1.More people have hospital insurance than any other kind of health insurance.
Answer:TRUE2.Keogh plans can be both
defined-contribution and defined-benefit plans.
Answer:TRUE3.Probate is a legal procedure
of proving a valid or invalid will.
Answer:TRUE4.A REIT is a firm that pools
investor funds and invests them in real estate or uses them to make construction or
mortgage loans.
Answer:TRUE5.Single persons living alone
have little or no need for life insurance.
Answer:TRUE6.When investors purchase
stock on margin, they borrow stock from a stockbroker or brokerage firm.
Answer:FALSE7.Property losses can be
categorized into destruction of property, and losses due to robbery, burglary, vandalism, or
arson.
Answer:TRUE8.Look for a disability income
policy that waives premiums while you are disabled.
Answer:TRUE9.By using the Internet, it is
possible to find market price quotations, but more detailed financial information about a
corporation is unavailable to the average investor.
Answer:FALSE10.Installment sales credit is
a loan that allows you to receive high-priced items, such as large appliances or furniture.
Answer:TRUE11.What should you do when
an HMO denies treatment or coverage?
A.Ask for a letter detailing the clinical reasons for the denial.
B.Refer to the plan document or contact your HMO’s member services department to
gather information on the appeals process.
C.Make copies of any correspondence, including payments, and any reimbursements.
D.Enlist the help of your doctor, employer, and state insurance department to lobby your
case before the HMO.
E.You should do everything included in the other answers.
Answer:E12.Which one of these statements
best describes the major criticism of service contracts?
A.Repair companies provide poor service.
B.Service contracts are included in the initial price of the product and thus are not optional.
C.The government regulation of service contract companies is weak.
D.The contracts are expensive and contain a lot of exclusions.
E.There are a limited number of authorized repair facilities.
Answer:D13.Which of the following
statements is true?
A.When establishing an investment program, you should begin by monitoring your
investments.
B.When you are choosing an investment, you should examine only the interest rate risk
factor associated with each investment.
C.When establishing an investment program, you should examine the potential return
offered by different investment alternatives.
D.Leave the financial planning to the professionals.
E.There is no need to monitor your investments after you have made your investment
decision.
Answer:C14.Mary Sander’s new job is very
demanding. She regularly works long hours and on the weekends. As a result, Mary has
not had much time for her family and friends. This is an example of
A.deflation.
B.financial opportunity cost.
C.personal opportunity cost.
D.time value of money.
E.inflation.
Answer:C15.Which of the following is most
likely not a valid reason for using credit?
A.borrowing for a stay in a hospital because of appendicitis.
B.borrowing to purchase a car so that you can go to work full-time.
C.borrowing to buy a printer for your home office now because you know it will be twice
as expensive in two years.
D.borrowing to pay for your expensive dinner and movie every week.
E.all of the above are valid reasons for using credit.
Answer:D16.A ______ is a financially
independent firm that acts as the bondholder’s representative.
A.bond parent
B.bond holder
C.mediator
D.trustee
E.guardian
Answer:D17.Which one of the following is a
source of government health insurance?
A.Blue Cross
B.Blue Shield
C.National Institutes of Health
D.HMO
E.Medicaid
Answer:E18.Warranties are commonly
associated with ____________ purchases.
A.investment
B.insurance
C.credit
D.financial service
E.consumer
Answer:E19.Interest earnings of $1,600 from
a taxable investment for a person in a 28 percent tax bracket would result in after-tax
earnings of:
A.$1,600
B.$1,152
C.$1,100
D.$448
E.$152
Answer:B
$1,600 x (1 – .28) = $1,152
20.John Gleason is interested in purchasing a 46″ rear projection TV for
his living room. He knows that right now the TV will cost approximately $1500. However,
John is a little concerned about his job. John is a pilot for Delta Airlines and he thinks it is
possible that he could be laid off in the near future. What type of risk is John worried
about?
A.Inflation risk
B.Interest rate risk
C.Income risk
D.Personal risk
E.Liquidity risk
Answer:C21.A motor vehicle has annual
depreciation of $2,000; oil changes cost $120, automobile insurance $500 annually, and
license plates costs $100. What is the annual amount of the total fixed operating cost for
this vehicle?
A.$2,000
B.$2,120
C.$2,500
D.$2,600
E.$2,720
Answer:D
Annual fixed costs = $2,000 + 500 + 100 = $2,600
22.A parent may be held responsible for the actions of their child if those
actions cause financial or physical harm to others. This is known as:
A.negligence.
B.strict liability.
C.vicarious liability.
D.umbrella coverage.
E.self insurance.
Answer:C23.A conventional mortgage
usually involves:
A.a variable interest rate.
B.a government guarantee.
C.a balloon payment.
D.equal payments.
E.a payment cap.
Answer:D24.Sophie Bennett is required to
pay 20 percent of her medical costs up to a stated dollar limit. What is this requirement
called?
A.coordination of benefits
B.deductible
C.coinsurance
D.stop-loss provision
E.waiver of premium
Answer:C25.Paula has completed a mortgage
application and provided evidence of employment, income, and existing debt to the
potential lending institution. Although Paula has not even begun the process of looking at
possible homes to buy, she is eagerly awaiting news from the lender as to whether she has
been approved for a mortgage. In what stage of the application process is she?
A.appraisal
B.prequalification
C.assessment
D.amortization
E.home inspection
Answer:B26.The interest rate for a $1,000
bond is 9 percent. If comparable bonds are paying 7 percent, what is the approximate
market value for of the 9 percent bond?
A.$1,286
B.$1,090
C.$1,000
D.$900
E.$700
Answer:A
Approximate value = ($1,000 x .09)/.07 = $1,286
27.(p.233, Exhibit 7-3)A few months ago, you sent a certified letter to a
debt collector and requested verification of a debt the collector says you owe. You know
the letter was received by the collector but you have received no response to your request.
Today, you received a letter threatening court action. What should you do?
A.pay the debt and protect your credit rating
B.insist that communications about the debt cease
C.renegotiate payment terms with the creditor
D.sue the collection agency
E.pay half the outstanding balance
Answer:B28.The purpose of a counteroffer is
to:
A.negotiate the purchase price.
B.reduce mortgage payments.
C.lower real estate property taxes.
D.avoid paying points at closing.
E.avoid paying the real estate agent’s commission.
Answer:A29.Float can be defined as:
A.the interest charged during one billing period.
B.the principal balance due on a loan.
C.a home equity loan.
D.a period of time during which no interest is charged.
E.a lump-sum loan from a credit union.
Answer:D30.The price at which a dealer is
willing to sell a government security is known as the ____________ price.
A.bid
B.asked
C.contract
D.government
E.adjusted
Answer:B31.Subject to certain minimums,
which life insurance is designed to let you pay premiums at any time in virtually any
amount?
A.whole life
B.ordinary life
C.universal life
D.adjustable life
E.variable life
Answer:C32.Which of the following is (are)
typically considered to be a personal financial record?
A.birth certificate
B.marriage license
C.certificate of deposit
D.social security card
E.all of the answers
Answer:E33.Union dues, fees for tax return
preparation, and other miscellaneous expenses are:
A.not deductible.
B.fully deductible.
C.deductible for self-employed individuals only.
D.deductible for people in certain income categories.
E.deductible to the extent they exceed two percent of adjusted gross income.
Answer:E34.Which of the following is a true
statement about retirement planning?
A.You can expect to spend about 16 to 30 years in retirement.
B.It’s never too early to begin planning for retirement.
C.You should not let your 45th birthday roll by without a comprehensive retirement plan.
D.Retirement planning has both emotional and financial components.
E.All of the other statements are true.
Answer:E35.James Brewer purchased 100
shares of stock for $72 a share. James also paid $55 commission. What was the total
purchase price for this transaction?
A.$55.00
B.$127.00
C.$7,237.50
D.$7,255.00
E.$7,347.50
Answer:D
Total purchase price = 100($72) + $55 = $7,255