01The correct base for sizing an emergency reserve is:
- A. Take-home pay
- B. Fully-loaded monthly expenses including amortized irregulars
- C. Discretionary spending only
- D. Fixed expenses only
Reveal answer
B. The reserve exists to cover actual spending in a bad month. Amortize irregular items — insurance, car maintenance — into the monthly figure.
02A single-income household with a variable-income earner should target:
- A. Three months
- B. Six months
- C. Nine to twelve months
- D. Twenty-four months
Reveal answer
C. Income fragility dials the reserve up. Nine to twelve months is standard for households with variable income or a single earner.
03The emergency reserve is best held:
- A. In the primary checking account for accessibility
- B. In equities to keep pace with inflation
- C. In a high-yield savings account or T-bill ladder at a separate institution
- D. In physical cash at home
Reveal answer
C. Liquid, insured, and separated from the operating account.
04T-bill interest is exempt from:
- A. Federal income tax
- B. State and local income tax
- C. Both federal and state
- D. Social Security tax
Reveal answer
B. As direct obligations of the federal government, T-bill interest is federally taxable but exempt from state and local income tax.
05Overfunding the reserve is best characterized as:
- A. Prudent
- B. A real opportunity cost equal to the household's investment return on the excess
- C. Free insurance
- D. Only a problem in inflationary environments
Reveal answer
B. Every dollar in reserve above the target is a dollar not compounding at the household's investment rate; the gap is a real cost.
06The SEC 7-day yield of a money-market fund is:
- A. The trailing 12-month distribution
- B. An annualized yield computed from the last seven days of income, net of fees
- C. The nominal coupon on the fund's largest holding
- D. The yield to maturity of the average holding
Reveal answer
B. The SEC 7-day yield is the standardized comparable metric for money-market funds.
07The primary risk of a prime money-market fund relative to a government fund is:
- A. Interest-rate risk
- B. Duration risk
- C. Credit risk on short-term corporate paper
- D. Liquidity risk from redemption fees
Reveal answer
C. Prime funds hold commercial paper; a stress event that impairs corporate credit — like 2008 — is where the risk manifests.
08A two-tier reserve holds:
- A. One month in cash, the rest in equities
- B. One month in a high-yield savings account, the rest in a T-bill ladder or government money-market fund
- C. Everything in a single high-yield savings account
- D. Everything in physical cash
Reveal answer
B. One month for instant access, the balance for full market yield without sacrificing safety.
A short assessment of comprehension before advancing.