1.Disability benefits begin on the first day you are disabled.
Answer:FALSE2.A social factor that would
influence a consumer’s buying decision would be the hobbies and interests they have.
Answer:TRUE3.There are no costs involved
in filing for a bankruptcy.
Answer:FALSE4.A good health insurance
plan should impose no unreasonable exclusions.
Answer:TRUE5.A lender requires a cosigner
even when a borrower meets the lender’s criteria for making a loan.
Answer:FALSE6.Many people do little, if
any, estate planning.
Answer:TRUE7.It is unnecessary to modify
your will when you divorce or remarry.
Answer:FALSE8.When you cosign a loan,
you are being asked to guarantee this debt.
Answer:TRUE9.There are three types of
REITs: equity REITs, mortgage REITs, and hybrid REITs.
Answer:TRUE10.In the 5 Cs of credit,
conditions refers to general economic conditions that can affect your ability to repay a
loan.
Answer:TRUE11.A possible opportunity cost
associated with career advancement is a need to relocate your household.
Answer:TRUE12.Many investors and
analysts believe that a corporation’s ability or inability to generate earnings in the future
may be one of the most significant factors that account for an increase or decrease in the
value of a stock.
Answer:TRUE13.Credit unions rarely offer
the same range of consumer loans that banks and other financial institutions do.
Answer:FALSE14.Because of their actuarial
aspects, defined-benefit plans tend to be more-complicated and more expensive to
administer than defined-contribution plans.
Answer:TRUE15.Once you have
painstakingly developed a financial plan, it is unwise to change it.
Answer:FALSE16.Most insurance companies
can determine how long a particular person will live.
Answer:FALSE17.A no-load fund is a mutual
fund in which no sales charge is paid by the individual investor to buy or sell shares.
Answer:TRUE18.The purpose of insurance is
to help protect you and your family against financial hardship due to hazard, accident,
death, and similar risks.
Answer:TRUE19.Corporate bonds are a form
of equity financing that does not have to be repaid.
Answer:FALSE20.According to Moody’s,
bonds with extremely poor prospects of attaining any real investment standing are rated:
A.A-.
B.B-.
C.C.
D.E.
E.F.
Answer:C21.Which of the following is a
possible disadvantage of real estate investments?
A.lack of involvement in property maintenance
B.hedge against inflation
C.illiquidity
D.lack of financial risk
E.capital requirements for total venture may be high
Answer:C22.Determine the rate of return
(yield) on a savings account in which you deposited $300.00 and earned $6.00 in interest
after one year.
A.5.00%
B.0.05%
C.2.00%
D.0.20%
E.18.00%
Answer:C
2% = $6/$300
23.Contingent deferred sales loads generally:
A.apply until the shares you own are in the fund for 10 years or more.
B.apply regardless of how long your shares have been invested.
C.increase as the length of time you have been in the fund increases.
D.decline gradually until there is no withdrawal fee.
E.apply only for the first year funds are invested.
Answer:D24.A trust established by your will
that becomes effective upon your death is called a(n) ____________ trust.
A.testamentary
B.living
C.revocable
D.irrevocable
E.insurance
Answer:A25.Kyle Burroughs has decided to
put $25 more per week in his savings account. He knows this will reduce his ability to go
out to eat each week but thinks building his savings is important. This would be an
example of:
A.a budget variance.
B.an opportunity cost.
C.a balance sheet.
D.an accounting error.
E.a budget anomaly.
Answer:B26.Which of the following would
increase the risk of a loan?
A.rising consumer prices
B.a short time to maturity
C.lower consumer prices
D.constant interest rates
E.a good credit rating
Answer:A27.The highest bond rating issued
by Standard & Poor’s is:
A.AAA.
B.Aaa.
C.A +.
D.BB.
E.Aa.
Answer:A28.Thomas Franklin claimed an
additional $3,000 in deductions he knowingly knew he did not qualify for so he could
reduce his tax bill. This is referred to as tax:
A.avoidance.
B.acceleration.
C.evasion.
D.delaying.
E.deferment.
Answer:C29.A handwritten will is called
a(n):
A.holographic.
B.formal.
C.statutory.
D.exemption trust.
E.informal.
Answer:A30.If you are denied credit, your
first step should be to:
A.increase your income and decrease your spending.
B.reapply for credit.
C.hire an attorney and file a suit against the creditor.
D.check your credit file at the consumer bureau.
E.sue the credit bureau that provided the negative information.
Answer:D31.Opportunity cost refers to:
A.money needed for major consumer purchases.
B.what a person gives up by making a choice.
C.the amount paid for taxes when a purchase is made.
D.current interest rates.
E.evaluating different alternatives for financial decisions.
Answer:B32.Sloan Richards is buying shares
in a mutual fund that invests in companies that have a market capitalization of less than $2
billion. What type of mutual fund is this?
A.socially responsible fund
B.sector fund
C.small-cap fund
D.index fund
E.growth fund
Answer:C33.For all types of real estate
investments (EXCEPT residential real estate), the depreciation period is ____________
years.
A.7 1/2
B.17 1/2
C.20 1/2
D.27 1/2
E.31 1/2
Answer:E34.Which of the following should
you ask about when considering a long-term care insurance policy?
A.daily benefit
B.benefit period
C.policy limit
D.elimination period
E.all of the other answers
Answer:E35.Which of the following might
qualify Amy Farmer for a premium discount on her automobile insurance?
A.completing a driver’s training program
B.earning straight A’s in college
C.installing an alarm system in her car
D.participating in a carpool five days a week
E.all of the other answers
Answer:E36.A mutual fund that only invests
in companies outside the United States is called a(n) ____________ fund.
A.growth-income
B.income
C.international
D.industry
E.global
Answer:C37.Which of the following is a
credit bureau?
A.Federal Reserve
B.Federal Trade Commission
C.Better Business Bureau
D.Experian
E.FICO
Answer:D38.A fund to which annual or
semiannual deposits are made for the purpose of redeeming a bond issue is called a(n)
____________ fund.
A.serial
B.sinking
C.debenture
D.indenture
E.money
Answer:B39.John Camey has a life insurance
policy that is tied to a separate stock fund. The cash value of his insurance policy depends
on the value of this fund. He is guaranteed a minimum death benefit but the death benefit
can be higher, depending on the value of the fund. What type of life insurance does John
likely have?
A.ordinary whole life
B.limited payment life
C.variable life
D.adjustable life
E.universal life
Answer:C40.Kevin Brown rides his bicycle
to work so that he doesn’t have to worry about getting in a car accident. How is Kevin
managing his risk?
A.avoidance
B.reduction
C.assumption
D.shifting
E.creation
Answer:A41.Brenda Johnson has used a
preprinted form that she got from the internet to create her will. However, she was
unhappy with one section of the will and crossed out the parts she didn’t like and hand
wrote the changes she wanted. The changes that she made most likely made her will:
A.invalid.
B.an A/B trust.
C.a letter of last instruction.
D.a marital trust.
E.an exemption trust.
Answer:A42.The main economic influence
that determines prices is:
A.the stock market.
B.interest rates.
C.employment.
D.government spending.
E.supply and demand.
Answer:E43.A home equity loan may also be
referred to as a ____________ mortgage.
A.shared-appreciation
B.graduated-payment
C.growing-equity
D.second
E.buy-down
Answer:D44.Which one of the following
statements is false?
A.It is possible to obtain information about a corporation that issues a bond by accessing
the corporation’s home page on the Internet.
B.Price information about corporate bonds is available on the Internet.
C.You can research bonds online but you cannot trade them online.
D.There are fewer Web sites that provide information on bonds as compared to Web sites
that provide information on stocks.
E.All of the other answers are true.
Answer:C45.Generally, interest on corporate
bonds is paid every:
A.month.
B.three months.
C.six months.
D.nine months.
E.year.
Answer:C46.What can you do to reduce your
health care costs?
A.stay well.
B.gain a little extra weight.
C.smoke and drink.
D.live dangerously.
E.don’t seek medical care.
Answer:A47.Membership in credit unions
has been:
A.growing steadily.
B.declining gradually.
C.static.
D.restricted by the Tax Reform Act of 1986.
E.restricted by state laws.
Answer:A48.What are the main types of
financial institutions used by consumers?
Answer:
Answers will vary
Feedback: The major types of financial institutions are commercial banks, savings and
loan associations, mutual savings banks, credit unions, life insurance companies,
investment companies, finance companies, and mortgage companies.
49.Steve Franklin recently purchased a stereo system. After a few weeks
it overheated, causing a small fire and some minor damage. What actions would you
recommend to Steve to resolve his consumer complaint? What legal actions might Steve
consider for this situation?
Answer:Answers will vary
Feedback: The steps that are commonly suggested to solve consumer problems are (1)
return to the place of purchase, (2) contact the company’s main office, (3) obtain assistance
from a consumer agency, and (4) take legal action such as small claims court or using a
lawyer.
50.Why do corporations issue stock? Why do investors buy that stock?
Answer:
Answers will vary
Feedback: Corporations issue common stock for the following reasons. First, common
stock is a form of equity financing that does not have to be repaid. Second, dividends are
not mandatory. It should be pointed out that corporations do have to consider voting rights
and control of the company before issuing common stock.
Investors purchase common stock for three reasons. First, an investment in common stock
can provide income from dividends. Second, an investment in common stock can
appreciate or increase in value. Finally, an investment in common stock can increase in
value as a result of stock splits. Note: There are no guarantees that a stock’s market value
will go up after a stock split.
51.Explain what amortization is and how a down payment and loan
duration impact it.
Answer:Answers will vary
Feedback: Amortization is the reduction of a loan balance through payments made over a
period of time. A large down payment will lower the amount of a loan required and thus
reduce the amount needed to be amortized. A shorter loan duration will raise the payments
needed to amortize a loan but reduce the total sum of the loan payments.
52.You are trying to evaluate two bond issues. One bond issue is rated
“A” by Moody’s; the other is rated “B.” How important are the bond ratings issued by
Moody’s Investors Service? Based on your feedback, would you purchase the “A” bond or
the “B” bond?
Answer:
Answers will vary
Feedback: To determine the quality and risk associated with bond issues, investors rely on
the bond ratings provided by Moody’s. Moody’s ranks thousands of corporate and
municipal bond issues. As illustrated in Exhibit 15-6, bond ratings generally range from
ratings Aaa (the highest) to C (the lowest). For Moody’s, the first four individual ratings
(Aaa through Baa) represent investment-grade securities. Bonds in the next two ratings (Ba
and B) are considered speculative in nature. Finally, the C categories are used to rank
bonds that may be in default because of poor prospects of repayment or even continued
payment of interest. Whether you prefer an “A” or a “B” bond depends on whether you
prefer a higher potential return or greater safety.
53.What are the federal and state tax considerations in estate planning?
Answer:
Answers will vary
Feedback: The tax aspects of estate planning have changed considerably because of recent
major changes in the federal tax structure. The four major federal and state taxes that must
be considered in planning your estate are estate taxes, estate income taxes, inheritance
taxes, and gift taxes.
54.Differentiate between a cooperative and a condominium. Be sure to
include a discussion of the ownership and responsibility for the common areas.
Answers will vary
Answer: Feedback: In cooperative housing the units in the
building are owned by a nonprofit organization. The shareholders purchase stock to obtain
the right to live in the building. The residents do not own the units but have the right to
occupy a unit for as long as they own stock in the cooperative association. The title for the
property belongs to the cooperative association. The cooperative is different from the
condominium in which residents own their individual building units. Condominiums are
individually owned units in a building with several units. Individual ownership does not
include the commons areas such as hallways, outside grounds, and recreational areas.
Common areas are owned by the condominium association, run by the people who own the
housing units. Condominium owners are charged a monthly fee to cover the maintenance,
repairs, improvements, and insurance for the building structure.
55.Describe the difference between full-service, discount, and on-line
brokerage firms.
Answer:Answers will vary
Feedback: Student answers will vary but should include information about the level of
service, the amount of research available, and the dollar amount of commissions charged
to buy and sell securities.
56.What are the two basic types of credit?
Answer: Give examples of both.
Answers will vary
Feedback: Two basic types of consumer credit are closed-end and open-end credit. With
closed-end credit, you pay back one-time loans in a specified period of time and in
payments of equal amounts. Examples are mortgage loans, automobile loans, and
installment loans. Open-end credit is a loan set for a specific amount that allows for that
amount to be borrowed again once it has been repaid. Examples are credit cards and home
equity lines of credit.
57.How can retirees avoid housing traps?
Answer:
Retirees can avoid housing traps by writing or calling the local Chamber of Commerce,
contacting the state’s tax department, subscribing to the Sunday edition of a local
newspaper, calling a local CPA to find out which taxes are rising, checking with local
utilities to estimate energy costs, talking to retirees and other local residents, and renting
for a while instead of buying immediately.