ACE 240 final study

generally speaking, how do high quality-bonds compare to equities/stocks?

a). they have less risk and less reward than equities

b) they have less risk and higher reward than equities

c) they have higher risk and less reward than equities

a). they have less risk and less reward than equities

according to John C. Bogle (founder of Vanguard), paradoxically "In investing, you..."

a) "get what you created"

b) "get what you deserve

c) "get what you don't pay for"

d) "get what you pay for"

c) "get what you don't pay for"

Two shares of Zippy drone company sell for $100 each on the secondary market. How much does Zippy receive from this transaction?

a) 0

b) 100 less cut by the investment bank

c) 100

a) 0

** the face value of a bond refers to which of the following?

a) the amount of money that will be returned to the bondholder at the bond's maturity

b) both A and B

c) the amount of income an investor can expect to receive on an annual basis

** a) the amount of money that will be returned to the bondholder at the bond's maturity

why does professor Sanchez suggest that index funds should generally be used instead of "actively managed" funds, or individual stock and bond picking?

a) index funds are narrowly concentrated, and have consistently outperformed actively managed funds

b) index funds are well diversified, expensive, and have consistently outperformed actively managed funds

c) index funds are well diversified, inexpensive, and have consistently outperformed actively managed funds

d) index funds are well diversified, expensive, and though they havent consistently outperformed actively managed funds, they probably will in the future

c) index funds are well diversified, inexpensive, and have consistently outperformed actively managed funds

** which of the following describe the role o a preffered shareholder in a company?

a) the preferred shareholder has ownership and control of the company

b) the preffered shareholder has control, but not ownership

c) the preffered shareholder has ownership, but not control of the company

** c) the preffered shareholder has ownership, but not control of the company

TRUE OR FALSE: a mutual fund is a company that pools money from many investors and invests money in stocks, bonds or other financial products

true

which of the following is an advantage that bonds offer investors?

a) bonds usually require lower interest rates than banks

b) bonds can create predictable cash flow and generally experience less volatility than stocks

c) bonds do not involve loss of ownership

b) bonds can create predictable cash flow and generally experience less volatility than stocks

which of the following best explains why certain values in the TMV calculations are negative?

a) they represent cash-inflows, such as payments coming to you, loan amounts recieved, or future values of amounts invested

b) they represent cash outflows, such as payments coming to you, loan amounts recieved, or future values of amounts invested

c) they represent cash outflows, such as amounts invested today, amounts invested during periods, or payment towards a loan

d) they represent cash inflows, such as amounts invested today, amounts invested during periods, or payment towards a loan

c) they represent cash outflows, such as amounts invested today, amounts invested during periods, or payment towards a loan

during the lecture, a chart (commonly known as a quilt chart) was reviewed. What does this chart suggest?

a) investing in the stock market is as simple as identifying which asset class did well from the previous year and investing in it

b) it is exceedingly easy to consistenly predict winning asset classes over a year

c) there are patterns that suggest possible winning asset classes from one year to the next

d) It is exceedingly difficult (perhaps impossible) to consistently predict winning asset classes over a year

d) It is exceedingly difficult (perhaps impossible) to consistently predict winning asset classes over a year

** professor Sanchez suggests that it is important to focus on the things you can control in investing. Each of the following are factors you can control, except:

a) investment returns

b) savings rate

c) asset allocation

d) investment vehicles and accounts

** b) savings rate

each of the following are reasons why humans tend to struggle as long term investors, except:

a) they make investment decisions based on emotions, such as elation and fear

b) they make investment decisions based on written investment policy statement

c) they pay too much attention to what the market is currently doing

d) they trade too often

b) they make investment decisions based on written investment policy statement

** which type of security can be issued without diluting ownership of the company?

a) bonds

b) prefered stock

c) common stock

** a) bonds

each of the following are correct regarding asset allocation, except:

a) asset allocation attempts to balance the tradeoff between risk and return

b) asset allocation will signifigantly affect your portfolios overall returns and risk

c) asset allocation has very little effect on overall returns and risk

d) asset allocation is "the way to divide your portfolio among asset classes"

c) asset allocation has very little effect on overall returns and risk

** in terms of Target Date Retirement Funds and FIRE, which of the following is not true?

a) FIRE devotees strive to achieve financial independance at a relatively young age

b) to achieve FIRE, a very high savings rate is required

c) target date retirement funds are generally low cost

d) as you move towards your target date, the fund gradually increases risk

** d) as you move towards your target date, the fund gradually increases risk

TRUE OR FALSE: people behave and consume differently when something is free. in the case of trading, they tend to do it more

true

TRUE OR FALSE: rebalancing is what investors do to bring thier portfolio back to its original allocation mix. rebalancing is needed because over time, some investments will grow faster than others

true

TRUE OR FALSE: the financial markets have rewarded long time investors. people expect a positive returen on the capital they supply and historically, the equity and bond markets have provided growth of wealth that has more than offset inflation

true

** prefered stocks are generally purchased by investors seeking which of the following?

a) capital gains

b) dividends

c) coupon payments

** b) dividends

_____ is your written expression of how you want to be treated in certain medical circumstances

a) trust

b) living trust

c) will

d) living will

d) living will

TRUE OR FALSE: the current estate tax exemption amount is very high. In light of this, most people will not be subject to the federal estate tax

true

TRUE OR FALSE: gift taxes are imposed on transfers during lifetime that exceed the exemption limits, and estate taxes are imposed on transfers at death that exceed the exemption limits

true

relating to powers of attorney, which of the following is not true?

a) the POA may take effect immediately, or only upon occurence of a future event

b) a POA continues after death

c) the POA may give temporary or permanent authority to act on your behalf

d) the person named POA to act on your behalf is commonly refered to as your "agent" or "attorney in act"

b) a POA continues after death

** which of the following is not true?

a) you appoint a person and grant them the authority to make medical decisions for you in the event you are unable to express your preferences about medical treatment

b) a "health care proxy" sometimes called "health care surrogate" or "durable medical power of attorney" is a durable POA specifically designed to cover medical treatment

c) a living trust is your written expression of how you want to be treated in certain medical conditions

d) in addition to helping your physician, Health care directives express your wishes to your family so they do not have to guess about what you would want

** c) a living trust is your written expression of how you want to be treated in certain medical conditions

TRUE OR FALSE: transfers between spouses and to certain trusts for spouses, made during lifetime or at death, may be made without the imposition of any tax

true

regarding living trusts, which of the following is false?

a) the trustee cannot be yourself

b) Upon your death, the trustee is generally directed to either distrubute the trust property to your beneficiaries, or to continue to hold it and manage it for the benefit of your beneficiaries

c) trusts permits the trust assets to be held as a single undivided fund to be used for the support and education of minor children according to thier respective needs, with eventual decision of the trust among the children when the youngest reaches a specified age

d) unlike a will, a living trust can also provide you with a vehicle for managing your property during your lifetime and authorize the trustee to manage the property and use it for your benefit

a) the trustee cannot be yourself

** which of the following is not a part of the transfer tax system?

a) income tax

b) gift tax

c) estate tax

d) generation skipping tax

** d) generation skipping tax

TRUE OR FALSE: planning the estate appropriately can result in avoiding probate because of property titled assets

true

TRUE OR FALSE: estate planning covers the transfer of property at death as well as a variety of other personal matters and mostly involves tax planning

false

TRUE OR FALSE: estate planning is not just planning for the transfer of property; it is also planning for who is going to make the deicisions if you become incapacitated

true

** all of the following are factors important in assessing liquidity needs in estate planning except:

a) the relationship to the residuary state beneficiary

b) the projected state liability

c) the type of assets that make up the estate

** a) the relationship to the residuary state beneficiary

which of the following assets will transfer according to the dictates of a valid will?

a) retirement account such as a 401k or a ROTH IRA

b) real estate owned solely by the deceased person

c) life insurance policy

d) real estate owned jointly with rights of survivorship with another person

b) real estate owned solely by the deceased person

all of the following statements are correct regarding the unauthorized practice of law except:

a) providing general information concerning tax laws would not constitute the unauthorized practice of law

b) attorneys cannot be engaged in unauthorized practice of law

c) the definition of unauthorized practice of law differs from state to state

b) attorneys cannot be engaged in unauthorized practice of law

TRUE OR FALSE: wills must be signed in the presense of witnesses and certain formality must be followed or the will may be invalid

true

regarding wills, which of the following is false?

a) a will governs the transfer of all types of assets

b) permits you to designate a gaurdian for minor children

c) permits you to designate an executor of your estate

d) when a person dies without a will, state laws of descent and distribution will determine who recieves the property

a) a will governs the transfer of all types of assets

TRUE OR FALSE: a well planned estate can result in income tax savings, gift tax savings, and even estate tax savings.

true

_______ is the tax on the right to transfer property after somebody has died

a) generation skipping tax

b) gift tas

c) estate tax

d) Q dot tax

c) estate tax

_____ is the court supervised process of administering your estate and transferring your property at death pursuant to the terms of your will

a) will

b) probate

c) trust

d) estate planning

b) probate

** all of the following are obstacles to effective estate planning except:

a) excess estate liquidity

b) improper ownership of assets

c) failure to plan for disability

** c) failure to plan for disability

TRUE OR FALSE: revocable living trusts help you avoid estate tax

false

which of the following members of the estate planning team is responsible for assuring the clients intentions are expressed in the will and trust documents that will carry out the final plan?

a) the financial planner

b) the trust officer

c) the attorney

c) the attorney

which of the following is a non-probate property?

a) trusts

b) life insurance

c) all answers are correct

d) jointly owned property

c) all answers are correct

a progressive state income tax is one that

a) uses the same tax rate as a taxpayers income progresses upward

b) is uncommon among states that levy income taxes at the state level

c) increases the tax rate as taxable income rises

c) increases the tax rate as taxable income rises

TRUE OR FALSE: tax avoidance is using illegal means to avoid paying taxes

false

TRUE OR FALSE: while real estate typically comes to mind when one thinks of property taxes, propertt taxes can also include taxes owned on property such as cars, boats, and other items known as personal property

true

TRUE OR FALSE: there is not a significant difference between long term capital gains and ordinary income tax rates

false

According to United States supreme court justice Oliver Wendell Holmes:

a) "taxes are what we pay for a civilized society"

b) "taxes are annoying"

c) "Taxes are what we pay for benefits when we retired"

d) "taxes are what make the world go around"

a) "taxes are what we pay for a civilized society"

which of the following correctly states the impact that filing status has on a taxpayers overall tax liability?

a) an individual's filing status can have signifigant influence on their overall tax liability

b) individuals who file under the same filing status will owe exactly the same amount in taxes

c) an individual's filing status has no impact on thier overall tax liability

a) an individual's filing status can have signifigant influence on their overall tax liability

what can a large tax refund tell a taxpayer about the amount they are currently having witheld from their paycheck?

a) they may be having too little withheld

b) they have the right amount withheld

c) they may be having too much withheld

c) they may be having too much withheld

henry is married to Lillina, and they have two dependant children. Henry and Lillian want to file thier own tax returns, reporting only his or her income, deductions, and exemptions. The filing status of Henry and Lillian on their tax return is:

a) qualifying widow

b) head of household

c) single taxpayer

d) married filing jointly

e) married filing seperately

e) married filing seperately

states that levy an income tax ________

a) are strictly uniform in their approach

b) do not require taxpayers to pay federal income taxes

c) vary in the way they impose the tax

c) vary in the way they impose the tax

a ______ would most likely have to pay estimated taxes

a) corporate attorney

b) self-employed plumber

c) school teacher

d) union worker

b) self-employed plumber

tax ______ is an illegal practice

a) avoidance

b) defferal

c) evasion

d) planning

c) evasion

TRUE OR FALSE: similar to federal income tax rates, state income tax rates are always progressive

false

_______ are often used by municipal governments to fund local services such as schools and hospitals

a) property taxes

b) federal and state estate and gift taxes

c) sales taxes

d) income taxes

a) property taxes

which of the following is NOT one of the advantages that taxable investment accounts have over retirement accounts?

a) no restriction to when funds may be withdrawn

b) tax deferral on amounts contributed

c) no limit on contributions

d) step up basis for heirs

b) tax deferral on amounts contributed

qualified ______ distributions are NOT subject to tax when taken after age 59 and 1/2

a) 401k

b) 403B

c) ROTH IRA

d) IRA

c) ROTH IRA

TRUE OR FALSE: the top marginal federal income tax rate is relatively low from a historical perspective

true

the top federal income tax rate is __% through 2025

a) 91%

b) 37%

c) 39.6%

d) 28%

b) 37%

______ provides monthly benefits to qualified retired and disabled workers and their dependants and to survivors of insured workers

a) medicare

b) social security

c) MEDFICA

d) medicaid

b) social security

_____ may apply to specific products that are considered harmul to consumers. Also refered to as the "sin tax"

a) progressive income tax

b) property tax

c) excise tax

d) state income tax

c) excise tax

TRUE OR FALSE: according to lecture, credit card rewards are usually taxable

false

getting a tax refund ...

a) means that you should increase your federal withholding from your paycheck

b) means that you paid more in taxes throughout the year than you needed to

c) means that you payed less in taxes throughout the year than you needed to

b) means that you paid more in taxes throughout the year than you needed to

which of the following services to revenues from property taxes typically NOT pay for?

a) fire departments and education

b) startup costs for local entreprenuers

c) road maintenance

b) startup costs for local entreprenuers

TRUE OR FALSE: taxes assessed on the sale of an asset that has appreciated in value are called Capital gains

true

you can get an automatic tax extention by filing ______

a) form 4868

b) Traditional 401k

c) form 1040

d) ROTH 403B

a) 4868

** which of the following most accurately explains why property taxes are payed annually on property individual owns

a) property taxes are not payed annually year over year. They are only payed at the time the property is aquired or sold

b) taxes should be payed on property that increases in value every year, even if its not sold

c) property owners recieve ongoing benefits from public services payed for by property taxes

** c) property owners recieve ongoing benefits from public services payed for by property taxes

_____ contributions are make on a post tax basis

a) IRA

b) ROTH IRA

c) 401k

d) 403B

b) ROTH IRA

in 2024, the state individual income tax rate in illinois is:

a) 13.3%

b) 9.9%

c) 2.9%

d) 4.95%

d) 4.95%

which of the following is an illegal method of reducing your current tax liability?

a) not reporting the taxable income you recieve

b) investing in a tax deffered annuity

c) investing money in municipal bonds

a) not reporting the taxable income you receive

TRUE OR FALSE: investors with assets in taxable accounts can qualify for lower tax rates if they hold an asset for more than a year before selling it

true

401k plans are often available to:

a) federal employees, such as members of the US military

b) employees of public corporations and businesses

c) employees of public education entities or nonprofit organizations

d) public sector employees, such as state and municipal workers

b) employees of public corporations and businesses

which of the following is a potential income source for farmers in retirement that does not require their active participation in farm operations?

a) neither answer is correct

b) working on the farm operation

c) selling or leasing the farm

c) selling or leasing the farm

which of the following is not an employer sponsored retirement account?

a) ROTH 403b

b) ROTH IRA

c) 401k

d) ROTH 401k

b) ROTH IRA

which of the following is not true regarding employer sponsored retirement accounts?

a) many provide a company "match" that contributes a certain amount to the account when an employee does

b) maintained by an employeer and provided as a benefit to employees

c) investment options are limited to those provided in the plan

d) allowable contributions may be reduced or eliminated based on income considerations

d) allowable contributions may be reduced or eliminated based on income considerations

qualified defined benefit pension plans are guarenteed by what government agency?

a) social security administration

b) FDIC

c) PBGC

c) PBGC

TRUE OR FALSE: generally the amounts an individual withdraws from an IRA or retirement plan before reaching age 59 and 1/2 are called "early" or "premature" distributions

true

** For which of the following accounts can you withdraw before age 59 and 1/2 without being subject to an additional penalty tax?

a) 403B

b) Traditional IRA

c) 401k

d) taxable

** c) 401k

** this type of annuity provides payments that will be made for a set number of years, regardless of the purchaser's life span:

a) annuity premium

b) period certain

c) guarenteed minimum annuity

d) life annuity

** b) period certain

which of the following is not true regarding defined benefit plans?

a) commonly known as pension

b) less common benefit offered by employers

c) 401k and 401b are examples are defined benefit plans

d) promises a specialized monthly benefit at retirement

c) 401k and 401b are examples are defined benefit plans

contributions are made on a pre-tax basis to which of the following IRA plans?

a) ROTH IRA

b) 403 IRA

c) traditional IRA

d) 401 IRA

c) traditional IRA

** which type of plan would a 401k fall under?

a) individual retirement account (IRA)

b) defined benefit plan

c) defined contribution plan

** c) defined contribution plan

the concept where retirement benefits are not taxed until they are withdrawn is called:

a) tax-free

b) tax-defferal

c) vesting

b) tax-defferal

this type of plan does not guarentee a specific payable benefit in retirement

a) sponsored benefit

b) defined benefit

c) defined contribution

d) defined retirement

c) defined contribution

** what is the total amount that may be contributed across Traditional and ROTH IRAS in 2024 (for individuals under the age of 50)?

a) 6,000

b) 5,000

c) 7,000

d) 8,000

** c) 7,000

ultimately, who is responsible for ensuring that a defined benefit plan is fully funded?

a) employer

b) PBGC

c) employee

a) employer

TRUE OR FALSE: In william Bernstein's article "How to think about Risk Retirment", the author suggests adjusting a portfolio's stock/bond mix with age

true

which small business retirement plan only allows for employer contributions?

a) simple IRA

b) SEP IRA

c) solo 401k

b) SEP IRA

what is not considered a benefit of a traditional 401k plan?

a) tax free withdrawls

b) employer matching contributions

c) tax deferred growth

a) tax free withdrawls

which of the following costs associated with retirement often pushes employees to stay with their employers until they are eligible for medicare

a) health care costs

b) inflation

c) housing costs

a) health care costs

** which of the following retirement plans do you make after tax contributions?

a) traditional IRA

b) 403b

c) 401k

d) ROTH IRA

** d) ROTH IRA

** with respect to completing TMV calculations, which of the following would not be considered a "cash inflow"?

a) amounts invested today

b) loan amounts recieved

c) payments coming to you

d) future value of amounts invested

** a) amounts invested today

which of the following is a common characteristic of both traditional and roth retirement plans?

a) distributions subject to ordinary income tax when withdrawn

b) growth tax is deffered

c) contributions are not tax reductible

d) qualitified distributions are tax free

b) growth tax is deffered

TRUE OR FALSE: social security retirement benefits must be taken at Full retirement age

false

TRUE OR FALSE: roth account contributions are always more favorable than traditional pre-tax contributions

false

which of the following would not be covered in medicare part A?

a) hospice

b) skilled nursing room

c) physicians treating you

c) physicians treating you

** regarding social security, which of the following is not true?

a) years where you didn't work can also reduce benefits

b) by delaying social security benefits until one's full retirment age, benefit amounts will increase

c) in general, 40 credits (10 years of word) are needed to qualify for benefits

d) age 67 is the earliest an individual may enroll in social security retirement benefits

** d) age 67 is the earliest an individual may enroll in social security retirement benefits

which of the following correctly describes the advantages of making traditional or roth contributions?

a) contributions to ROTH retirement accounts make sense when you are subject to a lower tax rate now than you expect to be in when withdrawls are taken

b) contributions to ROTH retirement accounts make sense when you are subject to a higher tax rate now than you expect to be when withdrawls are taken

a) contributions to ROTH retirement accounts make sense when you are subject to a lower tax rate now than you expect to be in when withdrawls are taken

TRUE OR FALSE: by delaying social security retirement benefits, one can substantially increase monthly benefit amounts

true

** how old do you have to be to qualify for medicaid?

a) 59 and 1/2

b) 65

c) there is no specified age

c) there is no specified age