Deck 6: Managing Your Money

Question 1

Describe the relationship between return and liquidity using a one-year CD and a checking account to illustrate.

Answer 1

The highest return is least liquid (the CD).In exchange for liquidity,the return is lower with a checking account.

Question 2

Use the following two columns of items to answer the matching questions below:
money management

A)a series of decisions made over a short-term period regarding cash inflows and outflows
B)ability to cover cash deficiencies
C)cash outflows are more than inflows

Answer 2

a series of decisions made over a short-term period regarding cash inflows and outflows

Question 3

Use the following two columns of items to answer the matching questions below:
liquidity

A)a series of decisions made over a short-term period regarding cash inflows and outflows
B)ability to cover cash deficiencies
C)cash outflows are more than inflows

Answer 3

ability to cover cash deficiencies

Question 4

In general,the more liquid an investment is,the ________ the return you will receive.

A) lower
B) higher
C) less predictable
D) There is no relationship between liquidity and return.

Question 5

Liquidity refers to your ability to cover any long-term cash deficiencies.

Question 6

Liquidity is necessary because there are times during the year when your cash inflows are not adequate to cover your cash outflows.

Question 7

A disadvantage of using credit as a source of liquidity is the

A) inconvenience of using credit.
B) potential cost of finance charges.
C) acceptability of credit by creditors.
D) poor records available after credit use.

Question 8

________ management is a series of decisions made over a short-term period regarding cash inflows and outflows.

A) Cash
B) Money
C) Liabilities
D) Both A and B are correct.

Question 9

You should attempt to have a sufficient amount of funds in liquid assets to draw on when your cash outflows exceed your cash inflows.

Question 10

To achieve both liquidity and an adequate return,you should consider investing in only one money market investment with a fixed interest rate and a long maturity date.

Question 11

Money management is a series of decisions made over a short-term period regarding cash inflows and outflows.

Question 12

Your ability to cover short-term cash deficiencies is a measure of your ________.

Question 13

Generally,yields are ________ for securities that are exposed to ________ liquidity risk.

A) higher; more
B) higher; less
C) lower; less
D) Both A and C are correct.

Question 14

In general,the more liquid an asset,the higher its return.

Question 15

Which of the following does money management not involve?

A) A series of decisions
B) A long-term time period
C) Cash inflows
D) Cash outflows

Question 16

Money management has no relationship to the personal cash flow statement.

Question 17

To achieve both liquidity and an adequate return,you should consider investing in

A) only one money market investment with a high return and low liquidity.
B) only one money market investment with low return and high liquidity.
C) multiple money market investments with varied returns and levels of liquidity.
D) multiple money market investments with high returns and high liquidity.

Question 18

Maintaining liquid assets that you can easily access when you need funds allows you to avoid using credit and paying finance charges.

Question 19

Good cash management requires some liquidity,but excessive liquidity has an opportunity cost.

Question 20

Your ability to cover any short-term cash deficiencies is called

A) solvency.
B) wealth.
C) liquidity.
D) cash planning.

Question 21

CDs that have small denominations (such as $10,000 or less)are sometimes referred to as retail CDs because they are more attractive to individuals than to firms.

Question 22

Because most regular checking accounts do not pay interest,you should keep only enough funds in your account to cover anticipated expenses with a small reserve for unanticipated expenses.

Question 23

A money market deposit account (MMDA)requires a minimum balance,pays interest,and allows a limited number of checks to be written each month.

Question 24

Treasury bills (T-bills)may be purchased by individuals,and require a minimum investment of $100 par value.

Question 25

Money market funds (MMFs)that invest in commercial paper are insured by the FDIC.

Question 26

Financial advisors often advise having 4-6 months of income in "near cash" for rainy day funds.Which of these investments do not provide the necessary liquidity to meet this need?

A) Bank money market fund
B) Stock market listed money market fund
C) High dividend paying blue chip stock
D) B and C do not provide the necessary liquidity

Question 27

A money market account combines deposit accounts with a brokerage account,provides a single consolidated statement,and "sweeps" the unused balance from the checking account to a savings account daily.

Question 28

An advantage of a NOW account over a traditional checking account is that your money is more readily available to you.

Question 29

Developing a monthly budget as part of your annual financial plan to determine excess cash or cash deficiencies,and then developing a plan to invest (or fund)the excess (deficient)cash position is a process called

A) personal financial accountability.
B) money management.
C) liquidity management.
D) budgeting.

Question 30

Since CDs are insured by the FDIC,the rates are usually the same from one institution to another.

Question 31

If you lose your checkbook,the bank will not charge you for stopping payment on any unused blank checks.

Question 32

The $500 minimum balance you are required to keep in your NOW checking account represents an opportunity cost.

Question 33

Treasury bills are more liquid than CDs because there is a secondary market for T-bills.

Question 34

Overdraft protection for a checking account is a low-cost short-term loan.

Question 35

To calculate interest earned,multiply the deposit amount by the annual interest rate times the adjustment for the investment period.

Question 36

Treasury bills (T-bills)are Treasury securities with maturities of one year or less.

Question 37

Stopping payment on a check should be used if you paid to have your bathroom remodeled and the job was not completed.

Question 38

An asset management account combines deposit accounts with a brokerage account and provides a single account statement.

Question 39

Certificates of deposit are highly liquid and pay the highest investment returns.

Question 40

Use the following two columns of items to answer the matching questions below:
cash deficiency

A)a series of decisions made over a short-term period regarding cash inflows and outflows
B)ability to cover cash deficiencies
C)cash outflows are more than inflows

Question 41

Which of the following is not true of a NOW account?

A) Offered by depository institutions
B) Pays relatively low interest
C) Only three checks per month can be written
D) Requires a minimum balance

Question 42

You have a choice between investing $10,000 in a CD that in six months will pay you $10,190 or investing $9,800 in a T-bill that in 182 days will return $10,000.Ignoring any opportunity cost between the two investments,which will give you the higher annualized return and what will the annualized return be?

A) T-bill; 2.2%
B) T-bill; 4.09%
C) CD; 3.8%
D) CD; 1.9%

Question 43

Kelly deposits $1,000 in her savings account earning 4% per year.How much interest would she earn in a year?

A) $4
B) $40
C) $44
D) $400

Question 44

You have $3,000 that you may need to use to replace the furnace in your home.If you need the funds,it would be on no less than a week's notice.Into which type of account would it be best for you to deposit the $3,000?

A) Checking account
B) Savings account
C) NOW account
D) All of the above would be equally acceptable.

Question 45

Which of the following is not true regarding a savings account?

A) It does not provide checking services.
B) It is less liquid than a checking account.
C) It pays lower interest than a checking account.
D) It is less convenient than a checking account.

Question 46

Which of the following is true about a NOW account?

A) Pays no interest
B) Not as liquid as a traditional checking account
C) No minimum balance is required
D) Is not an insured account

Question 47

Which of the following is not a money market investment?

A) Shares of corporate stock
B) NOW account
C) Savings account
D) Treasury bills

Question 48

If a bank provides overdraft protection at a rate of 12% for each $100 (or portion of $100)borrowed when an overdraft occurs,what amount of interest would a customer pay for a $188 overdraft?

A) $24.00
B) $22.56
C) $10.56
D) $12.00

Question 49

Which of the following items will give you the greatest liquidity?

A) One year CD
B) Savings account
C) Checking account
D) NOW account

Question 50

Stopping payment on a check

A) is possible after the check clears in cases of disputes.
B) can only be used if the check has not cleared.
C) is free if your checkbook is lost or stolen.
D) is encouraged by most banks as a customer service.

Question 51

An arrangement that protects a customer who writes a check or uses a debit card for an amount that exceeds the checking account balance is called

A) liquid investment.
B) stop payment.
C) overdraft protection.
D) automatic transfer.

Question 52

Which of the following is not true about certificates of deposit (CDs)?

A) They pay higher interest than a saving account.
B) They are only offered in denominations of $100,000 or more.
C) They are not as liquid as a savings account.
D) Funds are locked in for specific periods of time.

Question 53

Which of the following is not an advantage of a checking account?

A) Stop payment services
B) Overdraft protection
C) Interest earned on balances that exceeds the rates offered on CD's
D) Liquidity

Question 54

A 180-day CD offers an annualized interest rate of 1.10% and requires a minimum deposit of $25,000.The amount of interest that will be earned on this investment is

A) $135.62.
B) $275.00.
C) $137.50.
D) $2,750.00.

Question 55

Which of the following should not be considered when evaluating a checking account?

A) Whether overdraft protection available and the cost
B) The cost of a stop payment order
C) The fees charged monthly
D) Whether the account is insured for more than $250,000

Question 56

Which of the following items will usually give you the highest return?

A) One year CD
B) Savings account
C) NOW account
D) Checking account

Question 57

Kayla deposits $1,500 into a NOW account that requires a minimum balance of $500 and offers an interest rate of 2.4%.How much interest will she earn in one year in the NOW account?

A) $360
B) $24
C) $12
D) $36

Question 58

Which of the following is not true about a certificate of deposit (CD)?

A) They pay higher interest than T-bills.
B) They are long-term investments of two years or more.
C) Funds are locked in for specific periods of time.
D) A penalty is imposed for early withdrawal.

Question 59

Checking accounts may offer all of the following except

A) account balance insurance in excess of $250,000.
B) stop payment services.
C) overdraft protection.
D) ATM privileges.

Question 60

When purchasing a certificate of deposit (CD),

A) you are always better off to buy the longer-term CDs.
B) you will earn more interest percentage-wise on the lower dollar CDs.
C) the amount you invest is at risk, so choose carefully.
D) it is wise to shop around as rates vary among financial institutions.

Question 61

Which of the following accounts would tend to give you the higher interest combined with ease of access to your funds on a limited basis?

A) Checking account
B) MMDA
C) NOW account
D) CD

Question 62

Money market funds (MMF)have all of the following characteristics except

A) money provided by investors is pooled for investment.
B) unlimited check writing.
C) investment in securities with short-term maturities.
D) a low risk of default.

Question 63

If you buy a $10,000 par value,three-month T-bill priced at $9,800,what will your return (not annualized)on investment be?

A) 8.2%
B) 6.5%
C) 2.04%
D) 4.08%

Question 64

Maurice purchased a $10,000,90-day CD that pays 8 percent.How much will Maurice receive when the CD matures? (Round answer to the nearest dollar.)

A) $10,800
B) $10,197
C) $10,200
D) $10,267

Question 65

All of the following are true of money market deposit accounts (MMDAs)except

A) a minimum balance is required.
B) they pay higher interest than a NOW account
C) a limited number of checks may be written monthly.
D) they are the same regardless of the depository institution offering them.

Question 66

You buy a T-bill,which has a par value of $10,000 for $9,600 and the T-bill has a one-year maturity.What will be your return?

A) 2.5%
B) 4.2%
C) 4.8%
D) 6.0%

Question 67

An asset management account that moves any unused balance in the brokerage account into a money market investment at the end of each business day is called a(n)

A) sweep account.
B) accelerated management account.
C) money market fund.
D) secondary market.

Question 68

If you buy a $10,000 par value T-bill with a 180-day maturity date for $9,750,what will be your annualized return?

A) 2.5%
B) 3.06%
C) 4.5%
D) 5.2%

Question 69

The market where investors can sell T-bills that they own is called the

A) primary market.
B) secondary market.
C) stock market.
D) T-bill market.

Question 70

Which of the following affords you access to a "sweep account"?

A) Asset management account
B) NOW account
C) MMDA account
D) MMF

Question 71

An asset management account does all of the following except

A) combines deposit accounts with a brokerage account that is used to buy or sell stocks.
B) provides a single consolidated statement showing the ending balance and activity of all accounts.
C) requires a small initial investment to start.
D) sweeps any unused balance in the brokerage account into a money market account at the end of the day.

Question 72

Which of the following is not a characteristic of money market funds (MMFs)?

A) They pool money provided by individuals to invest.
B) They invest in securities with short-term maturities.
C) They are high-risk investments.
D) They allow limited check writing.

Question 73

The secondary market for T-bills means that

A) they cannot be sold before their maturity date with the help of a brokerage firm.
B) an individual may purchase T-bills that were owned by some other investor rather than from the government.
C) T-bills are less liquid than CDs.
D) All of the above.

Question 74

Money market funds (MMFs)offer all of the following except

A) they invest in securities with short-term maturity.
B) they are safe investments with higher rates than T-bills.
C) they are insured savings.
D) they provide limited check writing privileges.

Question 75

What would be the annualized return to an investor who purchases a one-year $10,000 T-bill for $9,600 and sells it on the secondary market 90 days after the purchase for $9,750?

A) 3.5%
B) 6.34%
C) 10.14%
D) 16.22%

Question 76

Which of the following is not a good,short-term money market investment?

A) NOW account
B) Savings account
C) AT&T common stock
D) Treasury bills

Question 77

)If a $10,000 T-bill is purchased for $9,600 and matures in 270 days,what will be the annualized return? (Round to the nearest hundredth of a percent.)

A) 4.01%
B) 4.17%
C) 5.63%
D) 2.85

Question 78

In comparing an MMDA to a NOW account,the MMDA does all of the following except

A) the MMDA pays a higher interest rate.
B) the MMDA has a maturity date whereas a NOW account does not.
C) the MMDA provides more limited checking services.
D) the MMDA is less liquid.

Question 79

An asset management account combines

A) assets and expenses.
B) deposit accounts with a brokerage account.
C) a savings account with a brokerage account.
D) a savings account with long-term investments.

Question 80

All of the following are true of Treasury securities except they

A) are a means by which the U.S. government lends money.
B) have a maturity range up to 30 years.
C) have a minimum par value of $100.
D) can be bought and sold on the secondary market.