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Homer and Marge are married. Homer died this year at age 66. Marge is his sole beneficiary for his IRA. What is/are Marge's option(s) for handling the required minimum distributions (RMDs) from his IRA assets? 1. Marge must begin distributions in the year following the year Homer died. 2. Marge can move Homer's account into her previously existing IRA. She will not be subject to RMDs until she reaches age 72. 3. Marge's only requirement is to have the account totally distributed by December 31 of the year with the 10th anniversary of Homer's death. 4. Marge can move Homer's IRA into an inherited IRA. She would have to start RMDs when Homer would have been 72. - Correct Answer B 2 AND 4 As the sole beneficiary who is a surviving spouse, Marge is an eligible designated beneficiary (EDB). Being a spouse EDB gives her the unique ability to move the decedent's retirement money into a retirement account in her name. This is not only true for an IRA; she could also move the money into her employer retirement Mary Goodwin's financial situation is as follows: Cash/cash equivalents$15,000 Short-term debts$8,000 Long-term debts$133,000 Tax expense $7,000 Auto note payments $4,000 Invested assets $60,000 Use assets $188,000 What is her net worth? - Correct Answer Assets = $263,000; liabilities = $141,000, so net worth is $122,000. Taxes and auto note payments appear on the cash flow statement. 1-3 Salaries$70,000 Auto payments$5,000 Insurance payments$3,800 Food$8,000 Credit card balance$10,000 Dividends$1,100 Utilities$3,500 Mortgage payments$14,000 Taxes$13,000 Clothing$9,000 Interest income$2,100 Checking account$4,000 correct statements about income replacement percentages - Correct Answer Income replacement percentages are typically much higher for those with lower preretirement incomes. Income replacement percentages vary between low-income and high-income retirees. Income replacement ratios should not be used as the only basis for planning. Income replacement ratios are useful for younger clients as a guide to their long-range planning and investing. The inverse of Option | is true. Those with a lower preretirement income typically need a much higher income replacement percentage in retirement. LO 1-4 If Tom and Jenny want to save a fixed amount annually to accumulate $2 million by their retirement date in 25 years (rather than an amount that grows with inflation each year), what level annual end-of-year savings amount will they need to deposit each year, assuming their savings earn 7% annually? - Correct Answer return compounded monthly. They want to start their monthly retirement withdrawals on the first day they retire. What is the lump sum needed at the beginning of retirement to fund this income stream? - Correct Answer The monthly retirement income need is not specified as "today's dollars," and no inflation rate specified; therefore, it must be assumed that the $2,500 net monthly income need represents retirement dollars, and the retirement period income stream is level. To calculate the lump sum needed at the beginning of retirement, discount the stream of monthly income payments at the investment return rate: 10BII+ PVAD calculation: Set calculator on BEG and 12 periods per year, then input the following: 2,500 [PMT] 25 [SHIFT] [N] 6 [I/YR] 0 [FV] Solve for PV = $389,957 LO 1-4 Chris and Eve Bronson have analyzed their current living expenses and estimated their retirement income need, net of expected Social Security benefits, to be $90,000 in today's (2) Determine retirement fund needed to meet income deficit:$239,925payment (future value of income deficit in first retirement year)30number of periods in retirement The lump sum needed at the beginning of the - Correct Answer This PVAD calculation requires that the calculator be set for beginning-of-period payments. First, the annual retirement income deficit is expressed in retirement-year-one dollars, resulting in a $239,925 income deficit in the first retirement year. This income deficit grows with inflation over the 30-year retirement period, and the retirement fund earns a 7% return. The calculator inputs are $239,925, [PMT]; 30, [N]; 2.8846, [I/YR]. (1.07/1.04)-1 x100 Solve for [PV], to determine the retirement fund that will generate this income stream. If you enter 2.8846 directly into the calculator, you will get $4,911,265. If you use the equation to compute I/YR, and then hit the I/YR button you will get $4,911,256. Either way the answer is clear. The difference is that when you calculate the I/YR, the calculator takes the interest rate out to nine decimal places. If you analyze information C) make and implement recommendations D) monitor performance - Correct Answer When the client's circumstances change, the asset management process goes back to the data gathering step in the process. A LO 1-2 Which one of the following is not a key attribute of an investment policy? A) clearly defined B) fluid C) realistic D) long-term perspective - Correct Answer An investment policy provides guidelines that are standards to be followed. If they are fluid, they are ever-changing and therefore would be difficult to implement and would provide inconsistency in the management of the portfolio. LO 2-1 strategic. - Correct Answer Alpha is not an asset allocation strategy, but a way to measure a portfolio manager's return relative to the amount of risk that has been taken. alpha LO 2-5 Assume the following asset classes have the correlations to long- term government bonds shown below: Treasury bills:.12 Gold:-.25 Large stocks:.22 Small stocks:.17 Which one of the following best exemplifies the impact of diversification on long-term government bonds? - Correct Answer The asset with the lowest correlation provides the most diversification. Therefore, gold provides more diversification than any of the other assets. Small stocks do provide more diversification than Treasury bills, but gold provides the most diversification, so it is the best option. LO 2-3 The two major risks associated with individual common stocks are 
