MONEY MANAGEMENT QUIZ #3
Michigan Credit Union League - Your Money Matters
Okay class, this is your final quiz. You will not be graded and it is impossible to flunk - you can retake it as many times as you want until you get it right.
Hopefully, over the last three weeks, these money management quizes have increased your understanding of crucial financial decisions.
Quiz #3 is an adaptation of Kiplinger's Personal Finance Magazine's money management quiz. Good luck!
1. For years you've been investing in the stock market for your kids' college education. In the fall your eldest is heading off to school, leaving you with an empty room and a $10,000 tuition bill. What should you do with the $10,000 you've earmarked for tuition between now and the time the payment's due in September?
a. Keep it in stocks; you've done well so far.
b. Move it to a six-month certificate of deposit, just to be safe.
c. Buy series EE savings bonds, just to be safe,
d. Transfer it to a money-market fund.
2. You and your spouse are working parents with three young children. What's a rough guide for the amount of life insurance you need?
a. Between six and ten times your annual earnings
b. $1 million per child
c. The cost of college for all your children
d. Six times your mortgage
3. You have household help every week, a new swimming pool in your backyard, and you drive the car pool to soccer practice. You're a prime target for lawsuits and a prime candidate for what kind of insurance?
a. A full indenture plan
b. An umbrella liability policy
c. A ladder extension
d. A C.C. rider
4. You and your spouse are empty nesters with two incomes and two grown children who have kids of their own. What's a rough guide for the amount of life insurance you need?
a. Twice your combined earnings
b. Half your combined earnings.
c. Enough to enable your survivors to pay off your mortgage
d. You may not need any life insurance.
5. You're in your sixties and want to get your estate plan in order so that your affairs will be taken care of if you can't handle them. Which two documents should you be sure to have your attorney prepare on your behalf?
a. A durable power of attorney and a living will
b. A springing trust and a tax trap
c. A will and a family limited partnership
d. A QTIP trust and a SWAB
6. You've been told you're about to be laid off from your job, but you want to keep your health insurance coverage in effect. Which of the following options are you able to take advantage of ?
a. COBRA coverage
b. A conversion policy
c. Short-term insurance
d. All of the above
7. You'd like to borrow money against securities you hold in a brokerage account. The law says you may borrow up to 50% of the value of any stocks you own, but you want to avoid triggering a margin call and having to come up with more money should the market drop and your assets decline in value. What's the maximum amount you should borrow?
1. D, transfer the assets to a money market fund. You're going to need the money soon to pay for tuition, so shifting out of stocks now will protect you if the market falls. Plus, a money market fund will give you ready access to your cash. A six-month CD wouldn't mature until October, and if you cashed it in early you'd forfeit at least some of the interest you were due.
2. A, between six and ten times your annual earnings. That's a rough guide for life insurance coverage. Your goal is to replace lost income and to provide your children's education, not to make them millionaires.
3. B, an umbrella liability policy. For an annual premium of between $100 and $300, you can boost your liability coverage to $1 million or more - inexpensive protection in our litigious society.
4. D, you may not need life insurance. The key question is, who besides yourself is dependent on your income? If the answer is no one, you may be able to drop your coverage.
5. A, a durable power of attorney and a living will. Through a durable power of attorney, you name someone to act as your agent in financial matters if you become incapacitated. Many states also allow a durable power of attorney for health care decisions. A living will spells out your wishes about medical treatment if you should become terminally ill and can't speak for yourself.
6. D, all of the above. If you have a preexisting medical condition, you can take advantage of the COBRA provision (named for a federal law), which allows you to extend your group coverage (for 18 months in the case of a layoff) as long as you pick up the premiums, or a conversion policy, which allows you to convert the group insurance at your old job to an individual policy. If you're in good health, consider going it along with a short-term policy that covers catastrophic illnesses. It could cost less than the alternatives.
7. B, 20%. Sure, you're forfeiting some borrowing power, but you're sleeping like a baby at night. A margin loan that small all but guarantees that you won't have to sell assets to meet a margin call.
How did you do? If your score was less than perfect, don't worry. Money management is one of the most difficult tasks you'll ever have to undertake. Keep trying and seek the advice of a qualified professional for further instruction.