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Chapter Five
Household Savings and Investment Decisions
This chapter contains 28 multiple choice questions, 10 short problems, and 9 longer problems.
Multiple Choice
1. Getting a professional degree can be evaluated as ________.
a) a social security decision
b) an investment in human capital
c) an investment in a consumer durable d) a tax exempt decision
Answer: (b)
2. Suppose you will face a tax rate of 20% before and after retirement. The interest rate is 8%.
You are 30 years before your retirement date and invest $10,000 to a tax deferred retirement plan. If you choose to withdraw the total accumulated amount at retirement, what will you be left with after paying taxes?
a) $51,445 b) $64,000 c) $80,501 d) $100,627
Answer: (c)
3. Suppose you will face a tax rate of 20% before and after retirement. The interest rate is 8%.
You are 30 years before your retirement date and have $10,000 to invest. If you invest this in an ordinary savings plan instead of a tax deferred retirement plan, what amount will you have accumulated at retirement?
a) $51,445 b) $64,000 c) $80,501 d) $100,627
Answer: (a)
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4. When your tax rate remains unchanged, the benefit of tax deferral can be summarized in the
rule, “deferral earns you ________.”
a) the after-tax rate of return before tax b) the pretax rate of return after tax c) the after-tax rate of return after tax d) the pretax rate of return before tax
Answer: (b)
5. From an economic perspective, professional training should be undertaken if the ________
exceeds the ________.
a) future value of the benefit; present value of the costs b) present value of the benefits; future value of the costs c) future value of the benefits; future value of the costs d) present value of the benefits; future value of the costs
Answer: (d)
6. Suppose you will face a tax rate of 30% before and after retirement. The interest rate is 6%.
You are 35 years before your retirement date and $2,000 to a tax deferred retirement plan. If you choose to withdraw the total accumulated amount at retirement, what will you be left with after paying taxes?
a) $7,532 b) $10,760 c) $12,298 d) $15,372
Answer: (b)
7. Kecia is currently thirty years old and she plans to retire at age sixty. She is expected to live
to age eighty-five. Her labor income is $45,000 per year and she intends to maintain a constant level of real consumption spending over the next fifty-five years. Assuming a real interest rate of 4% per year, no taxes, and no growth in real labor income, what is the value of Kecia’s human capital?
a) $31,797 b) $35,196 c) $778,141 d) $994,888
Answer: (c)
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8. Kecia is currently thirty years old and she plans to retire at age sixty. She is expected to live
to age eighty-five. Her labor income is $45,000 per year and she intends to maintain a constant level of real consumption spending over the next fifty-five years. Assuming a real interest rate of 4% per year, no taxes, and no growth in real labor income, what is the value of Kecia’s permanent income?
a) $31,797 b) $35,196 c) $778,141 d) $994,888
Answer: (b)
9. Oscar is currently thirty-five year old, plans to retire at age sixty-five, and to live to age
eighty-five. His labor income is $40,000 per year, and he intends to maintain a constant level of real consumption spending over the next fifty years. Assuming a real interest rate of 4% per year, no taxes, and no growth in real labor income, what is the value of Oscar’s human capital?
a) $884,344 b) $691,681 c) $39,999 d) $32,198
Answer: (b)
10. Oscar is currently thirty-five year old, plans to retire at age sixty-five, and to live to age
eighty-five. His labor income is $40,000 per year, and he intends to maintain a constant level of real consumption spending over the next fifty years. Assuming a real interest rate of 4% per year, no taxes, and no growth in real labor income, what is the value of Oscar’s permanent income?
a) $884,344 b) $691,681 c) $39,999 d) $32,198
Answer: (d)
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兹维博迪金融学第二版试题库5TB(1)
