The Foundation Of Savings Complete Test Bank Chapter.7

Introduction to Personal Finance, 2e (Grable)

Chapter 7 The Foundation of Savings

1) Which type of risk refers to increasing prices over time?

A) Inflation risk.

B) Business risk.

C) Interest rate risk.

D) Liquidity risk.

Diff: 1

LO: 7.1, Section 7.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

2) 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.

Diff: 1

LO: 7.1, Section 7.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

3) 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.

Diff: 1

LO: 7.1, Section 7.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

4) 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.

Diff: 1

LO: 7.1, Section 7.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

5) Which type of risk is often overlooked when making long-term financial plans?

A) Inflation risk.

B) Business risk.

C) Interest rate risk.

D) Liquidity risk.

Diff: 1

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Increase.

B) Decrease.

C) Increase by 50%.

D) No change.

Diff: 2

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Nominal rate of return.

B) Annual percentage yield.

C) Real rate of return.

D) Liquidity yield.

Diff: 1

LO: 7.1, Section 7.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

8) ________ returns involve ________ risk.

A) Lower; greater

B) Higher; lesser

C) Higher; greater

D) Lower; the same

Diff: 2

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

9) Which type of risk refers to your personal perception of the risk?

A) Business risk.

B) Objective risk.

C) Subjective risk.

D) Liquidity risk.

Diff: 1

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

10) 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.

Diff: 1

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Assets.

B) Monetary goals.

C) Savings.

D) Investments.

Diff: 1

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Investments.

B) Savings.

C) Emergency funds.

D) Monetary assets.

Diff: 1

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Density.

B) Opacity.

C) Longevity.

D) Liquidity.

Diff: 1

LO: 7.1, Section 7.1

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

14) 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) Investment pyramid.

B) Options account.

C) Emergency fund.

D) Investment fund.

Diff: 1

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

15) Which of the following illustrates the trade-off between risk and return?

A) Investment pyramid.

B) Circles of risk.

C) Venn diagram.

D) Investment histogram.

Diff: 2

LO: 7.1, Section 7.1

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

16) Sofia has an opportunity to invest $18,000 she inherited from her great aunt. She wants to know how long it would take to double her money. The average investment return this past decade was 8% APY. Using the Rule of 72, calculate how long it would take the $18,000 to double at a rate of 8% in interest?

A) 6 years.

B) 7 years.

C) 8 years.

D) 9 years.

Diff: 2

LO: 7.1, Section 7.1

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

17) Emil has an investment that earns 14% return on investment. If inflation is 3%, what is Emil's real rate of return?

A) 9.45%.

B) 10.68%.

C) 11.53%.

D) 12.79%.

Diff: 2

LO: 7.1, Section 7.1

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

18) What type of risk results only in an economic loss?

A) Pure risk.

B) Business risk.

C) Interest rate risk.

D) Liquidity risk.

Diff: 1

LO: 7.2, Section 7.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) 10%.

B) 25%.

C) 50%.

D) 75%.

Diff: 1

LO: 7.2, Section 7.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Monthly savings.

B) Monthly living expenses.

C) Monetary assets.

D) Monthly liquid assets.

Diff: 1

LO: 7.2, Section 7.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

21) Monetary assets include which of the following?

A) Cash.

B) Savings.

C) Checking accounts.

D) All of the choices are correct.

Diff: 1

LO: 7.2, Section 7.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

22) 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.

Diff: 2

LO: 7.2, Section 7.2

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 2

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.

Diff: 2

LO: 7.2, Section 7.2

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 2

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

A) 2; 4

B) 3; 6

C) 4; 6

D) 5; 7

Diff: 1

LO: 7.2, Section 7.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

25) 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.

Diff: 1

LO: 7.2, Section 7.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

26) 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.

Diff: 2

LO: 7.2, Section 7.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

27) Which of the following is a common financial emergency?

A) Car repairs.

B) Medical expenses.

C) Home repairs.

D) All of the choices are correct.

Diff: 1

LO: 7.2, Section 7.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) 2 months.

B) 5 months.

C) 9 months.

D) 12 months.

Diff: 1

LO: 7.2, Section 7.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Monetary assets.

B) Borrowing the needed funds.

C) Investment assets.

D) Retirement assets.

Diff: 1

LO: 7.2, Section 7.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

30) Which of the following is not a good option for building an emergency fund?

A) Your everyday credit card.

B) Deposit money each month or pay period into a savings account.

C) Low-cost access to credit in combination with savings.

D) None of the choices are correct.

Diff: 2

LO: 7.2, Section 7.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

31) 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.

Diff: 1

LO: 7.2, Section 7.2

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) 10%.

B) 25%.

C) 35%.

D) 50%.

Diff: 1

LO: 7.2, Section 7.2

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

33) 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 cost.

C) Emergency loss.

D) Investing loss.

Diff: 1

LO: 7.3, Section 7.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

34) 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 the choices are correct.

Diff: 1

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Opportunity cost.

B) Foregone opportunities.

C) Visualization techniques.

D) Generalization techniques.

Diff: 1

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

36) Which of the following is an option for housing your emergency fund?

A) Storage locker.

B) Certificate of deposit.

C) Collectibles.

D) Real estate.

Diff: 1

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

37) Which of the following is an inappropriate option for housing your emergency fund?

A) Somewhere in your house.

B) Dedicated savings account.

C) Money market account.

D) Certificate of deposit.

Diff: 1

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

38) Which of the following refers to a liquid interest-bearing asset that allows a typical college student to earn a small return on the deposit?

A) Mutual fund.

B) Savings account.

C) Retirement account.

D) All the choices are correct.

Diff: 2

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Federal Deposit Insurance Corporation.

B) Homeowner's insurance.

C) Life insurance.

D) All the choices are correct.

Diff: 1

LO: 7.3, Section 7.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Retirement account.

B) Dedicated savings account.

C) Money market savings account.

D) Certificate of deposit.

Diff: 1

LO: 7.3, Section 7.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Retirement account.

B) Dedicated savings account.

C) Money market savings account.

D) Certificate of deposit.

Diff: 1

LO: 7.3, Section 7.3

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

42) 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.

Diff: 1

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Very liquid.

B) Low returns.

C) Very flexible.

D) All of the choices are correct.

Diff: 1

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Lower liquidity than most monetary assets.

B) Lower returns than savings accounts.

C) FDIC or National Credit Union Share Insurance Fund (NCUSIF) insured.

D) All of the choices are correct.

Diff: 2

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Very liquid.

B) Better returns.

C) Very flexible.

D) All of the choices are correct.

Diff: 2

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Very flexible.

B) Low returns.

C) FDIC or NCUSIF insured.

D) All of the choices are correct.

Diff: 2

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

47) Dedicated savings accounts pay interest rates similar to

A) retirement accounts.

B) savings accounts.

C) money market savings accounts.

D) certificates of deposit.

Diff: 1

LO: 7.3, Section 7.3

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

48) Delia received a tax refund of $3,100 this year. She admits that she is not good at saving money. She has asked you to help her find the right savings product to help keep her money safe, to allow her to access any of the money if needed without a penalty, and to earn more than a regular savings account. The best option for Delia would be to put her money in a

A) dedicated savings account.

B) certificate of deposit.

C) money market savings account.

D) mutual fund.

Diff: 2

LO: 7.3, Section 7.3

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

49) Charlamagne has a goal of purchasing a condo within the next 10 years. He currently has $5,000 to put toward the down payment for the condo and does not anticipate using the funds for any other purpose. He would like to make a one-time deposit that can increase in value over the next 10 years. If Charlamagne already has his emergency fund in place, the best option for the $5,000 to grow and help him meet his goal would be to acquire a

A) savings account.

B) checking account.

C) certificate of deposit.

D) money market account.

Diff: 2

LO: 7.3, Section 7.3

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

50) 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.

Diff: 1

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

51) 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.

Diff: 1

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

52) Which of the following is a significant advantage of a Roth IRA over the traditional IRA?

A) Investments held in the account accumulate earnings on a tax-deferred basis.

B) Distributions from the account are tax-free if certain conditions are met.

C) Contributions are tax-deductible.

D) All the answer choices are correct.

Diff: 2

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

53) 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.

B) Pre-tax basis.

C) Tax-exempt.

D) After-tax basis.

Diff: 1

LO: 7.4, Section 7.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Withdrawal of principal occurring any time after the account is initially funded.

B) Qualifying withdrawal of earnings.

C) Nonqualifying withdrawal of earnings.

D) All of the choices are correct.

Diff: 1

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Any time.

B) After 50 years of age.

C) After 59 ½ years of age.

D) After 62 years of age.

Diff: 1

LO: 7.4, Section 7.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

56) Which of the following is (are) a requirement(s) for a qualified distribution from a Roth IRA?

A) You must be at least 59½ years old or disabled.

B) A Roth IRA account has been open for at least 5 years.

C) Both; you are at least 59½ years old or disabled, and a Roth IRA account has been open for at least 5 years.

D) You must be at least 59½ years of age, disabled, or a Roth IRA account has been open for at least 5 years, whichever comes first.

Diff: 2

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

57) Which of the following refers to a traditional IRA?

A) Future withdrawals are fully taxable.

B) Subject to early withdrawal penalties.

C) Should not be used as an emergency fund.

D) All of the choices are correct.

Diff: 2

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

58) 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 the choices are correct.

Diff: 1

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

59) 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 the choices are correct.

Diff: 1

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

60) 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.

Diff: 1

LO: 7.4, Section 7.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

61) In 2022, your adjusted gross income must be less than what amount to contribute to a Roth IRA if you are single?

A) $72,000.

B) $100,000.

C) $144,000.

D) $180,000.

Diff: 1

LO: 7.4, Section 7.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

62) Which of the following refers to the maximum amount in 2022 that you can contribute annually to a Roth IRA?

A) $3,000.

B) $6,000.

C) $8,000.

D) $10,000.

Diff: 1

LO: 7.4, Section 7.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

63) Which of the following refers to the combined maximum amount in 2022 that you can contribute to a Roth IRA and a traditional IRA?

A) $3,000.

B) $6,000.

C) $12,000.

D) $16,000.

Diff: 2

LO: 7.4, Section 7.4

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

64) 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.

Diff: 1

LO: 7.4, Section 7.4

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

65) Fatima made an early withdrawal from her Roth IRA ($5,000 in principal and $800 in earnings). What would be the penalty she would pay on this early withdrawal?

A) $80.

B) $420.

C) $500.

D) $580.

Diff: 2

LO: 7.4, Section 7.4

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

66) Tamika made an early withdrawal of $6,900 from her Roth IRA established 3 years ago ($6,000 in principal and $900 in earnings). How much federal income tax would she owe on the early withdrawal if her marginal tax rate is 22%?

A) $198.

B) $288.

C) $1,518.

D) $2,208.

Diff: 2

LO: 7.4, Section 7.4

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

67) What is the minimum amount required to purchase a U.S. savings bond?

A) $25.

B) $50.

C) $75.

D) $100.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

68) Which of the following refers to compounding interest?

A) Interest is paid out more than once a year.

B) Interest is earned on principal.

C) Interest earned begins to earn additional interest.

D) Interest is paid out at maturity.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

69) 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.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

70) The interest paid on U.S. savings bonds is generally ________ the saving account rates paid by banks and credit unions.

A) lower than

B) higher than

C) twice as much as

D) the same as

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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 the choices are correct.

Diff: 1

LO: 7.5, Section 7.5

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

72) 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.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

73) 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 the choices are correct.

Diff: 1

LO: 7.5, Section 7.5

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

74) 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.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

75) 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.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Variable.

B) Fixed.

C) Based on inflation.

D) Based on your state.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Based on inflation rate.

B) Fixed.

C) Based on your state.

D) Based on IRS tax rate.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Consumer Services Index.

B) Consumer Price Index.

C) Consumer Goods Index.

D) Consumer Sentiment Index.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

79) Which of the following is not 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) Directly through a FDIC member bank.

D) All of the choices are correct.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

80) 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.

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) 2010

B) 2012

C) 2015

D) 2017

Diff: 1

LO: 7.5, Section 7.5

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

82) Geoffrey is looking for a safe investment for $3,000 he received as a bonus. He is looking for an investment that will also help him deal with the effects of inflation. Which of the following options would you recommend that Geoffrey invest in?

A) Series EE bonds.

B) Series I bonds.

C) Junk bonds.

D) Commercial paper.

Diff: 2

LO: 7.5, Section 7.5

Bloom: Ap

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

83) Juan Carlos cashed in a savings bond that had earned $400 in interest. His federal tax bracket is 12%, and his state charges 6% on investment income. How much tax will Juan Carlos pay on the interest from the bond?

A) $48.

B) $72.

C) $24.

D) $0.

Diff: 2

LO: 7.5, Section 7.5

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

84) Xavier owned a Series EE savings bond for 4 years and has decided to cash it tomorrow. The current value of the bond is $3,500, and the annual interest rate is 2.2%. How much interest will Xavier lose as a penalty for cashing in the bond?

A) $16.40.

B) $19.25.

C) $21.30.

D) $23.75.

Diff: 2

LO: 7.5, Section 7.5

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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

A) Investments only.

B) Bank accounts only.

C) Any type of property, except real estate.

D) Any type of property including real estate.

Diff: 1

LO: 7.6, Section 7.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

86) 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 the choices are correct.

Diff: 1

LO: 7.6, Section 7.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

87) 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.

Diff: 1

LO: 7.6, Section 7.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

88) 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.

Diff: 1

LO: 7.6, Section 7.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

89) When are earnings from custodial traditional 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.

Diff: 1

LO: 7.6, Section 7.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

90) Which of the following allows only a small amount of unearned income to be taxed at a child's marginal tax bracket?

A) Kiddie tax.

B) UGMA.

C) UTMA.

D) Custodial IRA.

Diff: 1

LO: 7.6, Section 7.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

91) Which of the following refers to a specific type of account set up by states that allows individuals to set money aside for a designated beneficiary's higher education expenses?

A) Kiddie savings plans.

B) College savings plans.

C) UTMA and UGMA.

D) Custodial IRA.

Diff: 1

LO: 7.6, Section 7.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

92) Which of the following is an example of a college savings plan?

A) 401 plan.

B) 529 plan.

C) 403 plan.

D) 457 plan.

Diff: 1

LO: 7.6, Section 7.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

93) Which of the following is true regarding minors?

A) Minors cannot, under law, own property and assets.

B) Minors are allowed, under law, to own property and assets, but they must be supervised.

C) Minors cannot own an IRA.

D) Minors cannot own land.

Diff: 2

LO: 7.6, Section 7.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

94) Why are financial institutions reluctant to open accounts for those who are considered minors?

A) A minor is generally subject to binding clauses in contracts.

B) A minor cannot change his or her mind on a transaction or trade after the deal is done.

C) A minor is generally exempt from binding clauses in contracts because the minor can change his or her mind on a transaction or trade after the deal is done.

D) A minor doesn't have an earned income.

Diff: 2

LO: 7.6, Section 7.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

95) How can minors own titled assets?

A) Indirectly through a custodial account.

B) In their own name.

C) Directly through a custodial account.

D) Minors can't own titled assets.

Diff: 1

LO: 7.6, Section 7.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

96) Which of the following means that a person is no longer considered a minor?

A) Emancipated.

B) Liberated.

C) Tax-Exempt.

D) Independently wealthy.

Diff: 1

LO: 7.6, Section 7.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

97) How much is the tax penalty for early withdrawals from a Custodial IRA?

A) 10%.

B) 20%.

C) 5%.

D) 15%.

Diff: 1

LO: 7.6, Section 7.6

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

98) Which of the following is an example of unearned income?

A) Interest and dividends.

B) Capital gains.

C) Rents.

D) All of the choices are correct.

Diff: 2

LO: 7.6, Section 7.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

99) Which of the following is provided by a college savings plan?

A) Tax-deferred growth on earnings.

B) Tax-free distributions if the money is used for qualified educational expenses such as tuition, fees, books, equipment, housing, meal plans, and other necessary expenses.

C) Custodian in control of the money so that funds can only be used for college expenses.

D) All of the choices are correct.

Diff: 2

LO: 7.6, Section 7.6

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

100) Lashaun took an early withdrawal of $6,200 ($5,500 in contributions) from a college savings plan and did not use the money for qualified educational expenses. What amount of penalty will she pay on the early withdrawal?

A) $0.

B) $70.

C) $550.

D) $620.

Diff: 2

LO: 7.6, Section 7.6

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

101) Which of the following occurs when someone attempts to deceive you with a promise of goods, services, money, or other benefits that do not really exist, were never intended to be provided, or were misrepresented?

A) Fraud.

B) Threat.

C) Default.

D) Misdemeanor.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

102) Which of the following fraudulently promises investors and savers a low-risk, high rate of return, interest, and/or dividends?

A) Ponzi scheme.

B) Pyramid scheme.

C) Telemarketing fraud.

D) Identity theft.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

103) Which of the following is a scam that is typically based on selling products and/or recruiting new members into an organization?

A) Ponzi scheme.

B) Pyramid scheme.

C) Telemarketing fraud.

D) Identity theft.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

104) Which of the following occurs when a product or service is misrepresented in an unsolicited phone call, e-mail, or text message?

A) Ponzi scheme.

B) Pyramid scheme.

C) Telemarketing fraud.

D) Identity theft.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

105) Which of the following is a crime in which someone wrongfully obtains and uses your personal data in some way that involves fraud or deception for his or her economic gain?

A) Ponzi scheme.

B) Pyramid scheme.

C) Telemarketing fraud.

D) Identity theft.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

106) The most common forms of identity theft include which of the following?

A) Social identity theft.

B) Child identity theft.

C) Tax identity theft.

D) All of the choices are correct.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

107) How many people over the age of 16 have been a victim of identity theft during the last 12 months?

A) Nearly 10 million.

B) About 15 million.

C) About 35 million.

D) About 50 million.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

108) How much is the total loss associated with identity theft per year?

A) Nearly $2 billion.

B) About $5 billion.

C) About $10 billion.

D) More than $15 billion.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

109) Which of the following refers to an unsolicited e-mail asking you to provide personal information or confirm the details of a credit account?

A) Ponzi scheme.

B) Pyramid scheme.

C) Dumpster scheme.

D) Phishing scheme.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

110) Which of the following should you do if you have been a victim of identity theft?

A) Contact your local police or sheriff department.

B) Alert your credit card company or financial institution.

C) Check with your insurance agent. Some homeowner and renter insurance policies include coverage for a stolen identity and/or financial frauds.

D) All of the choices are correct.

Diff: 1

LO: 7.7, Section 7.7

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

111) Which of the following is an example of how identity theft might happen?

A) Stealing your wallet or purse.

B) Going through your garbage looking for receipts and credit card offers.

C) Hacking into your credit card or bank account.

D) All of the choices are correct.

Diff: 2

LO: 7.7, Section 7.7

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

112) Which of the following seals your credit reports so that no new accounts can be opened?

A) Credit freeze.

B) Credit check.

C) Credit monitoring.

D) Credit score.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

113) The misuse or attempted misuse of _________ was the primary crime against 85% of identity-theft victims.

A) credit cards and bank accounts.

B) credit reports.

C) U.S. mail.

D) Social Security numbers and tax IDs.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

114) Who is more likely to be exploited financially?

A) Children.

B) Older adults.

C) Younger adults.

D) Married adults.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

115) Bernie Madoff committed what type of financial fraud?

A) Ponzi scheme.

B) Pyramid scheme.

C) Telemarketing fraud.

D) Phishing scheme.

Diff: 1

LO: 7.7, Section 7.7

Bloom: K

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

116) If the population of North America is 365,800,000 people, how many cycles would it take for a pyramid scheme to fail, if the fraud started with 8 people and each new person adds 8 more recruits?

A) 5.

B) 7.

C) 9.

D) 11.

Diff: 2

LO: 7.7, Section 7.7

Bloom: A

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

117) To protect yourself from financial fraud you should never

A) invest in something that you do not understand.

B) buy something from an unfamiliar business or individual online.

C) pay a processing fee to receive a prize.

D) All of the choices are correct.

Diff: 1

LO: 7.7, Section 7.7

Bloom: C

AACSB / IMA: none; none

AICPA: FC: none

Min: 1

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