Exam 22: Appendix B: Managing Risk

In the future,the Social Security system is likely to:

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.

Earnings of Keogh plans are not taxed until the funds are withdrawn from the retirement account.

Personal financial planners recommend renting a home,rather than incurring the cost of buying a home.

The U.S.government provides several types of financial incentives to encourage people to attend college.

Mini-Case Ira Roth and Penny Weiss met and married in the early 1990s,during their days at State University.Both came from families with limited financial resources.They had to work at part-time jobs during school,and still needed student loans to help pay for their college education.Ira and Penny shared a strong work ethic and had a great desire to succeed financially and enjoy the good life. Penny and Ira quickly experienced financial success in the latter half of the booming 1990s.Ira used his marketing major and extensive knowledge of computers to obtain a high-paying job in a successful dot-com business.Penny,who cleaned homes to earn money during college,used her experience to start her own business.Her entrepreneurial spirit surprised Ira and their friends,and she built a successful cleaning business with a growing base of residential clients and even a few commercial customers.She soon had to hire several part-time employees to keep up with demand.With money rolling in,Ira and Penny began to live the good life,buying an expensive new car,a state-of-the-art home entertainment center,and expensive wardrobes.As busy as they were,and as hard as they both worked,they often found it easier to dine at a nice restaurant rather than fix meals at home. When the dot-com bubble burst in the early 2000s,Ira was lucky enough to keep his job,but was forced to take a significant pay cut.The economic downturn forced some of the households and businesses that used Penny's company to cut back on professional cleanings,so her business suffered too.Soon the couple was struggling to pay the rent on their upscale apartment.They began relying on credit cards to cover expenses,but after a few months the credit limits on their cards had been reached.They fell behind in paying off their student loans and started getting some unpleasant calls from bill collectors.The stress and frustration led to arguments that began to threaten their personal relationship.With their personal finances out of control,Ira and Penny knew that they had to make changes to save not only their financial dreams,but also their marriage.However,they were at a loss as to where to start.Family members encouraged them to seek the advice of a financial planner.The couple reluctantly agreed that this was something they needed to do. -As their situation began to improve,the financial adviser began discussing investment strategies with Penny and Ira.He suggested that they might want to invest in the stock market.He surprised them by saying that they should try to buy stocks during a major downturn in the market-just when most people were trying to sell.This statement suggests that the financial adviser agreed with the:

Purchasing ________ insurance is a relatively low cost way of protecting yourself from lost income due to an accident or prolonged illness.

One disadvantage of term life insurance is that:

Preparing and living with a personal budget is:

Approximately what percent of the population is successful in saving enough money for retirement to live comfortably?

Once you have evaluated your current financial situation and know your sources of income and expenses,you have reached the point where you can establish a personal budget.

The average lifetime income of someone with an undergraduate degree is about $1.6 million higher than for someone with only a high school diploma.

Interest paid on a home loan is deductible from taxable income.

A person using a credit card to make a purchase may end up paying much more than if he or she had paid cash.

The number of workers paying into Social Security for each retiree receiving Social Security benefits is:

Harriett has just made out a will.The will names her brother Harold as the executor.This means that Harold will have the authority to take over Harriett's finances if she becomes incapacitated.

Guaranteed replacement cost insurance coverage provides the insured with the depreciated cost of assets.

What advice might a personal financial advisor offer a recent college graduate desiring to become financially secure?

Carrie is trying to find a way to reduce her car insurance premium.She would be well advised to decrease her insurance policy's deductible.

Due to the high cost of the insurance premiums,many people have found that it makes financial sense to carry medical insurance only if their employer provides it.