1.While advisory services provide detailed information on common and preferred stocks,
there are no advisory services that provide information on mutual funds.
Answer:FALSE2.A guardian is a person or
an institution that holds property for the benefit of someone else.
Answer:FALSE3.An estate plan is usually
implemented by a will and one or more trust agreements.
Answer:TRUE4.Your friends and neighbors
can get credit information about you.
Answer:FALSE5.Earned interest on annuities
accumulates tax-free until the annuity payments begin.
Answer:TRUE6.Interest on savings is
calculated by multiplying the money amount times the opportunity cost times the annual
interest rate.
Answer:FALSE7.Making any changes on the
face of your will can invalidate it.
Answer:TRUE8.Present value is also referred
to as compounding.
Answer:FALSE9.Financial planning has
specific techniques that will be effective for every individual and household.
Answer:FALSE10.A credit-shelter trust is
known as a bypass trust, a “residuary” trust, an A/B trust, or a family trust.
Answer:TRUE11.All bonds in a serial bond
issue mature on the same date.
Answer:FALSE12.If you work after 65, your
Social Security benefits will neither increase nor decrease.
Answer:FALSE13.An FHA-insured
mortgage has less risk than a conventional mortgage for the financial institution.
Answer:TRUE14.Current business and
economic news can be an indication of future job demand.
Answer:TRUE15.The rate of return on an
investment has no affect on a long-term investment program.
Answer:FALSE16.One needs at least
$25,000 to indirectly invest in participation certificates.
Answer:FALSE17.General partners in a real
estate limited partnership bear unlimited liability.
Answer:TRUE18.An example of an indirect
real estate investment is a(n):
A.single family dwelling.
B.duplex.
C.apartment.
D.land.
E.participation certificate.
Answer:E19.The state of Oklahoma imposes
a tax of $.17 per gallon on gasoline. What type of tax is this most likely to be?
A.general sales tax
B.excise tax
C.personal property tax
D.income tax
E.estate tax
Answer:B20.A corporate bond that is secured
by various assets of the issuing firm is called a(n) ____________ bond.
A.debenture
B.mortgage
C.indenture
D.preemptive
E.treasury
Answer:B21.Which one of the following
should be budgeted first?
A.variable expenses
B.vacation expenses
C.fixed expenses
D.unplanned living expenses
E.recreation expenses
Answer:C22.Chuck Stallings qualifies for a
credit card from J.C. Penney. Which of the following offers this type of loan?
A.credit union
B.payday advance company
C.finance company
D.department store
E.commercial bank
Answer:D23.As a shareholder in a mutual
fund, you should receive a(n):
A.annual report.
B.12b-1 report.
C.annual prospectus.
D.annual summary report from the president of the investment company.
E.copy of the annual mutual funds report containing a summary of the professional
advisory services comments.
Answer:A24.An emergency fund should be
deposited in a:
A.savings account at the highest available interest rate.
B.six-month certificate of deposit.
C.checking account.
D.safe place at home.
E.safe deposit box in a bank vault.
Answer:A25.Elizabeth Gleason just died. At
the time of her death the total value of her assets was $150,000. The federal government
collected $7,500 in taxes based on this value. What type of tax is this most likely to be?
A.general sales tax
B.excise tax
C.personal property tax
D.income tax
E.estate tax
Answer:E26.Most consumer complaints are
resolved by:
A.legal action.
B.assistance from a government agency.
C.contacting a company’s headquarters.
D.returning to the place of purchase.
E.obtaining help from an action line.
Answer:D27.Which federal law prohibits
credit card issuers from sending unrequested cards?
A.Truth in Lending Act
B.Fair Credit Reporting Act
C.Fair Credit Billing Act
D.Equal Credit Opportunity Act
E.Fair Debt Collection Practices Act
Answer:A28.Earnest money is used:
A.to pay real estate property taxes.
B.to reduce the mortgage interest rate.
C.as evidence of good faith by a homebuyer.
D.to pay the real estate agent’s commission.
E.to pay a mortgage application fee.
Answer:C29.Hospital insurance (Part A) and
medical insurance (Part B) are characteristics of :
A.Blue Cross.
B.Blue Shield.
C.Medicare.
D.Medicaid.
E.HMO.
Answer:C30.A request that an order be
executed at the next available opportunity after the market price of the stock reaches a
specified price is called a ____________ order.
A.market
B.limit
C.stop
D.round
E.discretionary
Answer:C31.For which of the following
types of credit plans is the interest tax deductible?
A.home equity loan
B.auto loan
C.credit card
D.life insurance policy cash value loan
E.personal cash loan from a credit union
Answer:A32.Which one of the following is
not a typical characteristic of a defined contribution plan?
A.employer matching contributions
B.ability to transfer account balance to an IRA
C.guaranteed formula-based benefit
D.employee-managed investments
E.lump-sum withdrawal option
Answer:C33.Jim Brown has a life insurance
policy that allows him to change his policy to fit his changing needs. He can change either
the premium he pays or the period of coverage. What type of insurance does Jim likely
have?
A.ordinary whole life
B.limited payment life
C.variable life
D.adjustable life
E.universal life
Answer:D34.Sean Rouse owns shares of
common stock in Stowaway Transportation Company. The company is getting ready to
pay a dividend. Sean knows he must be registered on the corporation’s books on the date in
order to receive the dividend.
A.record
B.ex-dividend
C.payment date
D.declaration
E.stockholders’ meeting
Answer:A35.Kenton Greer wants to locate
employment positions presently available in his career area. This information would be
best obtained:
A.the Occupational Outlook Handbook.
B.professional contacts.
C.an informational interview.
D.the Bureau of Labor Statistics.
E.business and economic news reports.
Answer:B36.Which one of the following
factors is used to determine a person’s driver classification?
A.age
B.type and age of vehicle
C.claims in your geographic area
D.insurance company claim processing costs
E.state insurance premium regulations
Answer:A37.Which one of the following is
not a recommended step individuals can use to weather a future financial crisis?
A.establish a smaller than usual emergency fund
B.consider converting investments to cash to preserve value
C.contact banks and credit card companies if you are unable to make payments
D.pay off credit cards
E.seek cheaper alternatives to frequently purchased items
Answer:A38.Bob McDowell is thinking
about buying an investment. The most important consideration when making this
investment is the location of the investment. What investment is Bob thinking about
purchasing?
A.common stock
B.preferred stock
C.corporate bond
D.real estate
E.mutual fund
Answer:D39.Brian Porter’s net worth is
$110,000, excluding his home. His liabilities of $50,000 include all of his credit card
balances and the balance due on his auto loan and home improvement loan. His townhouse
has a market value of $220,000 and he owes $190,000 to his mortgage company. What is
Brian’s debt-to-equity ratio?
A..65
B..74
C..45
D..35
E..28
Answer:C40.Which one of the following
wills automatically leaves one-half of your adjusted gross estate to your spouse?
A.simple
B.traditional marital share
C.exemption trust
D.stated dollar amount
E.A/B trust
Answer:B41.Acme Widget, Inc. has 1,000
shareholders who own a total of one million shares of its common stock. The stock
currently sells for $85 per share. The company earned $5 million after taxes. The annual
dividend is $0.50 per share. The firm has assets of $125 million and liabilities of $25
million. What is the P/E ratio?
A.10
B.11
C.13
D.17
E.20
Answer:D
EPS = $5 million/1 million = $5; P/E = $85/$5 = 17
42.Standard & Poor’s and Value Line are companies that would be
examples of:
A.stockbrokers.
B.securities exchanges.
C.stock regulations.
D.investors’ services.
E.stock underwriters.
Answer:D43.Who is likely to have the least
need for life insurance?
A.married couple, only one spouse working, with three small children
B.single person living with parents
C.married couple with solid jobs and no dependents
D.married working couple with one child
E.single person about to be married
Answer:B44.Jim Roy visits the doctor for his
annual check-up which costs $85. He is billed for this at the end of the month. What type
of credit did Jim use?
A.installment sales credit
B.installment cash credit
C.single lump sum credit
D.revolving credit
E.incidental credit
Answer:E45.Which one of the following
investments would rank the highest with regard to safety?
A.government bond
B.common stock
C.preferred stock
D.corporate bond
E.real estate
Answer:A46.Which federal consumer credit
law starts all credit applicants off on the same footing?
A.Fair Credit Reporting Act
B.Truth in Lending Act
C.Fair Credit Billing Act
D.Fair Debt Collection Practices Act
E.Equal Credit Opportunity Act
Answer:E47.In what type of joint ownership
may neither spouse sell the property without the consent of the other?
A.tenancy by default
B.tenancy by the entirety
C.tenancy in common
D.joint tenants with the right of survivorship
E.simple tenancy
Answer:B48.Sloane owes $2,600 on her car
loan. According to Edmonds Used Car Prices, her car is valued at $1,950. The term used to
refer to this situation is:
A.residual value.
B.pre-approval.
C.capitalized cost.
D.negative equity.
E.money factor.
Answer:D49.Mr. and Mrs. Keating want to
give their son Dudley a total of $24,000. They each write him a check for $12,000 so they
won’t have to pay any gift tax. This is an example of:
A.fraud.
B.tax evasion.
C.tax exclusion.
D.tax avoidance.
E.tax deferred income.
Answer:D50.A bankruptcy will remain on
your credit report for __________ year(s).
A.2
B.up to 10
C.no more than 7
D.20 or more
E.2 to 4
Answer:B51.Randal Ice has adjusted gross
income of $32,000. He has medical expenses for the year of $6000. How much of these
expenses can he deduct from adjusted gross income?
A.$0
B.$2,400
C.$3,600
D.$4,500
E.$6,000
Answer:C
$32,000 x .075 = $2,400 $6,000 – $2,400 = $3,600
52.The Expedited Funds Availability Act requires that funds be available
to depositors:
A.within 5 days for local checks
B.within 2 days for local checks
C.within 2 days for both local checks and out-of-town checks
D.within 2 days for out-of-town checks
E.immediately upon deposit
Answer:B53.How do creditors determine
your credit-worthiness?
Answer:
Answers will vary
Feedback: Creditors determine credit worthiness on the basis of the five Cs: character,
capacity, capital, collateral, and conditions.
54.What are two key concepts to keep in mind as you shop for credit?
Answer:Answers will vary
Feedback: Two key concepts are the finance charge and the APR. Compare the finance
charge and the annual percentage rate as you shop for credit. Under the Consumer Credit
Protection Act, which launched Truth in Lending, creditors are required to state the cost of
borrowing so that you can compare credit costs and shop for credit. Other key concepts are
the loan term, any collateral requirement, and any down payment requirement.
55.Cameron Nelson wants to complete his own federal income tax return.
He has several questions about the tax form to use and what items should be reported as
income. What sources of assistance would you recommend for Cameron?
Answer:
Answers will vary
Feedback: The IRS offers taxpayer assistance in several ways: publications, Web site,
recorded messages, toll-free hot line, IRS automated kiosks and walk-in service at local
IRS offices. In addition, other publications are available at bookstores and libraries to
assist taxpayers. Finally, he can utilize tax software to prepare tax returns or obtain
assistance with tax problems.
56.When choosing an insurance agent, what are some important questions
to ask?
Answer:There are many questions that you will likely want to
ask when you are selecting an insurance agent. Some very important questions are: Is your
agent available when needed? Does your agent advise you to have a financial plan? Does
your agent pressure you? Does your agent keep up with changes in the insurance field? Is
your agent happy to answer questions?
57.What are the steps in creating a plan to buy your life insurance?
Answer:
Before buying life insurance, you should consider a number of factors before buying life
insurance. These factors include your present and future sources of income, other savings
and income protection, group life insurance, group annuities (or other pension benefits),
Social Security, and, of course, the financial strength of the company. Look for insurance
coverage from financially strong companies with professionally qualified representatives.
Locate an insurance company by checking the reputations of local agencies. Ask members
of your family, friends, or colleagues about the insurers they prefer. For a more official
review, consult Best’s Agents Guide or Best’s Insurance Reports at your public library. As a
rule, you should deal with companies rated superior or excellent. In addition, Consumer
Reports, Kiplinger’s Personal Finance, and Money periodically provide satisfaction ratings
on various types of insurance and insurance companies. It is also important to choose an
insurance agent that will apply his or her knowledge of insurance to help you select the
proper kind of protection within your financial boundaries.
58.Describe the S-M-A-R-T approach to financial planning goal setting.
Give an example.
Answer:Answers will vary
Feedback: Goals should be specific, measurable, action-oriented, realistic and time-based.
Examples will vary.
59.Explain the difference between a defined-contribution and defined
benefit plan.
Answer:A defined-contribution plan has an individual account
for each employee. These plans are sometimes called individual account plans. The plan
document describes the amount the employer will contribute, but it does not promise any
particular benefit. When a plan participant retires or otherwise becomes eligible for
benefits, the benefit is the total amount in the participant’s account, including past
investment earnings on amounts put into the account. Defined-contribution plans include
the following:
1. Money-purchase pension plans. Your employer promises to set aside a certain amount
for you each year, generally a percentage of your earnings.
2. Stock bonus plans. Your employer’s contribution is used to buy stock in your company
for you. The stock is usually held in trust until you retire, at which time you can receive
your shares or sell them at their fair market value.
3. Profit-sharing plans. Your employer’s contribution depends on the company’s profits.
4. Salary reduction or 401(k) plans. Under a 401(k) plan, your employer makes nontaxable
contributions to the plan for your benefit and reduces your salary by the same amounts.
Sometimes your employer matches a portion of the funds contributed by you.
In a defined-benefit plan, the plan document specifies the benefits promised to the
employee at the normal retirement age. The plan itself does not specify how much the
employer must contribute annually. The plan’s actuary determines the annual employer
contribution required so that the plan fund will be sufficient to pay the promised benefits
as each participant retires. If the fund is inadequate, the employer must make additional
contributions. Because of their actuarial aspects, defined-benefit plans tend to be more
complicated and more expensive to administer than defined-contribution plans.
60.In what ways can you lower the risk to your lender in order to reduce
your borrowing costs?
Answer:Answers will vary
Feedback: One can take one or more of the following actions:
– Shorten the loan term
– Put up collateral
– Accept a variable interest rate
– Place a large down payment on the purchase
– Get a co-signer with good credit
61.What is the purpose of an escrow account and what costs are typically
included?
Answer:Answers will vary
Feedback: An escrow account protects the lender from loss due to unpaid real estate taxes
or damage from fire or other hazards. Real estate taxes and homeowners insurance are
typically deposited in an escrow account.
62.What are the six steps in the financial planning process?
Answer:
Answers will vary
Feedback: The personal financial planning process involves: (1) determine your current
financial situation, (2) develop financial goals, (3) identify alternative courses of action,
(4) evaluate alternatives, (5) create and implement a financial action plan, and (6) review
and revise the financial plan.