Deck 7: The Foundation of Savings

Question 1

Monetary assets include which of the following?

A) Cash.
B) Savings.
C) Checking accounts.
D) All of these answer choices are correct.

Answer 1

All of these answer choices are correct.

Question 2

Which of the following refers to your inflation-adjusted return?

A) Nominal return.
B) Interest rate.
C) Real rate of return.
D) Liquidity risk.

Answer 2

Real rate of return.

Question 3

What type of risk results only in an economic loss?

A) Pure risk.
B) Business risk.
C) Interest rate risk.
D) Liquidity risk.

Answer 3

Pure risk.

Question 4

What happens to the value of most investments when interest rates increase?

A) Increase.
B) Decrease.
C) Increase by 50%.
D) No change.

Question 5

Which of the following refers to your perception of the riskiness associated with a behavior or decision?

A) Business risk.
B) Objective risk.
C) Subjective risk.
D) Liquidity risk.

Question 6

Which of the following refers to assets that you purchase to reach long-term goals?

A) Investments.
B) Savings.
C) Emergency fund.
D) Liquidity.

Question 7

Which type of risk refers to when prices increase?

A) Inflation risk.
B) Business risk.
C) Interest rate risk.
D) Liquidity risk.

Question 8

Which of the following refers to the money you put aside for short-term goals?

A) Business risk.
B) Goal setting.
C) Savings.
D) Investments.

Question 9

Which type of risk refers to when you cannot sell something you own because of a weak market?

A) Inflation risk.
B) Business risk.
C) Interest rate risk.
D) Liquidity risk.

Question 10

Which type of risk refers to the possibility that a company in which you invest will be forced to close?

A) Inflation risk.
B) Business risk.
C) Interest rate risk.
D) Liquidity risk.

Question 11

Which of the following refers to your minimum monthly dollar amount needed to replace in case of an emergency?

A) Emergency fund ratio.
B) Monthly living expenses.
C) Monetary assets.
D) Pure risk.

Question 12

Which type of risk refers to the chance that general interest rates will increase?

A) Inflation risk.
B) Business risk.
C) Interest rate risk.
D) Liquidity risk.

Question 13

Which of the following refers to the ranking of risk per actual statistics?

A) Business risk.
B) Objective risk.
C) Subjective risk.
D) Liquidity risk.

Question 14

Which of the following illustrates making a trade-off between risk and return?

A) Investment pyramid.
B) Business risk.
C) Emergency fund.
D) Liquidity risk.

Question 15

Which type of risk is often overlooked when making financial plans?

A) Inflation risk.
B) Business risk.
C) Interest rate risk.
D) Liquidity risk.

Question 16

Max has monetary assets that total $1,500 and monthly living expenses that total $2,000. What is his emergency fund ratio?

A) 0.75.
B) 1.25.
C) 1.33.
D) 1.45.

Question 17

Which of the following needs to be very liquid, that is, immediately accessible for use in case of an unexpected expense or lost income?

A) Investments.
B) Options.
C) Emergency fund.
D) Returns.

Question 18

________ returns mean ________ risk.

A) Lower; lesser
B) Higher; lesser
C) Higher; greater
D) Lower; greater

Question 19

Approximately what percent of individuals have sufficient funds to handle a pure risk?

A) 10%.
B) 15%.
C) 25%.
D) 35%.

Question 20

Which of the following refers to how quickly you can convert an asset into cash?

A) Investments.
B) Savings.
C) Emergency fund.
D) Liquidity.

Question 21

Which of the following is an appropriate use of an emergency fund?

A) Paying for your yearly vacation.
B) Buying a new pair of shoes.
C) Addressing unexpected gaps in your budget.
D) Buying holiday gifts.

Question 22

The results of the emergency fund formula should vary between ________ and ________ months.

A) 2; 4
B) 3; 6
C) 4; 6
D) 5; 7

Question 23

Mia has monetary assets that total $2,500 and annual living expenses that total $12,000. What is her emergency fund ratio?

A) 0.21.
B) 0.40.
C) 1.50.
D) 2.50.

Question 24

Which of the following is used to calculate your emergency fund ratio?

A) Monthly living expenses divided by monetary assets.
B) Monetary assets divided by monthly living expenses.
C) Annual living expenses divided by monetary assets.
D) Monetary assets divided by annual living expenses.

Question 25

Which of the following protects savings accounts against theft and loss?

A) Federal Deposit Insurance Corporation (FDIC).
B) Homeowner's insurance.
C) Health insurance.
D) Life insurance.

Question 26

Which of the following is an option for housing your emergency fund and other short-term savings?

A) Somewhere in your house.
B) Savings account.
C) Collectibles.
D) Real estate.

Question 27

How much more should you expect to pay for last-minute airline tickets for emergency travel?

A) 10%.
B) 25%.
C) 35%.
D) 50%.

Question 28

Which of the following refers to a savings product that is generally purchased with one lump-sum dollar amount?

A) Retirement account.
B) Savings account.
C) Money market savings account.
D) Certificate of deposit.

Question 29

Which of the following refers to the loss of a benefit that you would have received by choosing another option?

A) Opportunity cost.
B) Savings.
C) Emergency fund.
D) Investing.

Question 30

Which of the following could help you imagine what the future would look like in real terms?

A) Opportunity cost.
B) Savings.
C) Visualization techniques.
D) Investing.

Question 31

Which of the following combines the benefits offered by savings and checking accounts?

A) Retirement account.
B) Savings account.
C) Money market savings account.
D) Certificate of deposit.

Question 32

Which of the following is an option for building an emergency fund?

A) Borrowing on your credit card.
B) Using a line of credit to pay your expenses.
C) Depositing money each month or pay period into a savings account and maintaining a combination of savings and low-cost access to credit.
D) None of these answer choices are correct.

Question 33

Individuals who have a very low risk tolerance would want to have how many months of emergency savings in place?

A) 2 months.
B) 4 months.
C) 6 months.
D) Emergency saving is not needed.

Question 34

Which of the following is a common financial emergency?

A) Major car repairs.
B) Major medical expenses.
C) Major home repairs.
D) All of these answer choices are correct.

Question 35

What is the median length of time it takes a working adult who becomes unemployed to find another job?

A) 1 month.
B) 3 months.
C) 5 months.
D) 7 months.

Question 36

Which of the following refers to an interest-bearing asset that allows you to earn a small return on your deposit?

A) Mutual fund.
B) Savings account.
C) Retirement account.
D) Emergency fund.

Question 37

The best form of emergency savings is which of the following?

A) Highly liquid cash assets.
B) Borrowing the needed funds.
C) Charging the needed funds to a credit card.
D) Taking money from your retirement account.

Question 38

Which of the following is not insured by the FDIC?

A) Retirement account.
B) Savings account.
C) Money market savings account.
D) Certificate of deposit.

Question 39

Which of the following is an inappropriate option for housing your emergency fund and other short-term savings?

A) Somewhere in your house.
B) Savings account.
C) Money market account.
D) Certificate of deposit.

Question 40

Which of the following could you do to visualize building an emergency fund?

A) Identify some emergencies that may occur.
B) Consider how these emergencies would affect you financially.
C) Think about how these emergencies would financially affect those you love.
D) All of these answer choices are correct.

Question 41

Which of the following is an attribute of a money market account?

A) Low liquidity.
B) Low returns.
C) Very flexible.
D) FDIC or National Credit Union Share Insurance Fund (NCUSIF) insured.

Question 42

Which of the following refers to the combined maximum amount in 2018 that you can contribute to a Roth IRA and a traditional IRA?

A) $2,500.
B) $5,500.
C) $7,500.
D) $10,000.

Question 43

Which of the following is a significant advantage of a Roth IRA?

A) Investments held in the account accumulate earnings on a tax-deferred basis.
B) Money pulled from the account is tax-free if certain conditions are met.
C) Investments held in the account accumulate earnings on a tax-deferred basis and money pulled from the account is tax-free if certain conditions are met.
D) None of these answer choices are correct.

Question 44

Dedicated savings accounts pay interest rates similar to

A) retirement accounts.
B) savings accounts.
C) money market savings accounts.
D) certificates of deposit.

Question 45

Which of the following refers to the maximum amount in 2018 that you can contribute annually to a Roth IRA?

A) $2,500.
B) $5,500.
C) $7,500.
D) $10,000.

Question 46

Which of the following refers to a type of withdrawal available for a Roth IRA?

A) A withdrawal of principal occurring any time after the account was initially funded.
B) A qualifying withdrawal of principal and earnings.
C) A nonqualifying withdrawal of principal and earnings.
D) All of these answer choices are correct.

Question 47

How much earned income do you need to meet the requirement for a Roth IRA?

A) Earned income is not needed.
B) Earned income that is equal to or greater than the amount you contribute to the Roth IRA.
C) $500 in earned income.
D) $10,000 in earned income.

Question 48

Which of the following is an attribute of a certificate of deposit?

A) Very liquid.
B) Better returns.
C) Very flexible.
D) Low returns.

Question 49

Which of the following refers to no tax assessed on the earnings in the account in the year that the earnings are received?

A) Tax-deferred earnings.
B) Pretax basis.
C) Traditional IRA withdrawal.
D) After-tax basis.

Question 50

Which of the following is a basic requirement that must be met in order to contribute to a Roth IRA?

A) You must have earned income.
B) You may only contribute up to a specified annual limit.
C) Your adjusted gross income must be less than a specified amount.
D) All of these answer choices are correct.

Question 51

Which of the following refers to the early withdrawal penalty on a Roth IRA?

A) 5%.
B) 10%.
C) 15%.
D) There is no early withdrawal penalty.

Question 52

Which of the following is an attribute of a dedicated savings account?

A) Very liquid.
B) Low returns.
C) Very flexible.
D) FDIC or NCUSIF insured.

Question 53

Which of the following refers to a traditional individual retirement account (IRA)?

A) Receive an income tax deduction.
B) Pay less tax today.
C) Pay taxes on money taken out of the account in the future.
D) All of these answer choices are correct.

Question 54

In 2018, your adjusted gross income must be less than what amount to contribute to a Roth IRA if you are single?

A) $75,000.
B) $98,000.
C) $110,000.
D) $120,000.

Question 55

Which of the following refers to a Roth IRA?

A) Receive an income tax deduction.
B) Pay less tax today.
C) Pay taxes on money taken out of the account in the future.
D) No income tax deduction.

Question 56

With a Roth IRA, when can you withdraw your principal without having to pay taxes on the withdrawal?

A) Any time.
B) After 1 year.
C) After 5 years.
D) After 10 years.

Question 57

Which of the following is an example of a qualified distribution from a Roth IRA?

A) At 59½ years of age or older, only.
B) The Roth IRA account has been open for at least 5 years, only.
C) Both at 59½ years of age or older and the Roth IRA account has been open for at least 5 years.
D) At 45 years of age.

Question 58

Which of the following can you use to fund a Roth IRA?

A) Writing a check and mailing it to the financial institution.
B) Initiating an electronic payment to the investment company from your financial institution (i.e., bill pay, wire transfer, etc.).
C) Authorizing the investment company to pull the money out of your bank account.
D) All of these answer choices are correct.

Question 59

Which of the following refers to a traditional IRA?

A) All future withdrawals are fully taxable.
B) Subject to early withdrawal penalties.
C) Should not be used as an emergency fund.
D) All of these answer choices are correct.

Question 60

Which of the following is an attribute of a savings account?

A) Very liquid.
B) Low returns.
C) Very flexible.
D) All of these answer choices are correct.

Question 61

Which of the following refers to the interest rate on I bonds?

A) Variable.
B) Fixed.
C) 5%.
D) 3%.

Question 62

Which of the following refers to compounding interest?

A) Interest that is paid out monthly.
B) Interest that is paid out annually.
C) Interest earned begins to earn additional interest.
D) Interest that is paid out quarterly.

Question 63

What is the minimum amount to purchase I bonds using your federal income tax refund?

A) $25.
B) $50.
C) $75.
D) There is no minimum amount.

Question 64

Which of the following refers to the change in the level of consumer goods and service prices over time?

A) Inflation.
B) Consumer Price Index.
C) Price of goods sold.
D) Rate of return.

Question 65

What are the tax implications of interest earned on U.S. savings bonds?

A) Taxable at both the federal and the state level.
B) Tax-free at both the federal and the state level.
C) Taxable at the state but not the federal level.
D) Taxable at the federal but not the state level.

Question 66

After purchasing a savings bond, how long is it before you can cash in the bond?

A) 1 year.
B) 6 months.
C) 2 years.
D) 5 years.

Question 67

Which of the following is a type of U.S. savings bond?

A) Certificate of deposit.
B) Series EE, only.
C) Series I, only.
D) Both Series EE and Series I.

Question 68

Which of the following refers to a way to purchase U.S. savings bonds?

A) Directly from the U.S. Treasury Department.
B) Directly with your federal income tax return.
C) Through payroll deductions.
D) All of these answer choices are correct.

Question 69

Which of the following is an advantage of U.S. savings bonds?

A) Tax advantaged.
B) Easy to buy.
C) Easy to redeem.
D) All of these answer choices are correct.

Question 70

What is the least amount required to purchase a U.S. savings bond?

A) $25.
B) $50.
C) $75.
D) $100.

Question 71

Which of the following is an advantage of U.S. savings bonds?

A) Very safe.
B) Easy to buy.
C) Easy to redeem.
D) All of these answer choices are correct.

Question 72

When are earnings from UGMA and UTMA accounts taxed?

A) Upon withdrawal.
B) In the year they are earned.
C) Earnings are not taxed.
D) When the child is no longer a minor.

Question 73

Which of the following can be held in a Uniform Transfers to Minors Act (UTMA) account?

A) Bank accounts.
B) Investments.
C) Insurance policies.
D) Any type of property including real estate.

Question 74

Which of the following can be held in a Uniform Gifts to Minors Act (UGMA) account?

A) Bank accounts.
B) Investments.
C) Insurance policies.
D) All of these answer choices are correct.

Question 75

Before ________ you could purchase a U.S. savings bond from participating banks or credit unions.

A) 2010
B) 2012
C) 2015
D) 2017

Question 76

The interest paid on U.S. savings bonds is usually ________ compared with savings rates paid by banks and credit unions.

A) lower
B) higher
C) twice as much
D) the same

Question 77

When are earnings from custodial IRA accounts taxed?

A) Upon withdrawal.
B) In the year they are earned.
C) Earnings are not taxed.
D) When the child is no longer a minor.

Question 78

Which of the following refers to the interest rate on EE bonds?

A) Variable.
B) Fixed.
C) Based on inflation.
D) 3%.

Question 79

How long can a U.S. savings bond continue to earn interest from the issue date?

A) 10 years.
B) 20 years.
C) 30 years.
D) 40 years.

Question 80

What is the minimum age at which a custodial account can be converted to an individual account?

A) 18.
B) 19.
C) 21.
D) Varies based on state laws.