QUESTION 1 Keeping track of your personal net worth is an important part of your

Question

QUESTION 1

Keeping track of your personal net worth is an important part of your master financial plan. The Smith Family has the itemized their financial accounts as follows:

Auto-Loan Balance

$12,000

Checking Account Balance

$250

Credit Card Balances

$15,000

Home improvement loan owed

$25,000

House (Equity)

$21,890

IRA, 401(k) Balances

$16,974

Mortgage Owed

$71,810

Personal Possessions

$25,000

Savings Account Balance

$900

Two Cars

$28,500

What is their Net Worth?

($30,296)

($123,810)

$93,514

$217,324

0.5 points   

QUESTION 2

The Jones Family has a net worth of $1,000. Their monthly mortgage payment is $840. Utilities are another $280. They have $25,000 in credit card debt and $3,000 in their savings account as an emergency fund. They have $29,000 equity in their home. They have not been contributing to 401(k) plans at work. What is their #1 financial priority?

Contribute the maximum to their 401(k)

Obtain a second mortgage line of credit

Pay off credit card debt

Purchase mortgage insurance

0.5 points   

QUESTION 3

Selecting, buying, and selling stocks, bonds, and other financial instruments are important to personal financial planning. The Wilson Family has been investing $2,000 annually in an IRA for the past 6 years, which is invested in a portfolio of mutual fund. The average return on stocks since 1926 has been about 10%. How much will the IRA be worth in 7.2 years?

$16,974

$33,949

$53,439

None of the above

0.5 points   

QUESTION 4

Assume that the overall stock market decreases by 13% and that EFG stock has a beta of 1.8. How much do you expect EFG’s stock price to change?

13%

23%

-13%

-23%

0.5 points   

QUESTION 5

The primary value of an annuity is to ensure your retirement income. Therefore, you should purchase annuities before investing in IRA, 401(k), or Keogh.

True

False

0.5 points   

QUESTION 6

You realize that, even though you have been contributing the maximum to your 401(k), you will not have enough money to ensure you have a comfortable retirement. What can you do?

Choose a higher risk investment portfolio.

Contribute to a Roth IRA in addition to your 401(k).

Purchase an annuity.

All of the above may be worthwhile.

0.5 points   

QUESTION 7

The Dow Jones Industrial Average has shown steady growth for nearly a century. A special type of stock traded under the symbol DIA is available that tracks the performance of the DJIA. An snapshot of its performance is shown in the following figure:

DIA has a low expense ratio.

DIA is very risky because its beta is greater than 1.0.

DIA has had a year-to-date return on investment of 1.95%.

DIA is not diversified.

0.5 points   

QUESTION 8

With investments earning 9%, and inflation at 2%, a reasonable approximation of an opportunity cost of carrying credit card debt at 18% APR is:

18%

29% (18 + 9 + 2)

7% (18 - 9 - 2)

The future value of the investment you could have made instead.

0.5 points   

QUESTION 9

As an investor, you decide your goal is a balanced portfolio. Which of the following asset allocation strategies is the best fit with your goal?

20% stocks, 80% bonds

40% stocks, 60% bonds

70% stocks, 30% bonds

All of the above.

0.5 points   

QUESTION 10

Assuming you earn $35,000 salary. The Easy Method of estimating your life insurance shown in the textbook indicates you should have life insurance worth:

$122,500

$171,500

$175,000

$245,000

Auto-Loan Balance

$12,000

Checking Account Balance

$250

Credit Card Balances

$15,000

Home improvement loan owed

$25,000

House (Equity)

$21,890

IRA, 401(k) Balances

$16,974

Mortgage Owed

$71,810

Personal Possessions

$25,000

Savings Account Balance

$900

Two Cars

$28,500

Explanation / Answer

1. Calculation of Net worth is as below .

Net worth = Assets Owned - Liabilities owed

The right option is (1) , ($30296).

Assets : Checking Account Balance 250 House (Equity) 21890 IRA, 401(k) Balances 16974 Personal Possessions 25000 Savings Account Balance 900 Two Cars 28500 Total 93514 Liabilities Auto-Loan Balance 12000 Credit Card Balances 15000 Home improvement loan owed 25000 Mortgage Owed 71810 Total 123810 Assets - Liabilities (30296)

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