1. The cost of early retirement includes all of the following except:

a)more leisure time

b)lower Social Security benefits

c)lower private pension benefits

d)reduced discretionary retirement savings

2.Defined contribution pension plans:

a)typically place the consequences of investment risk on the employee

b)typically place the consequences of investment risk on the employer

c)are being phased out by most employers

D)are lost when you change employers

E)are required to have a three year vesting period by federal law

3. All of these accounts are Defined Contribution retirement accounts. Based on the information found in this table, please choose which of the following statements is true:

*assuming a 28% tax bracket

	Employee Contributions	Employer Contributions	Earnings	Total	Anticipated Taxes at Withdrawal*
Account A	$4000	N/A	$440	$4400	$0
Account B	$4000	N/A	$440	$4400	$1232
Account C	$15500	$2500	$1980	$19980	$5994.40
Account D	$15500	$2500	$1980	$19980	$777

A) Account A is a traditional IRA

B)Taxes must be paid on employer contributions for both Accounts C and D

C)Anyone can qualify to contribute to any of these accounts

D)Account C is a Roth 401(k)

4. Which of the following would be considered a fully diversified portfolio, according to the lecture notes?

a)6-15 different stocks in different sectors

b)8-12 different stocks in different stock exchanges

c)Maxing out your 401(k) before you contribute to a Roth IRA

d)Having bonds and precious metals in your portfolio

E)Investing different amounts of money each month

5. Which of the following situations reflects an individual with a higher rate of time preference?

A)Borrowing money to fund present consumption

B)Investing in mutual funds to decrease risk

C)Avoiding credit card debt

D)Putting away 10% of income to invest for retirement

E)Avoiding risk by not investing in the stock market

6. Economists argue that households' discretionary financial investments have declined over the past 30 years because:

A)mandatory financial investments have risen.

B)rates of return associated with human capital investments have declined

C)the relative risk of financial investments have declined

D)rates of return associated with physical capital investments have declined

E)the baby boomers entered adulthood during an era of low inflation that discouraged saving

7. All other things equal, households prefer investments:

A)Where there is a low variance in the rate of return

B)With taxable earnings rather than investments where the earning are tax exempt

C)With infrequently compounded interest rather than investments where interest is compounded frequently

D)Where there is high risk rather than investments there is low risk

E)Where money is invested at random intervals rather than dollar cost averaging

8. Which of the following investments has the highest marketability (liquidity) risk?

A)Stocks

B)CD's

C)Municipal bonds

D)Savings accounts

E)Corporate bonds

9. Which of the following investments should a household consider if they want to minimize the federal income taxes they have to pay?

A)Municipal bonds

B)Balanced mutual fund

C)Junk bond

D)Federal Government Bond

E)Corporate bond

10. Which of the following would NOT influence an individual's rate of time preference?

A)Financial cohort

B)Income level

C)Chronological age

D)Birth cohort

E)Time period

11. Susan is convinced that she needs to save for her own retirement needs and not rely on Social Security to take care of her in her old age. She has 30 years until she retires. She will follow the advice of her financial planner, which likely includes:

A)Recognizing that she will likely live many years in retirement and thus needs to personally invest an adequate amount

B)Maxing out IRA contributions before investing in her employer matching 401(k)

C)Choosing a traditional IRA over a Roth IRA to lower her taxable income when she contributes

D)Investing in mostly bonds to lower her default risk

E)Investing 5% of her income

12. All of the following statement regarding Roth IRAs are true EXCEPT:

A)you must stop contributing at age 70.5

B)the interest you earn is completely tax-free

C)after your account has been open for 5 years, you can access your own money without penalty

D)you have complete control over your investments

E)there are no minimum distribution laws

13. Which of the following statements about Social Security is false?

A)Social Security benefits paid to a non-working dependent spouse stop when the spouse who earned the benefits dies

B)Social Security has a higher earnings replacement rate for low-wage workers than high-wage workers

C)Social Security was never meant to be a sole source of retirement income for a household

D)Social Security is designed to discourage early retirement by reducing benefits paid to early retirees

E)Social Security benefits paid during retirement are calculated based on career average earnings and the age at which one retires

14. Lessons learned about trading in the stock market include:

A)The longer you invest in the stock market the lower your default risk

B)If you lose money on one stock you will probably lose on another stock

C)You minimize risk through over concentration

D)The longer amount of time you hold your stocks in the market the less likely you are to outperform bonds

E)Stocks are a great place to keep money that you will need soon to protect against inflation risk

15. Women are typically more economically vulnerable during retirement than are men for all of the following reasons EXCEPT:

A)women are more likely to remarry after widowhood than are men

B)women earn less than men and therefore have lower pension and Social Security benefits

C)women live longer than men forcing them to spread their retirement savings out over a longer time period

D)women are less likely to earn private pension and Social Security benefits because their labor force participation is more intermittent

E)a couple may think that retirement savings is only for the main wage-earner, which is typically the man