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Personal Financial Planning Final

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Mutual funds often sell directly to investors
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True
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Investing Requires a fairly large sum such as $5,000 to get started
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False
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Investing and speculating are two entirely different activities
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True
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Owning common stock represents an equity investment
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True
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A prospectus describes the firm and the issue of a new security
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True
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There are a variety of investment vehicles including which of the following:
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Common stock, bonds, preferred and convertible securities, real estate
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Which of the following is an order to sell a stock when the market price drops to or below a specified level
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Stop loss order
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You have been offered an opportunity to buy shares of a diversified collection of securities. You will be investing in:
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Mutual funds
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Which of the following types of brokers is most likely to involve an investor trading electronically from his or her personal computer
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Online broker
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The most important investment prerequisites are
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Adequate income and insurance
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Long-term securities are traded in the money market
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False
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Investing is considered a short-term activity that involves the buying and selling of securities
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False
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An investment in a financial futures contract would represent a fairly low risk investment
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False
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Prices are rising in bear markets, indicating economic optimism
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False
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Mutual funds provide professional management and diversification that individual investors – especially those with limited resources – can rarely obtain on their own.
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True
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During a bull market…
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Sock prices go up
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Which of the following is least likely to be an investment objective?
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Pay monthly bills
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The most common reason given for investing is
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Saving for retirement
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Buying a(n) ____ would not be an investment.
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automobile
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Which of the following is a true statement about the Dow Jones Industrial Average?
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It is based on 30 industrial stocks
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The Federal Deposit Insurance Corporation insures brokerage firm deposits.
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False
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There is a trade-off between earning a high current income from an investment and obtaining significant capital appreciation from it.
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True
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Without using margin accounts, common stock holders can not lose more than they initially invest in a common stock.
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True
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A company with low financial risk has little to no long-term debt.
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True
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All securities involve risk of some kind.
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True
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Interest rate risk is greater for stocks than for bonds.
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False
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A bond with a yield to maturity that equaled or exceeded an investor’s desired rate of return is considered an attractive investment.
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True
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A characteristic of defensive stocks is…
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Price stability in economic decline
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Corporate ownership is evidenced by
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Common stock
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Only the strongest, most stable and safe-return companies can be called
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blue chip stocks
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The easiest way to invest in foreign stock is to purchase
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international mutual funds
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_____ stocks are really purchased as a gamble rather then because they have a proven history of good performance.
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Speculative
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Compound interest is a very important concept when evaluating the return on an investment you plan to hold for a long time.
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True
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Common stocks pay a guaranteed dividend each year.
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False
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The returns you expect from securities are income and growth.
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True
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An investment is acceptable if the expected rate of return is greater than the desired rate of return.
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True
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Business risk considers the possibility that the firm may fail.
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True
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Stocks whose price movements who tend to follow the business cycle are called what?
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Cyclical Stocks
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A high inflation rate would result in a high degree of
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purchasing power risk
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One of the more appealing features of a common stock is that stock investments offer
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Ownership with limited liability
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In which of the following type of investment is the most liquidity risk present…
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Land
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Security investors incur varying degrees of risk. Business risk is related to
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the potential success or failure of the firm
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You received a cash dividend from your stock investment this year. This is taxable income.
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True
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Changes in the value of securities due to social, political, or economic factors are referred to as market risk.
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True
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Index funds are actively managed.
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False
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Socially responsible funds have experienced lower return than other types of funds of similar risk.
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True
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Spiders and Diamonds are examples of ETF’s.
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True
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The price per share of a closed-end investment fund could be lower than its NAV.
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True
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For most investors, the best way to deal in foreign securities is through an international mutual fund.
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True
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The author recommends small investors should stick to…
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no-load funds
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Index funds have provided competitive rates of return because
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their quotes are lower than other stock funds, it is difficult to outperform the market, they have very low turnover rates, they are tax efficient.
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Redeeming your mutual fund shares might result in a charge called a
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back-end load
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Investment company earnings come from
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interest, dividends, and capital gains
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Investors tend to use mutual funds for which of the following reasons
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diversification, professional management, financial returns, convenience.
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Open-ended mutual funds are guaranteed, they can not lose value.
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False
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The price an investor can sell his shares of an open-end mutual fund share is the net asset value.
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True
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By definition, all ETF are no-load funds.
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True
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Mutual funds may be classified by the types of securities they purchase.
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True
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The most important advantage of a mutual fund is pooled diversification.
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True
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Having money taken automatically from your paycheck and put into a mutual fund is.an example of
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an automatic investment plan
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Which of the following bond mutual funds would provide tax-free income?
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Municipal bond fund
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An annual fee charged by some mutual funds to cover marketing and distribution expenses is the
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12(b)-1 fee
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A mutual fund allows investors to
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become owners of a widely diversified portfolio of securities.
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A _____ is a type of investment that is required by law to pay out nearly all earnings to owners.
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real estate investment trust
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A fund’s objective must be stated in its prospectus.
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True
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The major benefit to small investors of mutual funds is diversification.
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True
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Another name for a mutual fund is
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an open-end investment company
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It really makes little difference whether you start retirement savings at age 25 or at age 45.
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False
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Self-employer workers pay twice as much for Social Security coverage compared to employed workers.
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True
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Most people are too conservative when investing their retirement funds.
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True
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If one is unsure about the facts needed to estimate retirement needs, it is better to do nothing for a few years.
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False
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Social security benefits alone can usually fund a comfortable retirement.
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False
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The proceeds of a variable annuity are dependent on the
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Investment return
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The major mistake(s) people make in retirement planning is(are)
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Saving too little
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The major financial benefit of beginning your retirement funding early is related to
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increased cost of living
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Annuities are administered by
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insurance companies
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A Roth IRA
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is funded with after tax dollars, allows interest or dividends to accrue tax free, permits you to withdraw your contribution at any time, provides for tax-free earnings if you hold the account 5 years and are 59 ½ at withdrawal.
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Supplemental retirement plans are usually voluntary.
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True
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Government assistance, primarily Social Security, is the largest single source of income for the average retiree.
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True
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Even the best retirement plan needs to be reviewed every few years.
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True
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By itself, Social Security is sufficient allow a worker and spouse to maintain their preretirement standard of living.
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False
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The first step in retirement planning is to identify retirement goals.
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True
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The cost of an annuity varies with the
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age of the annuitant at issue, age of the annuitant when payment begins, method of proceeds distribution, sex of the annuitant.
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Funds to finance social security come from
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compulsory contributions from employee, employer, and self-employed.
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The need for retirement planning is increased by the uncertainties of
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inflation, social security benefits, the assets you hold, your pension benefits.
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When setting retirement goals you should consider
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what you want to do in retirement, your expected standard of living, your proposed level of income, special retirement activities and projects.
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The amount of money in your defined contribution retirement portfolio will depend on
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the age at which you begin contributing, the amount of money you deposit each month, the rate of return on your savings.
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Individuals are being forced to assume more and more responsibility for their own retirement.
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True
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Intestacy results from dying without a valid will.
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True
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Probate property includes only real property.
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False
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More damage is done to estates by doing nothing than by doing the wrong thing.
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True
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A potential estate planning problem is improper distribution of assets.
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True
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Property held in different states does not complicate the estate planning process.
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False
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A will is used to
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name a personal representative to guide the distribution of the estate, name a guardian for persons and property, specify the distribution of tax burdens to beneficiaries.
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When writing a will, you should seek the professional services of
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attorneys
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A will is a legal document outlining the plan for
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disposition of your assets
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In the absence of a valid will, the heir most generally favored would be the
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Spouse
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Which of the following are requirements of a valid will?
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Mental capacity, freedom of choice, proper execution.
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Knowing where parents keep important documents is essential to the estate planning process.
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True
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Liquidity is important in an estate to pay for death costs and possible taxes.
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True
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Gathering data on all aspects of the family is an important estate planning function.
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True
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Funeral expenses are examples of second-level death-related costs.
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False
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One should make a copies of his will and store them in different places.
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True
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Life insurance could alleviate estate problems caused by
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lack of liquidity
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The goal of estate planning is to:
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accumulative, preserve, distribute
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The decedent’s personal representative is called a(n)
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executor
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____ would be a first-level death-related cost.
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Funeral expenses
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Estate planning is closely related to
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tax and investment planning & retirement and investment planning
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Insufficient capital can cause problems paying estate taxes.
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True