Personal Finance Ch 7

Sharon, age 34, is thinking about investing for retirement. She plans to retire when she turns age 65. At that time, she will need $2.60 million in assets. She has calculated that inflation will average 2.55% over her lifetime. If she can earn an average annual 7.35% rate of return, what will be her real rate of return?

• 4.68%

• 2.75%

• 4.80%

• 5.35%

When interest rates increase, which of the following outcomes is most likely?

• When interest rates increase, which of the following outcomes is most likely

• When interest rates increase, which of the following outcomes is most likely

• When interest rates increase, which of the following outcomes is most likely

• The rate of return on a bank or credit union savings account will increase, and holding cash in an emergency fund is more attractive.

Which of the following statements is true when you invest in a federally insured bank account?

• Although there is federal insurance, you are faced with liquidity risk.

• Given the federal insurance, you are taking no risk.

• Given the federal insurance, you are taking significant business risk.

• Even though there is federal insurance in place, you still face inflation risk.

Which of the following should Taylor have to invest at Level 3 of her investment pyramid?

• High risk tolerance

• A strong preference for government-insured products.

• limited emergency fund savings

• short to intermediate long term tie horizon

Which of the following has the highest level of liquidity?

• Savings

• Commodities

• Stocks

• Certificates

Joe has cash in a savings account totaling $7,500, and his monthly expenses are $2,500. What is his emergency fund ratio?

• 5

• 2

• 3

• 0.25

Your neighbor has monthly expenses totaling $3140. His employer has indicated that the firm is expecting to announce layoffs soon. How much should your neighbor have in an emergency fund if he wants to cover 6 months of living expenses?

• $9420

• $1884

• $2000

• $3140

With a very stable profession, if your monthly expenses totaled $3000, approximately how much should you have in an emergency fund?

• $3000

• $3160

• $9000

• $6000

Which of the following sources of emergency funds will have the least negative impact on your lifetime financial situation if the source is used to meet emergency expenses?

• Borrowing money using a credit card.

• Taking money from your savings account.

• Being unprepared for major car repairs, major medical expenses, and major home repairs.

• Selling investment assets

Borrowing money in the event of job loss is a bad idea because:

• you may not have access to credit.

• you may not have the means to repay the debt.

• it may lead to bigger problems.

• you may not have access to credit or other means to repay the debt, and it may lead to bigger problems.