1.A testamentary trust is a trust established by your will that becomes effective upon your
death.
Answer:TRUE2.A special form of the limited
payment plan is the single-premium policy. In this type of contract, you make only one
very large premium payment.
Answer:TRUE3.In reality, there is no
guarantee that convertible bondholders will convert to common stock even if the price of
the common stock does increase.
Answer:TRUE4.Social Security should be
the only source of your retirement income.
Answer:FALSE5.Once you have made a
decision to buy an investment, there is no need for continued evaluation.
Answer:FALSE6.Bondholders generally
receive interest payments every six months.
Answer:TRUE7.You can purchase life
insurance from two types of insurance companies.
Answer:TRUE8.In a Roth IRA, contributions
are not tax-deductible, but earnings can accumulate tax free.
Answer:TRUE9.Self-insurance is the process
of establishing a monetary fund that can be used to cover the cost of a loss.
Answer:TRUE10.The primary reason people
buy a vacation home is because they want to use it.
Answer:TRUE11.The Hernandez family
budgets $420 a month for food. Last month they spent $413, which creates a
A.budget surplus of $7.
B.budget deficit of $7.
C.budget surplus of $420.
D.budget deficit of $413.
E.balanced budget.
Answer:A
$420 – 413 = $7 surplus
12.The Occupational Outlook Handbook would be most useful for
determining:
A.jobs available in your community.
B.current economic conditions.
C.expected employment in various career clusters.
D.interview questions for various careers.
E.suggested rsum formats for various career fields.
Answer:C13.Jerry Allison needs to store the
title to his car and his house. Where is the most appropriate place for Jerry to store this
information?
A.home file cabinet
B.safe deposit box
C.personal computer
D.best friend’s house
E.None of the above
Answer:B14.Which employer retirement
plan specifies the benefits promised to the employee at the normal retirement age?
A.defined-contribution plan
B.SEP IRA
C.401(k)
D.Roth IRA
E.defined-benefit plan
Answer:E15.Which one of the following
publications does not provide readers with information about mutual funds?
A.Business Week
B.Current Business Survey
C.Forbes
D.Kiplinger’s Personal Finance Magazine
E.Money
Answer:B16.Which one of the following
refers to a category based on age, sex, marital status, and driving habits that is used to set
automobile insurance premiums?
A.rating territory
B.assigned risk pool
C.no-fault system
D.driver classification
E.rating tiers
Answer:D17.Martin Campbell wants to
invest in mutual funds, but is also worried about diversification. Which fund would you
recommend to him?
A.income fund.
B.long-term corporate bond fund.
C.U. S. government bond fund.
D.midcap fund.
E.a fund of funds.
Answer:E18.Earnings from a limited
partnership would be an example of ____________ income.
A.passive
B.capital gain
C.portfolio
D.earned
E.excluded
Answer:A19.Patricia McDonald has
determined that the value of her liquid assets is $4,500, the value of her real estate is
$128,000, the value of her personal possessions is $62,000, and the value of her
investment assets is $73,000. She has also determined the value of her current liabilities is
$7,500 and the value of her long term liabilities is $98,000. What is Patricia’s net worth?
A.$267,500
B.$105,500
C.$162,000
D.$205,500
E.$132,000
Answer:C
Total assets = $4,500 + 128,000 + 62,000 + 73,000 = $267,500; Total liabilities = $7,500 +
98,000 = $105,500; Net worth = $267,500 – 105,500 = $162,000
20.Which of the following would be considered a fixed expense?
A.electric bill
B.cell phone bill on a plan without unlimited minutes
C.mortgage payment
D.gas bill
E.medical expenses
Answer:C21.Beverly Frickel purchased 100
shares of Gleason Systems stock for $42.50 per share. Her commission for this purchase
was $35. She sold the stock two years later for $55 per share and a commission of $50.
While she held the stock it paid a dividend of $1.50 per share. What was Beverly’s total
dollar return on this stock?
A.$1,250
B.$1,165
C.$1,500
D.$1,315
E.$1,400
Answer:D
Total return = 100(55 +1.50 – 42.50) – ($35 + 50) = $1,315
22.Which of the following would increase the speed of equity growth for
a homebuyer?
A.making a down payment of 10 percent instead of 20 percent
B.obtaining a mortgage interest rate of 9 percent instead of 8 percent
C.obtaining a 15-year mortgage instead of a 30-year mortgage
D.making larger deposits to the escrow account
E.obtaining an interest-only mortgage
Answer:C23.John Hernandez is 24 and has
saved enough money to fund an adequate emergency fund. In addition, he has saved
$5,600 that can be used to fund an investment program. He is single, has no dependents,
and would like to retire when he is 60. Which one of the investment factors listed below
would be most important for an investor like Mr. Hernandez?
A.beta
B.income
C.growth
D.risk
E.liquidity
Answer:C24.A savings account at a credit
union is called a ____________ account.
A.share
B.NOW
C.club
D.certificate
E.money market
Answer:A25.Open dating provides
information on:
A.freshness.
B.pricing.
C.nutrition.
D.common product use.
E.government inspection.
Answer:A26.Which of the following
statements is true about group life insurance?
A.Group life has been losing its popularity recently.
B.The cost of insurance per $1,000 is the same for each employee.
C.Group insurance is not a good bargain for older employees.
D.Principles that apply to other forms of insurance do not apply to group life insurance.
E.Group life is basically the same thing as term life insurance.
Answer:not27.A 1 to 5 percent fee that
investors pay when they withdraw their investment from a mutual fund is called a:
A.withdrawal fee.
B.12b-1 fee.
C.contingent deferred sales load.
D.front-end load.
E.management fee.
Answer:C28.(p.233, Exhibit 7-3)This
morning, you received a phone call regarding a debt you allegedly owe. If you dispute this
debt, you must write to the debt collector and request verification of the obligation. How
many days do you have to send this letter?
A.5
B.10
C.15
D.20
E.30
Answer:E29.Individuals and families
purchase life insurance primarily to:
A.pay liability claims resulting from accidents.
B.fill financial needs created by the loss of the breadwinner.
C.fund lavish retirement vacations.
D.keep up with people with a similar financial situation.
E.make early retirement possible.
Answer:B30.Which one of the following
investments offers the least liquidity?
A.checking account
B.government bond
C.real estate
D.savings account
E.preferred stock
Answer:C31.Federal tax-deferred employee
benefits are:
A.not subject to federal income tax.
B.not subject to state income tax.
C.taxed at some future time.
D.are taxed at a special rate.
E.only available to union employees.
Answer:C32.Arbitration differs from
mediation in that arbitration:
A.involves government officials.
B.requires the use of a lawyer.
C.is only available in certain states.
D.allows compromise through negotiation.
E.is legally binding.
Answer:E33.Which one of the following
statements is false?
A.An exchange-traded fund invests in the stocks or securities contained in a stock or
securities index.
B.With an exchange-traded fund, an investor can purchase as little as one share.
C.The return on shares in an exchange-traded fund tend to mirror the performance of the
index.
D.A passively-managed exchange-traded fund manager needs to make more decisions than
an actively-managed mutual fund manager.
E.Exchange-traded funds are increasing in popularity.
Answer:D34.An advantage credit unions may
have over other financial institutions is:
A.interest-bearing checking accounts.
B.low-cost personal loans.
C.flexible-rate loans.
D.credit cards.
E.variable-rate savings plans.
Answer:B35.Today, Michael purchased a
laptop computer from a retail outlet. He has agreed to pay for this purchase in full 30 days
from today. This is an example of:
A.open-end credit.
B.a line of credit.
C.single lump-sum credit.
D.installment cash credit.
E.incidental credit.
Answer:C36.The items produced for a single
retail chain are commonly sold under a ____________ brand.
A.store
B.government
C.regional
D.chain
E.national
Answer:A37.Wearing a seat belt in an
automobile to protect yourself against injury is an example of ____________ risk.
A.reducing
B.assuming
C.pooling
D.shifting
E.avoiding
Answer:A38.Julie Cumbie is playing softball
and gets hurt sliding into second base. She gets an x-ray at her doctor’s office to make sure
her ankle isn’t broken. Which part of her basic insurance coverage should help pay for this
x-ray?
A.hospital expense
B.surgical expense
C.physician expense
D.major medical
E.Medicare Part B
Answer:C39.Which of the following goals
would be the easiest to implement and measure its accomplishment?
A.”Reduce our debt payments.”
B.”Save funds for an annual vacation.”
C.”Save $100 a month to create a $4,000 emergency fund.”
D.”Invest $2,000 a year for retirement.”
E.”Increase our emergency fund.”
Answer:C40.Which one of the following is
an advantage of using credit?
A.potential bankruptcy
B.spending beyond your budget
C.funding an emergency expense
D.committing future income to pay for current purchases
E.incurring interest charges
Answer:C41.Explain the difference between
strict and vicarious liability. Provide examples.
Answer:Strict liability is present when a person is held
responsible for intentional or unintentional actions. Vicarious liability occurs when a
person is held responsible for the actions of another person. If one accidentally damages
another person’s car they might be strictly liable. If an employee spills paint on a client’s
floor that might be vicarious liability.
42.Explain negative amortization and how such a situation can occur.
Answer:Answers will vary
Feedback: Negative amortization refers to a circumstance in which the principal of the
loan grows despite payments being made. This can happen when the rate on an adjustable
rate loan goes up but payments remain the same.
43.George and Dr. Martha Cooper rent a condominium in an area known
for litigious residents and high cost judgments. George has an extensive stamp collection
and Martha has expensive photographic equipment. What kind of insurance would you
recommend for a couple in their living situation?
Answer:
They should have a renter’s policy for basic coverage. A personal property floater would
cover their high value collections/hobbies, and an umbrella policy or personal catastrophe
policy would cover concerns about excessive liability.
44.What are the five basic types of health insurance? What are their
benefits and limitations?
Answer:
Five basic types of health insurance are available under group and individual policies:
hospital expense insurance, surgical expense insurance, physician’s expense insurance,
major medical expense insurance, and comprehensive medical insurance. The benefits and
limitations of each policy differ. Ideally, you should get a basic plan and a major medical
policy that combines the values of both of these plans in a single policy.
45.What factors influence most people’s buying decisions?
Answer:Answers will vary
Feedback: Consumer purchasing is frequently influenced by economic factors (inflation,
taxes, interest rates, government regulations, product quality, product safety), personal
factors (age, sex, income, family situation, place of residence), and social influences
(lifestyle, interests, hobbies, advertisements, and friends).
46.What factors influence the type of housing a family will select?
Answer:Answers will vary
Feedback: Selection of housing is influenced by an individual’s or family’s needs, values,
and lifestyle, along with the financial situation and availability of financial resources.
47.How do interest rates in the economy affect the price of a corporate
bond?
Answer:
Answers will vary
Feedback: All bonds are issued with a stated face value. This is the amount the bondholder
will receive if the bond is held until it matures. But once the bond has been issued, its price
may be higher or lower than its face value. Interest rates for comparable investments and
interest rates in the economy are two factors that may cause the market value of a bond to
increase or decrease. If overall interest rates fall, then a bond with a fixed interest rate will
increase in market value. If overall interest rates rise, the market value of a bond with a
fixed interest rate will fall.