ARE 142 FINALS

question

T/F: If you are in a 25 percent tax bracket then every dollar of your adjusted gross income will be taxed at 25 percent
answer

False
question

Which factor carries the most weight in your FICO scores?
answer

Payment History ( whether you have made late payments)
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Flexible spending formula
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Save income + Fica taxes
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save income formula
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tax bracket x income amount
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FICA tax rate
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7.65%
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real return formula
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real return = nominal return – inflation rate
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Finance charges (interest charges) formula
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APR/12 * average daily balance
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T/F: Normally, you can avoid repaying your Federally subsidized Student Loan by declaring Bankruptcy
answer

False
question

For a new car such as a Honda Civic, about what price should you expect to pay?
answer

The dealer’s invoice price
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T/F:The main difference between a defined-benefit plan and a defined-contribution retirement plan is the tax deduction for the defined-contribution plan
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False
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What strategy should you use to maximize your after-tax income in the future?
answer

Maximize the contribution to your Roth IRA and put the rest in a regular investment account with no tax advantages
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30 Year old S/B ratio
answer

80S/20B
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Life cycle funds
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try to tailor their holdings to the investor’s individual age and risk tolerance.
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T/F: An employee’s social security contributions are invested in a general fund account that will be made available for the employee at retirement
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False
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Which of the following statements is true regarding Social Security retirement benefits?
answer

It attempts to replace 42% of your average earnings Once you start collecting Social Security Benefits, your payments are adjusted for inflation Some people’s benefits may be taxed.
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Married Social Security Benefits
answer

The one which larger benefits should be taken, and the other one should take half of the larger benefits.
question

T/F: Life insurance agents receive a higher commission from selling a cash value policy than they do from selling a term policy
answer

True
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Is moral hazard more likely to be an issue with life insurance or auto insurance?
answer

Auto insurance
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Earnings multiple approach
answer

annuity PMT = (0.7 – 1 family member living + 0.04 for additional family members living) x Income of deceased use PV formula
question

About how much does a 20 year term life insurance policy with a face value of $500,000 cost for a very healthy 30 year old male with average weight and height?
answer

$250 per year
question

In California, what characteristics will affect the cost of your car insurance?
answer

Your driving record, the make and model of your car, where you live, and number of miles you drive per year.
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Renter’s insurance policy from Allstate covers
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A stolen laptop from car, apartment (after paying the deductible). Medical bills of injured that your pet was liable for
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T/F: One way to lower the premiums you pay on your insurance is to have a higher deductible
answer

True
question

Patient Protection and Afforadble Care Act
answer

Requires individuals to pay a fine if they do not health coverage. Allows children under age of 26 to be covered by their parent’s plan. Requires insurance companies on the exchange sites to cover pre-existing medical conditions.
question

T/F: With a PPO, it is much more expensive to go to out of network healthcare providers
answer

True
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PPO formula
answer

Pay deductible, split the coinsurance provision between insurance company and you.
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Estate tax liability on death
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No estate taxes owed ( assuming no money or gifts)
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future price formula
answer

future price = current price x (1+inflation rate) ^ years
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Why do Life Insurance Agents recommend cash value insurance policies for everyone?
answer

Because they pay a higher commission
question

T/F: A key disadvantage of a flexible spending plan is that you may lose any money not spent
answer

True
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The benefits of an HMO are that
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less expensive than PPOs encourage a relationship with a primary care provider
question

To determine your estate’s net worth, you would
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subtract the amount of your estate’s liabilities from the amount of your estate’s assets
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T/F: Trusts are much more difficult to challenge in court than are wills which is one thing that makes them more attractive
answer

True
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Maximum amount of tax-free gift from estate
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14000
question

Social Security is a system in which current workers pay taxes that are used to pay current retriees’ benefits. How is Social Security funded?
answer

payroll taxes up to a salary cap
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How is the size of a person’s Social Security retirement benefits determined?
answer

It depends on the number of credits earned in a person’s lifetime, the average level of earning over a person’s lifetime, the number of years a person has paid Social Security taxes.
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T/F: One of the best things about retirement is that retirees don’t have to pay income taxes once they retire.
answer

False
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Relationship between various interest rates
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Interest rate < Bank's APR < Effective APR
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T/F:A person may have a 401k and a Roth IRA plan open at the same time
answer

True
question

T/F: In the short run, investing in stocks outperforms most other investments
answer

False
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When it comes to actively managed mutual funds, Sethi believes that professional fund managers
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tend to underperform the market
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T/F: One way to lower the premiums you pay on your insurance is to have a lower deductible
answer

False
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point
answer

one percent of the amount financed with the mortgage

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