Midterm 1 questions: 1. Maggie scott recently inherited $280000 ...
Midterm 1 questions: 1. Maggie scott recently inherited $280,000. She would like to invest her inheritance and is considering the following investments: I. $50,000 in a 5-year GIC with an annual interest rate of 5% II. A far east mutual fund, expected to yield an average annual return of 8% over the next 5 years III. A $75,000 5-year security with a stated rate of 8% per year, paying quarterly interest Her goal is to have her investments grow to a cumulative value of $320,000 at the end of 5 years The maturity value of the GIC in years is: 63,814 The maturity value of the security in 5 years is: 111,446 Assuming Maggie invests in the GIC and the security, how much would she need to invest in the Far East mutual fund in order to reach her goal? $98,508 2. Nalini wants to invest $5,000 in a term deposit. ABC Bank has a posted rate of 5.5% p.a. compounded quarterly. The effective annual rate (EAR) on this deposit is: 5.61% 3. Mark’s marginal tax rate is 40%. He plans to save $20,000 at the end of each year earning 7% a year for the next 20 years. If inflation is 2%, what is Mark’s real after-tax rate of return? 2.16% 4. An analysis of human capital is useful for career planning and estimating life insurance requirements 5. The lifetime contribution to an RESP for a specific individual is $50,000 6. Joe has Federal non-refundable tax credits of $4,500. His federal tax liability is $3,800 before the non-refundable tax credits and $3,000 was withheld from his pay for Federal tax purposes. Joe’s Federal tax refund is $700 7. Jenny is moving and is planning to sell her TV and computer next month. She will not be replacing these items since she will be getting married and her fiancé already owns 2 TVs and a computer. Presently, Jenny should market he TV and computer at market value 8. On January 1, 2008, you lend $5,000 cash to your spouse, who puts the money in a savings account and earns $300 interest over the course of the year. You so not charge interest to the loan. Which of the follow tax treatment applies to the interest earned on the savings account? Your spouse is taxed on the entire interest earned 9. Which of the following statements about RRSP is true? The income in an RRSP accumulates at the before-tax rate. You have to pay tax on the principal and accrued earnings when the money is withdrawn. When the money is withdrawn, the income could cause you to move into a higher tax bracket 10. Annuity due means payments are made at the beginning of the period Midterm 2 questions: 1. What is the geometric rate of return? It is the nth root of n periodic interest rates multiplied together 2. The rate of taxation used to compare two investment opportunities that are taxed differently is called the marginal tax rate 3. In order to implement the expense approach to estimating the amount of life insurance a family needs, it is necessary to consider: the estimate of expenses and supplementary income; the capital and assets, all government payments, and the spouse’s income; the balance sheet 4. What is the future value interest factor for an annuity? {[1+discount rate) compounded each period]-1/discount rate 5. The four fundamental tax minimization strategies are: income splitting, tax shelters, income tax spreading and income deferral
6. Martha has just been released from camp cupcake after serving 3 years and she needs a new car. Just being entering camp cupcake, Martha invested $6,000 on a GIC earning 5% interest per annum, compounded quarterly. How much is the GIC worth upon her release from the camp? $6,965 7. The income tax act is interpreted using interpretation bulletins, information circulars and court decisions 8. What is compound interest? It is the interest effect assuming that interest is reinvested. 9. Which of the following major sources of risk is (are) covered in the comprehensive home policy? The home’s contents, the home structure, third party liability 10. Our family income statement, the principal portion of a mortgage payment is shown as: a nondiscretionary expenditure 11. Opportunity cost is what you can earn if you don’t spend your money today 12. The taxable amount of eligible dividends is calculated by multiplying the divided amount by 1 plus the gross up rate 13. Harvey recently inherited $280,000. He would like to invest his inheritance and is considering the following investments: I. $40,000 in a 5-year GIC with an annual interest rate of 3%; II. An oil growth mutual fund, expected to yield an average annual return of 5% over each of the next 5 years; III. A $125,000 5-year security with a stated rate of 8% per year, paying quarterly interest His goal is to have his investments grow to a cumulative value of $350,000 at the end of 5 years. The maturity value of the security in 5 years is approximately: $185,743 To reach his goal, Harvey’s investment in the oil growth mutual fund should be: $92,367 14. Mike has a credit card with a limit of $5,000 and an outstanding balance of $1,200. The minimum payment due on his current month’s statement is $200. On his family balance sheet, Mike would show the following amount as a current liability: 1,200 15. What is rate of return? Discount rate 16. Paris Milton agreed to set aside $600 at the beginning of each year for the next 10 years in an education fund for her only child. The fund pays interest at 5% p.a. compounded annually. What will be the balance of the fund at the end of the ten years? $7,924.07 17. Which of the following auto insurance coverage pays for the damage to your car resulting from non-accidents, such as theft, vandalism, fire, etc.? comprehensive coverage 18. The kind of policy in which the investment portion can be used to pay the minimum premium required to maintain the insurance portion of the contract is most accurately called a universal policy 19. Income tax for child support payments is paid by the spouse who is paying 20. What is the real rate? It is a rate of return based on un-inflated or constant dollars 21. Which of the following is NOT an acceptable way to calculate the dividend tax credit on an eligible dividend? The tax credit reduces the tax calculated on the taxable dividend 22. Alex and Amanda are married. Alex contributes $2,000 to Amanda’s RRSP in February 2010, and claims the deduction on his 2009 tax return. If Amanda withdraws the funds at any time up to the end of 2012, the following tax treatment would occur: $2,000 of the amount withdrawn will be treated as Alex’s income 23. The dividend tax credit has been established to neutralize the effect of double taxation on dividends 24. When lawyers and clients agree to a binding commitment that they will negotiate a settlement without resorting to litigation in court, the procedure is called collaboration
25. Indexation of taxation involves the adjustment of tax credits, tax deductions and tax brackets according to inflation 26. What is annual percentage rate (APR)? it is the rate that ignores the compounding effect: the periodic rate multiplied by the number of periods in a year 27. Which of the following statements is false? Repayment of the principal on a debt is usually a discretionary expenditure Quiz 2 1. If a payment is missed, the insurance policy is still in force for a grace period of actually 30 days 2. Many financial experts recommend a deductible equal to 0.02 of your net worth 3.
6. Martha has just been released from camp cupcake after serving 3 years and she needs a new car. Just being entering camp cupcake, Martha invested $6,000 on a GIC earning 5% interest per annum, compounded quarterly. How much is the GIC worth upon her release from the camp? $6,965 7. The income tax act is interpreted using interpretation bulletins, information circulars and court decisions 8. What is compound interest? It is the interest effect assuming that interest is reinvested. 9. Which of the following major sources of risk is (are) covered in the comprehensive home policy? The home’s contents, the home structure, third party liability 10. Our family income statement, the principal portion of a mortgage payment is shown as: a nondiscretionary expenditure 11. Opportunity cost is what you can earn if you don’t spend your money today 12. The taxable amount of eligible dividends is calculated by multiplying the divided amount by 1 plus the gross up rate 13. Harvey recently inherited $280,000. He would like to invest his inheritance and is considering the following investments: I. $40,000 in a 5-year GIC with an annual interest rate of 3%; II. An oil growth mutual fund, expected to yield an average annual return of 5% over each of the next 5 years; III. A $125,000 5-year security with a stated rate of 8% per year, paying quarterly interest His goal is to have his investments grow to a cumulative value of $350,000 at the end of 5 years. The maturity value of the security in 5 years is approximately: $185,743 To reach his goal, Harvey’s investment in the oil growth mutual fund should be: $92,367 14. Mike has a credit card with a limit of $5,000 and an outstanding balance of $1,200. The minimum payment due on his current month’s statement is $200. On his family balance sheet, Mike would show the following amount as a current liability: 1,200 15. What is rate of return? Discount rate 16. Paris Milton agreed to set aside $600 at the beginning of each year for the next 10 years in an education fund for her only child. The fund pays interest at 5% p.a. compounded annually. What will be the balance of the fund at the end of the ten years? $7,924.07 17. Which of the following auto insurance coverage pays for the damage to your car resulting from non-accidents, such as theft, vandalism, fire, etc.? comprehensive coverage 18. The kind of policy in which the investment portion can be used to pay the minimum premium required to maintain the insurance portion of the contract is most accurately called a universal policy 19. Income tax for child support payments is paid by the spouse who is paying 20. What is the real rate? It is a rate of return based on un-inflated or constant dollars 21. Which of the following is NOT an acceptable way to calculate the dividend tax credit on an eligible dividend? The tax credit reduces the tax calculated on the taxable dividend 22. Alex and Amanda are married. Alex contributes $2,000 to Amanda’s RRSP in February 2010, and claims the deduction on his 2009 tax return. If Amanda withdraws the funds at any time up to the end of 2012, the following tax treatment would occur: $2,000 of the amount withdrawn will be treated as Alex’s income 23. The dividend tax credit has been established to neutralize the effect of double taxation on dividends 24. When lawyers and clients agree to a binding commitment that they will negotiate a settlement without resorting to litigation in court, the procedure is called collaboration
25. Indexation of taxation involves the adjustment of tax credits, tax deductions and tax brackets according to inflation 26. What is annual percentage rate (APR)? it is the rate that ignores the compounding effect: the periodic rate multiplied by the number of periods in a year 27. Which of the following statements is false? Repayment of the principal on a debt is usually a discretionary expenditure Quiz 2 1. If a payment is missed, the insurance policy is still in force for a grace period of actually 30 days 2. Many financial experts recommend a deductible equal to 0.02 of your net worth 3.
