Question 1

Shuichi graduated from college two years ago.He has already accumulated enough money in his savings account and money market to meet basic contingencies,and now wants to begin investing a portion of each paycheck to earn a high rate of return over the long run.His best choice as a young recent graduate would be to put money into a bank savings account regularly.

Accepted Answer

While a bank savings account is a safe option for basic contingencies, a young recent graduate like Shuichi should consider investment options with higher rates of return for long-term investments. This may include stocks, mutual funds, or real estate, depending on Shuichi's risk tolerance and financial goals.

Question 2

Whole life insurance premiums provide the insured with both pure insurance and a savings plan.

Accepted Answer

Whole life insurance premiums not only provide a death benefit to the beneficiaries upon the insured's death, but also accumulate a cash value over time that the insured can borrow against or withdraw. This savings component makes it different from pure insurance policies like term life insurance.

Question 3

Buying a duplex and living in one side,while renting the other side,generally turns out to be more trouble than it is worth,since you have to satisfy not only your own needs,but also the needs of the renters.

Accepted Answer

The answer of Buying a duplex and living in one...

Question 4

Term life insurance is a combination insurance plan and savings plan.

Accepted Answer

Term life insurance is strictly an insurance plan that pays out a death benefit if the insured passes away during the term of the policy. It does not include a savings component.

Question 5

During the first few years of a home mortgage,almost all the payments go for interest on the loan.This high interest is a reason it is better for young people to rent rather than buy.

Accepted Answer

The federal government allows homeowners to deduct interest on their mortgage from income, thus reducing their income tax liability. Thus, the fact that almost all of the mortgage payment in the first few years goes to interest means that the homeowner can deduct almost the entire cost of the mortgage payment from his or her taxable income.

Question 6

The best strategy to follow in using credit cards is to pay only the minimum amount required each month.

Accepted Answer

The best strategy to follow in using credit cards is to pay off the balance in full each month to avoid accumulating interest charges and potential debt. Paying only the minimum amount required each month can result in a large amount of interest over time and can make it harder to pay off the balance in the long run.

Question 7

House payments tend to rise at a faster rate than do rent payments on a similar sized house.

Accepted Answer

Other than taxes and utilities, house payments on a fixed-interest rate mortgage are relatively fixed. As your income rises, the house payments get easier to make, but renters often find that rents tend to go up as fast as or faster than income.

Question 8

Investors who desire a very stable and predictable income from their investments (such as people who are nearing retirement)would be reluctant to invest heavily in the stock market.

Accepted Answer

This is because the stock market can be volatile and investments can lose value quickly. Investors who need a stable income may choose to invest in other options such as bonds or real estate.

Question 9

During the most recent drop in stock prices,Homer took the opportunity to buy a wide variety of stocks even though many of his friends and relatives were selling.Homer's investment strategy appears to be consistent with contrarian views.

Accepted Answer

Homer's decision to buy when others are selling is consistent with contrarian views, which believe that going against the crowd and buying when others are fearful can lead to potential gains in the long run.

Question 10

One of the keys to financial success is never to apply for a credit card.

Accepted Answer

While it is true that misusing credit cards can lead to financial problems, having and using a credit card responsibly can actually be beneficial for building credit and earning rewards. The key is to only charge what you can afford to pay off in full each month and to choose a card with low interest rates and fees.

Question 11

Most families only need to buy enough life insurance to replace about three years of income.

Accepted Answer

The amount of life insurance needed varies depending on individual circumstances such as debts, dependents, and future financial goals. A general rule of thumb is 10-12 times your annual income as a starting point for coverage.

Question 12

Multiyear level-premium insurance is a form of term insurance with fixed premiums for the life of the policy.

Accepted Answer

Multiyear level-premium insurance is a form of term insurance with fixed premiums for the entire term of the policy, which can range from 5 to 30 years or more.

Question 13

If you are in the 25 percent tax bracket and your home mortgage interest is $1000 per month,then your after-tax mortgage interest cost is $750 per month.

Accepted Answer

25% of $1000 is $250, so subtracting that from $1000 gives an after-tax cost of $750.

Question 14

One danger of a credit card is that consumers often buy items they wouldn't normally buy if they had to pay cash.

Accepted Answer

This is known as the "credit card effect" and studies have shown that people tend to spend more money and make more impulsive purchases when using credit cards compared to cash.

Question 15

Unlike whole life policies,a universal life insurance policy typically invests part of the premium in very aggressive,high-risk assets.

Accepted Answer

Universal life insurance policies offer flexible premiums and death benefits as well as a cash value component, but they typically do not invest in high-risk assets. Instead, policyholders may have the opportunity to choose from a variety of investment options that may include stocks, bonds, or mutual funds with varying levels of risk. It is important to carefully consider one's investment options and risk tolerance before choosing a universal life insurance policy.

Question 16

Term life insurance offers pure insurance with no savings feature.

Accepted Answer

Term life insurance only provides coverage for a specific period of time and does not have any savings or investment component. It is designed to provide a death benefit to beneficiaries if the insured dies during the policy term.

Question 17

When young people decide to buy a house,the best approach is to buy a house in an inexpensive part of town so they can get a larger house for less money.

Accepted Answer

The key to success when investing in housing is location. It is usually better from a financial standpoint to buy a small home in a great part of town rather than a larger home in a not-so-great setting.

Question 18

The younger you are when you buy term life insurance,the lower the premiums tend to be.

Accepted Answer

This is true because younger individuals are typically considered lower risk for insurance companies due to their age and overall health. As a result, they may be able to secure lower premiums for term life insurance policies compared to older individuals.

Question 19

Accumulating money through savings allows you to participate in the growth of a capitalist society.

Accepted Answer

Savings can be invested in various financial instruments such as stocks, bonds, and mutual funds, which in turn contribute to the growth of businesses and industries in a capitalist society. By participating in this growth, individuals can potentially benefit from higher returns on investment and a better quality of life.

Question 20

The tax shelter offered by home ownership increases the overall cost of owning your home.

Accepted Answer

Interest on home loans and real estate taxes paid are both deductible from taxable income on an individual's federal income tax return. This, in effect, lowers the cost of home ownership.

Quiz 23: Bonus C: Managing Your Personal Finances