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Exam 21: Taxes,inflation,and Investment Strategy

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Question 31

Multiple Choice

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A non-profit organization offers a 5% salary contribution to John's 403b plan and matching 5% when John contributes 5% of his/her salary. John makes $56,000 a year. -What is the amount of total contribution to his 403b if John contributes 5% of his own money?

A) $5,600
B) $8,400
C) $11,200
D) $12,500

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Question 32

Multiple Choice

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In planning for retirement,an investor decides she will save $11,000 every year for 40 years.At an 11% return on her investment,how much money will she have at the end of 40 years (to the nearest hundred thousand dollars) ?

A) $1,400,000
B) $2,800,000
C) $4,900,000
D) $6,400,000

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Question 33

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An individual wants to have $95,000 per year to live on when they retire in 30 years.The individual is planning on living for 20 years after retirement.If the investor can earn 6% during her retirement years and 10% during her working years,how much should she be saving during her working life? (Hint: Treat all calculations as annuities.)

The employees of a firm complain that they can not afford to contribute $8,000 per year to a 401k,because of the loss of $8,000 of take home pay.In fact,how much will the take home pay be reduced if all taxes combined total 33%?

Withdrawals after retirement from a traditional IRA are __________ and withdrawals after retirement from a Roth IRA are ____________.

It would be costly to provide wage insurance because of the ___________ problem.

A study by Spivak and Kotlikoff (1981) showed that a marriage contract increases the dollar value of lifetime savings by as much as _____.

Employers commonly match at least some portion of employee contributions to ___________. I.401k plans II.403b plans III.Self directed IRAs

If you start saving for retirement only in your later years and your income growth from that point is rapid then ________________________.

Which one of the following is an example of "global" consumption smoothing?

In a private defined benefit pension plan the ___________ bears the investment risk and in a private defined contribution plan the ____________ bears the investment risk.

You have the broadest choice of investment alternatives for your _____________.

Which one of the following statements about 401(k) plans is not correct?

One way to hedge labor income is to ____________________.

You earn 6% on your corporate bond portfolio this year and you are in a 25% federal tax bracket and an 8% state tax bracket.Your after tax return is _____.(Assume that federal taxes are not deductible against state taxes and vice versa) .

Tilting your retirement savings plan toward your later years should only be done by investors _____________.

Annuity income is positively correlated with ___________. I.longevity II.durability of marriage III.expected length of your base (Social Security) annuity

A worker plans to retire in 20 years.He needs $20,000 per year in retirement income in today's dollars.If inflation is forecast at 3.5% per year,what annual income should he plan to receive in the first year of retirement in order to maintain the purchasing power on $20,000?

Which one of the following represents local consumption smoothing? I.Saving during your working years for retirement II.Borrowing money to buy a car III.Putting off a vacation for a year until you can afford it

Suppose you are a high tax bracket individual and you want to shelter your investment income.The best choice of investment for you to minimize the tax bill is to invest in _________.