Money Management

A source of income for a retiree can include the person's

• mortgage loan

• 401(k) Account

• loan from a commercial bank

• credit card cash advance

Answer explanation

A 401(k) is a retirement savings account that employers offer. All other choices are examples of loans that will need to be paid back with interest.

A person can set up an Individual Retirement Account (IRA) at a

• bank

• social security office

• small loan company

• real estate agency

Answer explanation

An Individual retirement Account (IRA) can be set up by a person at a bank, credit union, or investment firm

The main advantage of a bank's check over a personal check is that a bank's check is

• a personal check that can be stolen

• does not have to be endorsed by the bank

• can only be made payable to a person not to corporations

• guaranteed by the bank that issued the check

Answer explanation

The bank whose name appears on the cashier's check guarantees to pay the amount of the check, therefore it is like cash. Cashier's checks can be made payable to anybody. They do have to be endorsed and can be stolen.

Many people find it difficult to retire from the workforce because they

• do not have a life insurance policy

• do not have enough savings for retirement

• cannot collect Social Security benefits

• know their employers depend on their skills

Answer explanation

Most people are not saving enough money fore retirement. Statistics show that while Americans may have some savings, they do not have enough money to pay for their living expenses. People are living longer today, and they will need their money to last over their lifetime.

Each year, in addition to mortgage and insurance payments, a homeowner will need to pay this additional expense, that renters will not have.

• a down payment

• a security deposit

• property taxes

• closing costs

Answer explanation

homeowners must pay yearly property taxes on their homes, in addition to other expenses such as monthly mortgage payments, insurance premiums, and repairs. Renters do not have these same expenses.

The Federal Reserve System (Fed) regulates the supple of money. They might lower interest rates to -

• reduce tax rates

• encourage borrowing

• increase tax rates

• discourage borrowing

Answer explanation

The Federal Reserve System regulates the money supply and tries to manage inflation. It may influence the lowering of interest rates in order to stimulate borrowing which stimulates the economy. Lenders use the money to buy homes, goods, and services.

The person who is least affected from rising interest rates is someone who -

• has a variable-rate morgage

• is borrowing money

• is a small business owner

• has a fixed-rate mortgage

Answer explanation

Someone with a fixed interest rate loan will have the same monthly payments despite rising interest rates that will not affect his loan. Somebody with a variable rate loan will be affected because their interest rate follows the change in interest and they will have to pay a higher monthly payment if interest rates increase.

Which tax is the Internal Revenue Service (IRS) responsible for collecting?

• Sales tax

• City tax

• Federal income tax

• Property tax

Answer explanation

The IRS is responsible for collecting federal income taxes from people who work and earn income.

Which of the following choices lists assets from MOST to LEAST liqued?

• money market account, bond, checking account

• savings account, certificate of deposit (CD), real estate

• stocks, savings account, money market account

• bond, real estate, certificate of deposit

Answer explanation

Liquidity refers to the ability to access money quickly. Within a short period of time, a person can get to his bank and withdraw funds form checking, savings, or money market accounts or to cash in a certificate of deposit. It takes a few days to get the money from the sale of a security (stocks, bonds, mutual funds) and it takes the most time to sell and collect money on the sale of real estate.

A person is evaluating investment strategies to create wealth. Which of the following is the best strategy?

• Buy a new car or computer

• Buy more than one life insurance policy

• Have friends who live in expensive neighborhoods

• Have investments that pay interest or dividends

Answer explanation

To increase wealth, money must be put to work. To accomplish this you can make investments that pay dividends or interests (buying stocks, bonds, etc.)