FINC 355 RETIREMENT AND ESTATE PLANNINGHOMEWORK #2 ANSWER SHEET.docx

FINC 355: RETIREMENT AND ESTATE PLANNING
HOMEWORK #2 ANSWER SHEET
DIRECTIONS: Here is the Homework #2 Answer Sheet that you
should submit to your Homework #2 Assignment Folder.
Please submit your Homework #2 in MS Word format with the
following file name:
LastNameFirstInitial_Homework02AnswerSheet.docx. For
example, if you name is John Smith, the file name of your
Answer Sheet should be
SmithJ_Homework02AnswerSheet.docx.
If you have any questions or comments, please do not hesitate
to contact me.
NAME: _____________________________________
Question Number
Answer
1
2
3
4
5
6

7
8
9
10
11
12
13
14
15
16
17
18
19
20
1
In analyzing hits by V-1 buzz bombs in World War II, South
London was subdivided into regions, each with an area of
0.25km squared. Shown below is a table of actual frequencies of

hits and the frequencies expected with the Poisson distribution.
Use the values listed and a 0.05 significance level to test the
claim that the actual frequencies fit a Poisson distribution.
Number of bomb hits: 0 1 2 3 4 or More
Actual # of regions: 229 211 93 35 8
Expected # or regions: 227.5 211.4 97.9 30.5 8.7
A. What is the Null hypothesis?
a. The actual frequencies do not fit a Poisson distribution.
b. The actual frequencies fit a Poisson distribution.
B. What is the Test statistic?
C. What is the Critical Value?
D. What is the P-value?
E. Should we reject the null hypothesis?
FINC 355 RETIREMENT AND ESTATE PLANNING
HOMEWORK 2
1
DIRECTIONS: Here is the Homework #2 Assignment. Use the
Homework #2 Answer
Sheet for your responses to the questions. When you have
completed Homework #2
submit the Answer Sheet to your Homework #2 Assignment
Folder.
Please submit your Homework #2 in MS Word format with the

following file name:
LastNameFirstInitial_Homework02AnswerSheet.docx. For
example, if you name is John
Smith, the file name of your Answer Sheet should be
SmithJ_Homework02AnswerSheet.docx.
1-Under a qualified domestic relations order (QDRO)
a. a demand for cash payment can be made even if the plan has
no provision for the
account owner
b. a person who receives a distribution because of a QDRO can
roll over the
distribution to his/her own retirement account and preserve the
tax deferral
c. a means is provided to circumvent the provision that qualified
plan benefits cannot
be assigned to another
d. a and b
e. b and c
2- For IRAs, the early distribution penalty applies to all of the
following, except
a. distributions attributable to the participant’s disability
b. distributuions to unemployed individuals for health
insurance premiums under certain
conditions
c. distributions to the IRA participant’s estate prior to the
participant’s death

d. distributions for higher education costs for the taxpayer
e. distributions made on or after attainment of age 59 ½
3- As an actuary, you are helping Roadster Custom Auto Shop
determine the annual cost of its
defined benefit plan. In making your calculations, you must
make reasonable
assumptions about:
a. employee turnover rate
b. employee salary scale
c. future investment and inflation rates
d. all of the above
e. only b and c
4- George Flint was transferred to Chicago three years ago.
When he left Detroit, he sold his
home and put some of the money in a new Roth IRA. He and his
wife, Wilma, have been
renting a home for the past 3 years. Recently, the homeowner
decided to sell. George is
interested in buying the home. George can make a penalty-free
withdrawal from his Roth
IRA to help complete the purchase.
HOMEWORK 2
2

a. true
b. false
5- Gary Hinton, age 54, is planning to retire this year. He has
$600,000 accumulated in a
traditional IRA.
a. Gary must wait until he is 59½ to take IRA distributions
without penalty
b. Gary could take an IRA distribution of $100,000 without
penalty before age 59½ if he
uses the money to make a qualified purchase of a condo in a
retiree community
c. Gary must pay a 10% penalty for any withdrawals that he
makes from his IRA before
age 59½ unless the distribution is to purchase health insurance
or medical care
d. an amount equal to an annual payment under a life annuity
can be distributed to
Gary without penalty, but once begun, the payment can never be
changed
e. Gary can make penalty-free withdrawals in an amount equal
to an annual life annuity
payment until age 59½; at that time, he can withdraw the
remaining balance in his
IRA without penalty
6- Minnie and Micky Pluck are married, filing jointly in 2013.
Minnie earns $60,000 a year and

takes full advantage of her employer’s qualified retirement plan.
Micky is not employed.
a. Micky can receive a full deduction for an IRA contribution
b. Micky can receive a partial deduction for an IRA contribution
c. both Micky and Minnie can make a nondeductible IRA
contribution
d. Micky cannot make an IRA contribution
e. Minnie can make a nondeductible IRA contribution, but
Micky cannot make an IRA
contribution because he has no earned income
7- Brothers Tim and Jim Shanton have asked you, their financial
advisor, to settle a friendly
quarrel between them. Tim argues that a Roth IRA and a
traditional IRA are actuarially
equivalent if $4,000 is available for investing on a before-tax
basis, contributions to the
traditional IRA are deductible, tax rates are expected to stay the
same, and both have
the same interest rates. So, it makes no difference which vehicle
one uses to save for
retirement. Jim insists that a Roth IRA is the better investment.
You tell them
a. Tim is wrong; the tax deduction available for a traditional
IRA allows more money to
work for the contributor
b. Jim is wrong; at least for some low-income individuals, the
traditional IRA is a better
investment because of its relatively lower tax rates
c. Tim is right; the two investments are equivalent in every

respect when considered at
the end of an investment horizon at least 10-years long
d. Jim is right; the ability to make tax-free withdrawals from a
Roth IRA gives a greater
return even when contributions and interest rates are equivalent
over time
e. both are right; the two investments are actuarially equivalent,
but absence of a
minimum distribution date and more liberal penalty-free
withdrawal options may
make the Roth IRA more attractive
HOMEWORK 2
3
8-Bankroll Corp. sponsors a profit sharing plan in which
Bankroll’s four employees made
elective deferrals. The payroll of Bankroll Corp. is $500,000.
Bankroll’s deduction is:
a. $40,000
b. $75,000
c. $125,000
d. $165,000
e. $500,000

9- Advantages of rolling a qualified plan over to an IRA include
a. an IRA can invest in life insurance
b. there may be more investment flexibility with an IRA
c. spousal consent is required for IRA distributions
d. the ability to take loans from the IRA
10- Dalton Construction has a defined contribution plan that
provides 65% of account balances
to the three owners, each of whom have a 10% ownership of the
company. To remain
qualified, which of the following vesting schedules would
Dalton be permitted to use?
a. 5-year cliff
b. 3 to 7 year
c. 3-year cliff
d. a and b
e. b and c
11- Ann has a Roth IRA. She died this year. Her son Jim is the
designated beneficiary. Jim is
not required to start minimum distributions next year because
Roth IRAs are not subject
to the required minimum distribution rules after death.
a. true
b. false
12- Brothers Tim and Jim Shanton have asked you, their
financial advisor, to settle a friendly
quarrel between them. Tim argues that a Roth IRA and a

traditional IRA are actuarially
equivalent if $4,000 is available for investing on a before-tax
basis, contributions to the
traditional IRA are deductible, tax rates are expected to stay the
same, and both have
the same interest rates. So, it makes no difference which vehicle
one uses to save for
retirement. Jim insists that a Roth IRA is the better investment.
You tell them
a. Tim is wrong; the tax deduction available for a traditional
IRA allows more money to
work for the contributor
b. Jim is wrong; at least for some low-income individuals, the
traditional IRA is a better
investment because of its relatively lower tax rates
c. Tim is right; the two investments are equivalent in every
respect when considered at
the end of an investment horizon at least 10-years long
HOMEWORK 2
4
d. Jim is right; the ability to make tax-free withdrawals from a
Roth IRA gives a greater
return even when contributions and interest rates are equivalent
over time

e. both are right; the two investments are actuarially equivalent,
but absence of a
minimum distribution date and more liberal penalty-free
withdrawal options may
make the Roth IRA more attractive
13- Requirements for participant loans from qualified retirement
plans include which of the
following:
a. the loan must bear reasonable repayment terms
b. the loan may not exceed specific dollar limits
c. a written loan contract signed by all parties must be used
d. a and b
e. b and c
14- Any distribution from a qualified retirement plan is eligible
for a rollover except which of the
following?
a. hardship withdrawal
b. a required minimum distribution
c. a distribution from a series of substantially equal payments
d. all of the above
e. only a and c
15- Ken and Barbie Dahl file a joint tax return in 2013. Both are
employed. Ken is an active
participant in his employer’s qualified retirement plan. Barbie is
not. Barbie earns
$125,000 and Ken earns $75,000. Assuming they have no other
tax deductions,

a. based on their income levels, Ken can contribute to a
traditional IRA and deduct
contributions, but Barbie must contribute to a Roth IRA
b. both Ken and Barbie can make a deductible contribution to a
traditional IRA
c. Ken can make a deductible IRA contribution, but Barbie must
make a nondeductible
IRA contribution
d. neither Ken nor Barbie can make a traditional IRA
contribution because Ken is an
active participant in his employer’s qualified plan
e. neither Ken nor Barbie can make a deductible contribution to
a traditional IRA
16- When rolling over an existing IRA to a Roth IRA, all of the
following are true, except
a. the amount rolled over is not included in the gross income of
the IRA account holder
for federal income tax purposes
b. there is no limit on the rollover, and it can be a total or
partial rollover of an existing
IRA
c. distributions from the Roth IRA are received tax free if they
are made after a 5-year
holding period and they are made after age 59 ½, death,
disability, or for a first-time
home purchase

HOMEWORK 2
5
d. no minimum distribution rules apply to the Roth IRA except
at death
e. all of the above are true
17- Bob died in 2009 at age 60. Bob named his spouse, Jessica
(age 58), as beneficiary of his
qualified plan.
a. Jessica can roll over the qualified plan assets to a traditional
IRA. If she does so,
minimum distributions from the IRA must begin in 2012.
b. If Jessica does not roll over the qualified plan assets to a
traditional IRA, minimum
distributions from the IRA must begin in 2010.
c. Jessica can roll over the qualified plan assets to a traditional
IRA. If she does so,
minimum distributions from the IRA must begin when Jessica
attains age 70½.
d. If Jessica does not roll over the qualified plan assets to a
traditional IRA, minimum
distributions from the IRA must begin when Jessica attains age
70½.

18- Jon, age 53, is a disabled veteran. He is married to Lisa, age
50, and they have two
children. Their son Garrett is 15 years old. Their daughter
Olivia is 23 years old and was
diagnosed with multiple sclerosis when she was 22 years old. In
determining who is
entitled to Social Security disability benefits, which of the
following are true?
(1) Only Jon is eligible
(2) Lisa is not eligible because she is not older than 62
(3) Lisa is eligible because she is caring for a child under age
16
(4) Garrett is eligible because he is unmarried and under age 18,
but Olivia is not eligible
because she was not diagnosed with a disability prior to age 22
a. (1) only
b. (1) and (2) only
c. (3) only
d. (3) and (4) only
19- Tony Johnson, an over-the-road trucker, had several out-of-
town trips early in the year, so
he got an extension for filing his income tax return. Tony can
make the maximum IRA
contribution this year. He has until the last date of his income
tax filing extension to
make a tax-deductible contribution to his IRA.
a. true
b. false

20- Orville Winbacher died last year at age 58, leaving
$500,000 accumulated in a Roth IRA.
Which of the following is (are) true?
a. monies in the Roth IRA must be distributed within a year of
the Orville’s death either
to his estate or to a beneficiary
b. distribution from the account can be made over the life of a
designated beneficiary if
begun within a year of Orville’s death
c. initial distribution of Orville’s Roth IRA funds to a
beneficiary are tax-free, but
subsequent investment returns on amounts distributed are
taxable
HOMEWORK 2
6
d. a and b
e. b and c
FINC 355 WEEK 2
HOMEWORK 2 ATTACHED***
DISCUSSION WEEK2:
1. Discuss the advantages and disadvantages to using a
traditional IRA, including when it may be advantageous to use a
nondeductible IRA.

2. Discuss when and how a Roth IRA may be a more
advantageous choice than a traditional IRA.
3. Discuss required minimum distributions after death.
4. Discuss reasons for making premature withdrawals from
qualified retirement plans along with reasons why these
withdrawals are taxed and often penalized.
FINC 440 WEEK 2
1. Types of Risk –
The textbook explains that there are two types of risk. What are
these two types of risk and should investors be concerned about
them? By what methods are these risks measured by analysts?
2. Market Efficiency –
Are security markets efficient?
In formulating your response, provide evidence that
demonstrates that markets are efficient; also, offer specific
evidence that suggests that markets are not efficient?
Why is the view about market efficiency important to the
valuation process?
3. Beatitude of Efficient Markets –
The beatitude of efficient markets suggests that “blessed are
those who believe in the inefficiency of financial markets and
the predictability of prices, for it is through their efforts to
prove that markets are inefficient that we are truly blessed with
efficiency.” What does this statement mean?
4. Risk-free Rate –
How should an analyst determine the risk-free rate that is to be
used in any particular valuation assignment?
5. Most Important Things Learned –
What are the most important things you learned from the study
of this week’s readings and assignments?

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