Deck 6: Managing Your Money

Question 1

Describe the relationship between return and liquidity using a one-year CD and a checking account to illustrate.

Answer 1

The highest return is least liquid (the CD).In exchange for liquidity,the return is lower with a checking account.

Question 2

Liquidity refers to your ability to cover any long-term cash deficiencies.

Answer 2

False

Question 3

Liquidity is necessary because there are times during the year when your cash inflows are not adequate to cover your cash outflows.

Answer 3

True

Question 4

In general,the more liquid an investment is,the ________ the return you will receive.

A)lower
B)higher
C)less predictable
D)There is no relationship between liquidity and return.

Question 5

Your ability to cover short-term cash deficiencies is a measure of your ________.

Question 6

Generally,yields are ________ for securities that are exposed to ________ liquidity risk.

A)higher; more
B)higher; less
C)lower; less
D)Both A and C are correct.

Question 7

Generally,yields are ________ for securities that are exposed to ________ liquidity risk.

A)higher; more
B)higher; less
C)lower; less
D)Both A and C are correct.

Question 8

To achieve both liquidity and an adequate return,you should consider investing in

A)only one money market investment with a high return and low liquidity.
B)only one money market investment with low return and high liquidity.
C)multiple money market investments with varied returns and levels of liquidity.
D)multiple money market investments with high returns and high liquidity.

Question 9

Money management has no relationship to the personal cash flow statement.

Question 10

Money management is a series of decisions made over a short-term period regarding cash inflows and outflows.

Question 11

________ management is a series of decisions made over a short-term period regarding cash inflows and outflows.

A)Cash
B)Money
C)Liabilities
D)Asset

Question 12

Maintaining liquid assets that you can easily access when you need funds allows you to avoid using credit and paying finance charges.

Question 13

A disadvantage of using credit as a source of liquidity is the

A)inconvenience of using credit.
B)potential cost of finance charges.
C)acceptability of credit by creditors.
D)poor records available after credit use.

Question 14

Which of the following does money management not involve?

A)A series of decisions
B)A long-term time period
C)Cash inflows
D)Cash outflows

Question 15

Your ability to cover any short-term cash deficiencies is called

A)solvency.
B)wealth.
C)liquidity.
D)cash planning.

Question 16

Overdraft protection for a checking account is a low-cost short-term loan.

Question 17

You should attempt to have a sufficient amount of funds in liquid assets to draw on when your cash outflows exceed your cash inflows.

Question 18

To achieve both liquidity and an adequate return,you should consider investing in only one money market investment with a fixed interest rate and a long maturity date.

Question 19

In general,the more liquid an asset,the higher its return.

Question 20

Good cash management requires some liquidity,but excessive liquidity has an opportunity cost.

Question 21

Treasury bills (T-bills)may be purchased by individuals,but require a minimum investment of $10,000 par value.

Question 22

Money market funds (MMFs)which invest in commercial paper are insured by the FDIC.

Question 23

Because most regular checking accounts do not pay interest,you should keep only enough funds in your account to cover anticipated expenses with a small reserve for unanticipated expenses.

Question 24

An asset management account combines deposit accounts with a brokerage account and provides a single account statement.

Question 25

Certificates of deposit are highly liquid and pay the highest investment returns.

Question 26

Since CDs are insured by the FDIC,the rates are usually the same from one institution to another.

Question 27

To calculate interest earned,multiply the deposit amount times the annual interest rate times the adjustment for the investment period.

Question 28

Stopping payment on a check should be used if you paid to have your bathroom remodeled and the job was not completed.

Question 29

Stopping payment on a check

A)is possible after the check clears in cases of disputes.
B)can only be used if the check has not cleared.
C)is free if your checkbook is lost or stolen.
D)is encouraged by most banks as a customer service.

Question 30

Checking accounts may offer all of the following except

A)account balance insurance in excess of $250,000.
B)stop payment services.
C)overdraft protection.
D)ATM privileges.

Question 31

Which of the following should not be considered when evaluating a checking account?

A)The overdraft protection available
B)The stop payment feature and the cost of it
C)The fees charged monthly
D)The type of account insurance carried by the bank

Question 32

Treasury bills are more liquid than CDs because there is a secondary market for T-bills.

Question 33

Which of the following is not a money market investment?

A)Shares of corporate stock
B)NOW account
C)Savings account
D)Treasury bills

Question 34

If you lose your checkbook,the bank will not charge you for stopping payment on any unused blank checks.

Question 35

CDs that have small denominations (such as $10,000 or less)are sometimes referred to as retail CDs because they are more attractive to individuals than to firms.

Question 36

A money market deposit account (MMDA)requires a minimum balance,pays interest,and allows a limited number of checks to be written each month.

Question 37

A money market account combines deposit accounts with a brokerage account,provides a single consolidated statement,and "sweeps" the unused balance from the checking account to a savings account daily.

Question 38

The $500 minimum balance you are required to keep in your NOW checking account represents an opportunity cost.

Question 39

Treasury securities are T-bills with a maturity of one year or less.

Question 40

An advantage of a NOW account over a traditional checking account is that your money is more readily available to you.

Question 41

Which of the following is not a good,short-term money market investment?

A)NOW account
B)Savings account
C)AT&T common stock
D)Treasury bills

Question 42

Which of the following is a feature of Treasury bills (T-bills)?

A)They have a maturity of more than one year.
B)They are available with a minimum value at maturity of $100.
C)They are purchased at a discount from par value.
D)They must be held to maturity.

Question 43

Which of the following is not true of a NOW account?

A)Offered by depository institutions
B)Pays relatively low interest
C)Only three checks per month can be written
D)Requires a minimum balance

Question 44

Which of the following items will give you the highest return?

A)One year CD
B)Savings account
C)NOW account
D)Checking account

Question 45

Which of the following is not true about a certificate of deposit (CD)?

A)They pay higher interest than T-bills.
B)They are long-term investments of two years or more.
C)Funds are locked in for specific periods of time.
D)A penalty is imposed for early withdrawal.

Question 46

Which of the following is true about a NOW account?

A)Pays no interest
B)Not as liquid as a traditional checking account
C)No minimum balance is required
D)Is not an insured account

Question 47

In comparing an MMDA to a NOW account,the MMDA does all of the following except

A)it pays a higher interest rate.
B)MMDA accounts are less liquid.
C)it provides more limited checking services.
D)MMDA accounts must maintain a larger balance.

Question 48

Which of the following items will give you the greatest liquidity?

A)One year CD
B)Savings account
C)Checking account
D)NOW account

Question 49

Which of the following is not true regarding a savings account?

A)It does not provide checking services
B)It is less liquid than a checking account
C)It pays lower interest than a checking account
D)It is less convenient than a checking account

Question 50

Kelly deposits $1,000 in her savings account earning 4% per year.How much interest would she earn in a year?

A)$4
B)$40
C)$44
D)$400

Question 51

Which of the following is not true regarding a money market deposit account (MMDA)?

A)A minimum balance is required
B)It has a maturity date
C)The account pays interest
D)A limited number of checks may be written monthly

Question 52

You have $3,000 that you may need to use to replace the furnace in your home.If you need the funds,it would be on no less than a week's notice.Into which type of account would it be best for you to deposit the $3,000?

A)Checking account
B)Savings account
C)NOW account
D)All of the above would be equally acceptable.

Question 53

Which of the following accounts would tend to give you the higher interest combined with ease of access to your funds on a limited basis?

A)Checking account
B)MMDA
C)NOW account
D)CD

Question 54

All of the following are true of Treasury securities except they

A)are a means by which the U.S.government lends money.
B)have a maturity range from 3 months to 30 years.
C)have a minimum par value of $100.
D)can be bought and sold on the secondary market.

Question 55

If you buy a $10,000 par value T-bill with a 180-day maturity date for $9,750,what will be your return?

A)2)5%
B)3)06%
C)4)5%
D)5)2%

Question 56

Which of the following is not true about a certificate of deposit (CD)?

A)It pays higher interest than a saving account
B)Are only offered in denominations of $100,000 or more
C)It is not as liquid as a savings account
D)Funds are locked in for specific periods of time

Question 57

When purchasing a certificate of deposit (CD)

A)you are always better off to buy the longer-term CDs.
B)you will earn more interest percentage-wise on the lower dollar CDs.
C)the amount you invest is at risk,so choose carefully.
D)it is wise to shop around as rates vary among financial institutions.

Question 58

You buy a T-bill,which has a par value of $10,000 for $9,600 and the T-bill has a one-year maturity.What will be your return?

A)2)5%
B)4)0%
C)4)8%
D)6)0%

Question 59

All of the following are true of money market deposit accounts (MMDA)except

A)a minimum balance is required.
B)the account pays higher interest.
C)a limited number of checks may be written monthly.
D)they are the same regardless of the depository institution offering them.

Question 60

Which of the following is not an advantage of a checking account?

A)Stop payment services
B)Overdraft protection
C)Interest earned on balances
D)Liquidity

Question 61

An asset management account does all of the following except

A)combines deposit accounts with a brokerage account that is used to buy or sell stocks.
B)provides a single consolidated statement showing the ending balance and activity of all accounts.
C)requires a small initial investment to start.
D)sweeps any unused balance in the checking account into a money market account at the end of the day.

Question 62

Generally,savings account yields are ________ than certificates of deposit that are exposed to ________ liquidity risk.

A)lower; more
B)higher; less
C)higher; more
D)lower; less

Question 63

The secondary market for T-bills means that

A)they cannot be sold before their maturity date with the help of a brokerage firm.
B)an individual may purchase T-bills that were owned by some other investor rather than from the government.
C)T-bills are less liquid than CDs.
D)All of the above.

Question 64

The purchase and sale of Treasury bills before their maturity takes place in the ________ with the assistance of a brokerage firm.

Question 65

Money market funds (MMF)have all of the following characteristics except

A)pooled money provided by individuals to invest.
B)unlimited check writing.
C)short-term maturity.
D)a minimum investment amount.

Question 66

Maurice purchased a $10,000,90-day CD that pays 8 percent.How much will Maurice receive when the CD matures? (Round answer to the nearest dollar.)

A)$10,800
B)$10,197
C)$10,200
D)$10,267

Question 67

Money market funds invest mainly in ________,which are short-term debt securities issued by large corporations.

Question 68

If you are considering a NOW account that requires a $500 minimum balance and pays 2 percent interest,what would be the opportunity cost if you would need to withdraw the required minimum balance from a savings account paying 5 percent interest? Compute the opportunity cost for one year.
(a)$10
(b)$15
(c)$25
(d)$35

Question 69

Money market funds (MMFs)offer all of the following except

A)short-term maturity securities.
B)safe investments with higher rates than T-bills.
C)insured savings.
D)check writing privileges.

Question 70

An asset management account combines

A)assets and expenses.
B)deposit accounts with a brokerage account.
C)a savings account with a brokerage account.
D)a savings account with long-term investments.

Question 71

A(n)________ account acts as a traditional checking account except that it pays interest.

Question 72

If a $10,000 T-bill is purchased for $9,600 and matures in 270 days,what will be the annualized return? (Round to the nearest one hundredth of a percent.)
(a)4 percent
(b)4.17 percent
(c)5.63 percent
(d)2.85 percent

Question 73

Which of the following is not a characteristic of money market funds (MMFs)?

A)Pooled money provided by individuals to invest
B)Short-term maturity
C)High-risk investments
D)A minimum investment amount

Question 74

Some investments are subject to credit risk.This means that the borrowers may not repay on a timely basis.

Question 75

The market where an investor could sell T-bills that he owns is called the

A)primary market.
B)secondary market.
C)stock market.
D)T-bill market.

Question 76

You have a choice between investing $10,000 in a CD that in six months will pay you $10,190 or investing $9,800 in a T-bill that in 182 days will return $10,000.Ignoring any opportunity cost between the two investments,which will give you the higher annualized return and what will the annualized return be?
(a)T-bill; 2 percent
(b)T-bill; 4.01 percent
(c)CD; 3.8 percent
(d)CD; 1.9 percent

Question 77

What would be the annualized return to an investor who purchases a one-year $10,000 T-bill for $9,600 and sells it on the secondary market 90 days after the purchase for $9,750? (Round to the nearest one hundredth of a percent.)
(a)3.5 percent
(b)6.34 percent
(c)10.14 percent
(d)16.22 percent

Question 78

For relatively safe investments such as savings accounts,CDs,MMDAs,and T-bills,liquidity is rarely a concern.

Question 79

Which of the following affords you access to a "sweep account"?

A)Asset management account
B)NOW account
C)MMDA account
D)MMF

Question 80

Debt securities issued by the U.S.Treasury that are due in one year or less are called ________.