1. What does the term vesting refer to? - answer✔Pension legislation determines when
employees are vested, which means that they have a claim to the money that has been
reserved for them upon retirement, even if they leave their company
- Contributions within an employer-sponsored retirement plan must be vested with the
employee no later than two years after the employee has become a member of the pension
plan
- One you are fully vested, the employer and employee contributions must be used to provide
you with a retirement income at retirement.
Vested pensions benefits may be:
· Left in your former employer's pension account
· Transferred to your new employer, if it has an employer-sponsored pension plan that permits
the transfer
· Transferred to an individual locked-in retirement account (LRA)
2. What is the difference between current and long term liabilities? - answer✔Current
liabilities: personal debts that will be paid in the near future (w/in a year)
Long term liabilities: debt that will be paid over a period longer than one year.
3. What is a personal cash flow and what information does it present? - answer✔Budgeting: a
process of forecasting future income, future expenses, and savings. When budgeting, the first
step is to create a personal cash flow statement which measures your income and expenses.
- Comparing your income and expenses allows you to see where your money is going. This is
necessary so you can then monitor your spending and determine the amount of cash that you
can allocate toward an emergency fund, investments and other purposes.
Creating a personal cash flow statement:
You can create a personal cash flow statement by recording how you received income over a
given period and how you used cash for expenses.
Net cash flow = Income - Expenses
4. What is the effect of inflation on interest rates? - answer✔Inflation: is a rise in the general
level of prices. In times of inflation, the buying power of the dollar increases.
● The main cause of inflation is an increase in demand with an decrease in supply.
● Inflation can harm those on fixed incomes and lenders through increased interest rates.
As interest rates are lowered, more people are able to borrow more money. The more money
people spend, the more people will be in demand and inflation will increase. Also, as interest
rates increase, consumers have less money to spend causing the economy to slow down and
inflation decreases.
5. In what cases would you use the EAR formula? In other words, what does the formula allow
you to do? - answer✔Effective interest rate: is the actual rate of interest that you earn, or pay,
over a period of time. The effective interest rate allows for the comparison of two or more
interest rates because it reflects the effect of compound interest.
It allows us to compare to different products including loans, lines of credits, or investment
products that calculate compound interest differently.
6. Place different types of investments (GIC, government bonds, mutual fund, stocks) in order
from highest to lowest level of safety. - answer✔Safe investments include: government savings
bonds, savings accounts, term, deposits, GIC
High risk investments include: speculative stocks, certain bonds, real estate, derivatives,
commodities, options, precious metals, precious stones, and collectibles.
7. Which one of the following are subtracted from total income when filing a tax return: RPPs,
charitable donations, mortgage interest, alimony payments, or foreign income exclusions? -
answer✔
8. What does the term deduction refer to and what are common deductions subtracted from
total income to calculate tax liability? - answer✔Deduction serves as a way to reduce taxable
income.
Common deductions subtracted from total income to calculate tax liability:
(a)Contributions to retirement pension plans:
Registered pension plans (RPPs), Registered retirement savings plans (RRSPs)
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