of advice regarding investments, taxes, and insurance for herself and her family. She
would be well advised to seek the advice of an insurance salesperson.
141. (p. 645) A person in the 25 percent tax bracket who invests $1,000 in a traditional IRA immediately
postpones $250 in taxes.
142. (p. 648) Harriett has just made out a will. The will names her brother Harold as the executor. This means that
Harold will have the authority to take over Harriett’s finances if she becomes incapacitated.
143. (p. 634) Financial planning begins with:
D. saving money.
144. (p. 634) Throughout history an investment in ________ has yielded an excellent return, regardless of the state
of the economy or political changes.
D. savings accounts
145. (p. 634) On average, a person with a college education earns _________ over the course of his or her career.
A. about $300,000 more than a high school graduate
146. (p. 634) Approximately what percent of the population is successful in saving enough money for retirement to
D. 80 %
147. (p. 634) The only way to accumulate enough money to do all of the things you want to do late in life is to:
D. satisfy the demands of your creditors.
148. (p. 635) Which of the following would be included as an asset in the preparation of a personal balance sheet?
A. credit-card debt
149. (p. 635) In preparing an income statement for yourself, the wages from your job would be shown as:
D. your owner’s equity.
150. (p. 635) When you prepare your personal balance sheet, remember that your ________ is equal to your total
assets minus any liabilities you have.
D. cash equivalent value
151. (p. 635) The first step you would take to get control of your personal finances is to:
A. keep track of all your expenses.
152. (p. 635) Personal financial planners often encourage their clients to write down every single penny they spend
D. accumulate data needed to prepare a personal balance sheet.
153. (p. 636) A _______ is a personal financial plan that allows you to take control of future spending.
A. expense tracker
154. (p. 636) Budgets are:
D. only helpful to people who earn more than $50,000 per year.
155. (p. 636) Preparing and living with a personal budget is:
D. an excellent technique to prepare for a career in accounting.
156. (p. 637) A financial planner would encourage you to borrow money:
D. in order to reduce your debt level.
157. (p. 639) Many financial experts advise that you set up a contingency fund equal to about ________ of your
earnings and keep these funds in highly liquid accounts.
D. three years
158. (p. 636) Once you have set up a budget and handled your ordinary expenses, the first thing to do with any
extra money you have is to:
D. spend it on the things you would like but that aren’t included in your budget.
159. (p. 670) Which of the following accounting statements would assist an individual in taking inventory of
personal assets and liabilities?
D. statement of cash flows
160. (p. 635) Young married couples that find themselves running out of money at the end of the month, might be
well advised to:
D. apply for additional credit cards.
161. (p. 637) The best way to save money is to:
D. pay yourself last.
162. (p. 636) Bob’s credit card charges him 14% interest on his unpaid balance. His bank is offering him 5%
interest on a savings account. The first thing Bob should do with any extra money he may have is to:
A. invest in the stock market.
163. (p. 634) Luke and Beth were recently married soon after graduating from college. Although they incurred a
significant amount of debt to finance their education, both recently got good paying jobs and appear to have
promising careers. Given their situation, down the road Luke and Beth:
D. will probably find that Social Security will provide an adequate retirement, but that they may need to
supplement this with a modest pension if they really want to enjoy the fine life in their golden years.
164. (p. 636) Ima Safer, who recently graduated from college and got a full time job, has prepared her first
personal budget and found a pleasant surprise. After taking into account her expected monthly income and all of
her ordinary expenses, including the monthly payment on her credit card, she should have some money left
over. If Ima is like most young people who are just starting out, the best thing for her to do with the extra
money would be to:
D. put it into a savings account that earns a guaranteed rate of return.
165. (p. 636) Romeo and Juliet are experiencing marriage difficulties regarding money. One technique to help
them control and forecast their future financial situation, as well as allow them to achieve their financial goals,
would be to prepare a(n):
A. income statement.
166. (p. 635) Lucy has prepared her personal balance sheet and found that her total assets are $54,000 and her total
liabilities (largely college loans) are $48,000. This indicates that Lucy’s:
D. balance sheet is out of balance.
167. (p. 634) John is considering starting his degree in business this semester at State University. John will likely
find that:
168. (p. 637) The path to success in a capitalist system is to:
A. spend more on capital goods than you do on consumer goods.
169. (p. 637) In order to accumulate capital, young adults are likely to have to:
D. borrow funds from a bank.
170. (p. 637) The key to generating enough capital for investment for many individuals is to:
D. buy only high quality consumer goods.
171. (p. 638) Investing in a home is generally considered a:
D. good decision, but only if you’ve saved enough to pay in full with cash.
172. (p. 638) Which of the following is a benefit of buying a home rather than renting?
173. (p. 638) 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.
A. semiprivate housing unit
174. (p. 637) The goal of accumulating capital is to allow an individual to:
D. establish a good credit rating.
175. (p. 639) Real estate people agree that the key to getting the optimum return on the purchase of a home is:
D. design features.
176. (p. 640) Over the long-run, investing in __________ has proven to be a good strategy for obtaining a high rate
of return.
A. U.S. government bonds