CPCU 553 - chapter 10 Exam Questions with 100% Verified & Complete Answers

CPCU 553 - chapter 10 Exam Questions with 100% Verified & Complete Answers Identify the objective of retirement planning. - Answer ️️ -The objective is to accumulate sufficient funds to meet expenses (especially when increased costs for age related expenses such as healthcare, long-term care) and maintain an acceptable standard of living. Identify how individuals can supplement the minimal retirement income Social Security provides. - Answer ️️ -They can do this via employer-sponsored retirement and pension plans, personal savings and investments, annuities, individual retirement accounts, and cash value from life insurance policies. List potential capital investment objectives (6). - Answer ️️ -1. Capital appreciation 2. Preservation of capital 3. Current income 4. Growth and income 5. Liquidity 6. Minimizing taxes Explain the goal of the preservation of capital investment objective. - Answer ️️ -To maintain the value of investments, rather than increase their value. Explain the purpose of the investment objective of minimizing taxes. - Answer ️️ -To obtain a tax savings large enough to offset the lower rate of return, which would result in a higher net rate of return, after taxes. Identify four commonly used forms of savings instruments. - Answer ️️ -Savings account, certificates of deposit, money market mutual funds, and money market deposit accounts. List some of the common risks (8) that affect investors: - Answer ️️ -1. Purchasing power/ inflation risk 2. Market risk 3. Interest-rate risk 4. Maturity risk 5. Financial or credit risk 6. Business risk 7. Liquidity risk 8. Investment manager risk Describe the concept of maturity risk. - Answer ️️ -Maturity risk is the risk associated with securities that may mature at a time when interest rates are lower than those provided by the maturing investments, causing the investor to reinvest at a lower rate of return. Explain why stocks are the most risky of the commonly used types of investment. - Answer ️️ -Stocks are the most risky of the commonly used types of investment because stock prices can go up or down dramatically in a relatively short period. In terms of investor age limitations, contrast traditional individual retirement accounts (IRAs) and Roth IRAs. - Answer ️️ -A traditional IRA restricts eligibility based on the investor's age; a Roth IRA does not. In terms of investment limitations based on the investor's income, contrast traditional IRAs and Roth IRAs. - Answer ️️ -A Roth IRA limits contributions based on the investor's modified adjusted gross income; a traditional IRA does not. Explain how Roth IRAs differ from traditional IRAs when the owner does not start receiving distributions before reaching age seventy-and-one-half. - Answer ️️ -Unlike a traditional IRA, Roth IRAs impose no penalty if the owner does not start receiving distributions before age 70.5. In fact, during the lifetime of a Roth IRA owner, there a