Financial Foundations

Select the best definition of an IRA.

• 1. An IRA is a tax-advantaged investing tool set up by individuals for retirement savings

• An IRA is a retirement plan offered to you by your employer

• An IRA is an investment type with a fixed rate of return

• An IRA is a retirement savings plan that guarantees a fixed rate of return

The purpose of insurance is to…

• transfer risk

• build relationships

• build wealth

• manage assets

The coverage under renters insurance will cover the costs of the following items EXCEPT:

• Your personal belongings

• Hotel you have to stay at until your apartment can be repaired

• The damage to the building

• Small alterations to the property you made at your own expense

What is a premium?

• Measures that are taken for disease prevention

• An arrangement by which a company provides a guarantee of compensation for a specified loss

• A specified amount of money that the insured must pay before an insurance company will pay a claim

• The amount you pay to buy an insurance policy

Who typically pays for health care expenses once you have met your deductible? 

• You pay for all health care expenses

• Your insurance pays for all health care expenses

• You and your insurance company share the cost of health care expenses

• No one pays; once you meet your deductible, your health care expenses are free

Select the TRUE characteristic of a Roth IRA.

• There is no limit to the amount you can contribute to a Roth IRA

• The Roth IRA has been around longer than the Traditional IRA (the Roth debuted in the 1930s)

• The capital gains, interest, & growth of a Roth IRA can be withdrawn tax-free in retirement

• You are taxed on the money you withdraw in retirement from your Roth IRA (it is taxed as ordinary income)

By the end of a bond's maturity, the investor will have received…

• Only the face value of the issued bond

• The face value of the bond issued and interest payments

• Only interest payments

• Half the face value of the issued bond and interest payments

Why would someone want to have renters insurance if their building owner has insurance?

• The building owner's insurance only covers liability. Renters insurance will cover damage to the exterior and structure of the building.

• The building owner's insurance only covers the building structure. Renters insurance covers your personal property.

• There is no need to get renters insurance if the building owner already has an insurance policy

• By law, you must have two types of insurance: landlord insurance and renters insurance

1. What is the difference between a 401K and IRA? (this will be a short answer on the exam)

• A 401K is typically offered through an employer and an IRA is opened on your own.

• An IRA is typically offered through an employer and a 401K is opened on your own.

• A 401K has a high deductible and an IRA has a low deductible.

• An IRA has a high deductible and a 401K has a low deductible.

What are two disadvantages of putting your money into savings accounts, compared to investing? (This will be a short answer question on the exam)

• Savings accounts have lower rates of return/interest

• Savings accounts have higher interest rates.

• Inflation makes money lose purchasing power

• Savings accounts have no interest rates.