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1. Which one of the following is an example of "global" consumption smoothing?
2. Inflation has an adverse effect on your savings because:
I. It erodes the purchasing power of the dollars you have saved.
II. It increases the real rate of return on the dollars you save.
III. Unless sheltered, it increases the taxes owed on investment income.
3. If you want to tilt your savings toward later years, you might be well advised to purchase
which of the following types of readily available insurance?
4. Which one of the following represents local consumption smoothing?
I. Saving during your working years for retirement
II. Borrowing money to buy a car
III. Putting off a vacation for a year until you can afford it
5. In a private defined benefit pension plan the ___________ bears the investment risk, and in
a private defined contribution plan the ____________ bears the investment risk.
6. A decrease of 1% in both your tax exemption and your income tax rate would, on net,
_______________.
7. Tax shelters __________________.
8. The tax effect of a traditional retirement plan is to _____ taxes.
9. The U.S. income tax code is generally _____.
10. Contributions to a _____________ are not tax deductible.
11. No taxes are paid on withdrawals made during retirement from a _________.
12. You earn 6% on your corporate bond portfolio this year, and you are in a 25% federal tax
bracket and an 8% state tax bracket. Your after-tax return is _____. (Assume that federal taxes are
not deductible against state taxes and vice versa).
13. You work for Fun-A-Rama Corporation and receive stock options as an incentive for your
performance on the job. You are counting on the stock options to provide the funds you'll need for
your retirement. This is called _____________.
14. You can tax-shelter only one-half of your retirement savings. You want to invest one-half
of your savings in bonds and one-half in stocks. How much of the bonds and how much of the
stocks should you allocate to the tax-sheltered investment?
15. Social Security is ____________.
16. The Social Security system _______________.
17. Total annuity income is positively correlated with:
I. Longevity
II. Durability of marriage
III. Expected length of your base (Social Security) annuity
18. The solvency of Social Security is threatened by ______________.
19. A person in poor health trying to buy supplemental health insurance is an example of
________.
20. A person in excellent health with a long life expectancy chooses a lifetime annuity. This is
an example of _________.
21. It would be costly to provide wage insurance because of the ___________ problem.
22. 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 _____.
23. As you get older, you decide to reduce the risk level of your retirement portfolio because
your portfolio is nearing your minimum acceptable level. As the portfolio does better, you
reallocate funds into higher-risk categories. You are practicing a form of ____________.
24. Tilting your retirement savings plan toward your later years should only be done by
investors _____________.
25. Employers commonly match at least some portion of employee contributions to:
I. 401k plans
II.403b plans
III. Self-directed retirement plans
26. A saver who expects to have a higher tax rate after retirement would prefer a ______.
27. A retirement plan that offers a tax shelter will defer ______________ taxes on contributions
and investment earnings.
28. A study by Spivack and Kotlikoff (1981) showed that a marriage contract increases the
dollar value of lifetime savings by as much as _____.
29. Taxes are applied to the _______________________.
30. One feasible way to hedge labor income is to ____________________.
31. Which one of the following is
not
likely to be subject to adverse selection?
32. Average Indexed Monthly Earnings are used to compute ___________.
33. The Social Security Primary Insurance Amount formula favors ______.
34. Contributions to a traditional retirement plan are __________, and contributions to a Roth
retirement plan are ____________.
35. How many years of Social Security contributions count for determination of benefits?
36. Under current rules most workers will have ________ of their salary deducted to pay for
Social Security retirement benefits and _______ toward Medicare.
37. In 2012, the income cap on Social Security taxes was set at _____ with an exemption of
_____.
38. If your marginal tax rate is 15%, your capital gains tax rate on a stock you have held for 10
years would be ___.
39. A tax shelter that allows for tax-exempt saving for higher education is called a _____.
40. Withdrawals from a traditional retirement plan prior to age ___ are taxable and must pay a
___ tax penalty.
41. In planning for retirement, an investor decides she will save $2,000 every year for 25 years.
At a 7% return on her investment, how much money will she have at the end of 25 years?
42. In planning for retirement, an investor decides she will save $11,000 every year for 40
years. At an 11% return on her investment, how much money will she have at the end of 40 years
(to the nearest hundred thousand dollars)?
