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Exam 21: Taxes,inflation,and Investment Strategy

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Question 21

Multiple Choice

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An employee uses his firm's 401(k) plan.If he decides to contribute $11,000 per year and pays an effective tax rate for all items at 28%,what is the reduction in her take home pay each year?

A) $3,080
B) $4,210
C) $7,920
D) $11,000

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Question 22

Multiple Choice

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In 2009,the income cap on social security taxes was set at _____ with an exemption of _____.

A) $200,000; $10,000
B) $153,600; $7,600
C) $106,800; $0
D) $96,000; $10,000

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Question 23

Multiple Choice

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If you wish to tilt your savings toward later years you might be well advised to purchase which of the following types of readily available insurance?

The Social Security Primary Insurance Amount formula favors ______.

Sharon decides to put $5,000 into her IRA at age of 25. She will continue to invest the same amount for the next 6 years and then stop contributing. Assume 10% annual return. -How much money will Sharon have in her IRA when she is ready to retire at age of 62?

Currently,the maximum combined taxable income of a retired household that avoids having to pay any taxes on a portion of their Social Security benefit is ______.

Which one of the following is not likely to be subject to adverse selection?

In planning for retirement,an investor decides she will save $2,000 every year for 25 years.At a 7% return on her investment,how much money will she have at the end of 25 years?

Suppose you have maxed out your allowable contributions to your tax sheltered retirement plans and you still want to shelter income.The best choice of investment for you to minimize the tax bill is to invest in _________.

The U.S.income tax code is generally _____.

You can tax shelter only one-half of your retirement savings.You want to invest one-half of your savings in bonds and one-half in stocks.How much of the bonds and how much of the stocks should you allocate to the tax sheltered investment?

Contributions to a _____________ are not tax deductible.

No taxes are paid on withdrawals made during retirement from a _________.

A safe driver who drives faster as a result of purchased collision car insurance would be an example of the ___________ problem.

Contributions to a traditional IRA are __________ and contributions to a Roth IRA are ____________.

Social Security is ____________.

Withdrawals from a traditional IRA prior to age ___ are taxable and must pay a ___ tax penalty.

An investor can earn a 6% nominal rate of return but inflation is expected to be 3%.If the individual invests $2,000 per year for 20 years the real future value of their investment is ________.(All investments occur at year end) .

An insurance company plans to sell annuities to investors.Based on actuarial calculations,an investor has a 15 year life span and they want a $30,000 per year annuity,payable at the end of each year.If the insurance company uses a 4% assumed investment rate,how much should the annuity cost?

Sharon decides to put $5,000 into her IRA at age of 25. She will continue to invest the same amount for the next 6 years and then stop contributing. Assume 10% annual return. -How much money will Sharon have in her IRA after 6 years?