Part 1
1. Mark (age 45) just bought his first house. He took out $10,000 from his traditional IRA to pay for down payment and closing costs. His income tax bracket is 30%. Which of the following statements regarding IRA with drawl is true?
a. He needs to pay $3,000 income tax for IRA withdrawl, but no penalty
b. He needs to pay $3,000 income tac for IRA withdrawl and $1,000 penalty
c. He needs to pay $1,000
d. He does not need to pay income tax or penalty.
2. Mark (age 45) has contributed $200,000 in his Roth IRA over the last 15 years. The investment in IRA has $100,000 earnings over the years. He wants to withdraw $100,000 from the Roth IRA to starts a business. His income tax bracket 30%. Which of the following statements are true?
a. He may withdraw $100,000 contributions, but he has to pay $30,000 income tax and $10,000 penalty
b. He may withdraw $100,000 contributions income tax-free and penalty free
c. He may withdraw $100,000 contributions income tax-free, but he has to pay $10,000 penalty
d. He may withdraw $100,000
3. In a defined benefit plan, ______ makes investment decisions and takes investment risks. In a defined contribution plan, ______ makes investment decisions and takes investment risks.
a. Employer; employee
b. Employer; employer
c. Employee; employer
d. Employee; employee
4. Max and Susan Smith live in California. They bought a $5M house after they got married as community property with right of survivorship. In Susan's will, she leaves her share of the house to her daughter Lily from previous marriage. Who will receive Susan's share of the house after she dies?
a. Lily
b. Max
c. Lily and Max will each receive 50% of Susan's share of the house
d. It will be decided by court
5. Max and Susan Smith live in California. They bought a $5M house after they got married as community property. In Susan's will, she leaves her share of the house to her daughter Lily from previous marriage. Who will receive Susan's share of the house after she dies?
a. Lily
b. Max
c. Lily and Max will each receive 50% of Susan's share of the house
d. It will decided by court
6. Which of the following is secured debt?
i. Credit card debt
ii. Mortgage
iii. Auto loan
iv. Student loan
7. Max wants to reduce estate tax, so he should out $14M investment building in a ______.
a. Will
b. Revocable trust
c. Irrevocable trust
d. Living will
8. Max and Susan are applying for mortgage to buy their first house. Max's FICO scores are 760,800, and 780. Susan's FICO scores are 680, 770 and 710. If they apply together, which FICO score will be used to determine mortgage nterest rate?
a. 780
b. 700
c. 680
d. 760
e. 710
Part 2
1. Which of the following types of life insurance offers cash value?
1) 5 year terms life insurance
2) 20 year term life insurance
3) Whole life insurance
4) Universal life insurance
a. 1 and 2
b. 3 and 4
c. 4 only
d. 1, 2, 3 and 4
2. Mark is filling income tax return. He has $2000 deduction and $2000 tax credit. His income tax bracket is 10%. ________gives him more tax savings.
a. $2000 tax deduction
b. $2000 tax credit
c. 2000 deduction and 2000 credit give him same tax savings
d. Not enough info. To compare
3. Mary's house is $800,000 and she purchased $560,000 homeowners insurance coverage. Her homeowners insurance requires 80% coinsurance. During a winter storm, the roof was damaged and caused $200,000 loss. How much will her insurance pay?
a. $160,000
b. $200,000
c. $175,000
d. $100,000
4. Sarah bought a $500,000 whole life insurance policy on her husband jerry 10 years ago. They got divorced 3 years ago. Now the policy has $175,000 cash value. Jerry just died. How much will Sarah receive from the insurance policy?
a. Nothing because they got divorced 3 years ago.
b. $500,000
c. $175,000
d. $675,000
5. Which of the following bonds has the lowest default risk?
a. Bond X rated B+
b. Bond Y rated A
c. Bond Z rated AA
d. Bond M rated CCC
6. Which of the following mutual funds is least risky?
a. Emerging market fund
b. Large cap fund
c. Small cap fund
d. Mid cap fund
7. Fanny went to see an in-network doctor in March 2014 and had a medical bill of $2,800. This was her first visit in 2014. Her health insurance has a $4000 deductible and pays 70% for in-network physician and 30% for out-network physician. Her insurance should pay _____.
a. $2,800
b. $1,960
c. $840
d. $0