1.The major reasons why investors purchase mutual funds are professional management
and diversification.
Answer:TRUE2.The purpose of an assigned
risk pool is to assist people with poor driving records in obtaining automobile insurance
coverage.
Answer:TRUE3.Contributions to a SEP-IRA,
which may vary from year to year, are tax deductible and earnings accumulate on a
tax-deferred basis.
Answer:TRUE4.Stock life insurance
companies are owned by their policyholders.
Answer:FALSE5.Consumer credit is based
on trust in people’s ability and willingness to pay bills when due.
Answer:TRUE6.A living will is a good
substitute for a traditional will.
Answer:FALSE7.The purpose of an
informational interview is to obtain employment from a branch office of a major
corporation.
Answer:FALSE8.Factors such as fear of war,
political instability, and inflation cause gold prices to decline.
Answer:FALSE9.Risk management is an
organized strategy for protecting and conserving assets and people.
Answer:TRUE10.A participation certificate
is an equity investment in a pool of mortgages that have been purchased by one of several
government agencies.
Answer:TRUE11.Very few group health
policy contracts have a coordination of benefits provision.
Answer:FALSE12.A living or inter vivos
trust is a property management arrangement that you establish while you are alive.
Answer:TRUE13.The only way an investor
can make money on a bond investment is to hold the bond until maturity.
Answer:FALSE14.Social Security was
originally intended to provide 100 percent of retirement income.
Answer:FALSE15.How much insurance one
should carry is an important question for anyone who owns or intends to buy life
insurance.
Answer:TRUE16.A personal cash flow
statement can serve as the basis for the budget categories used by an individual or family.
Answer:TRUE17.The first step in buying
insurance is to determine whether you really need life insurance.
Answer:TRUE18.Generally, disability
income policies with shorter waiting periods have lower premiums.
Answer:FALSE19.Group health insurance
plans comprise about 90 percent of all health insurance issued by health and life insurance
companies.
Answer:TRUE20.All the different fees and
fund operating costs are often referred to as a(n):
A.investment ratio.
B.expense ratio.
C.financial ratio.
D.expense turnover.
E.management ratio.
Answer:B21.Your geographic location is a
major factor in determining the ____________ used to calculate your automobile
insurance premiums.
A.driver classification
B.assigned risk pool
C.coverage level
D.legal responsibilities
E.rating territory
Answer:E22.Which one of these situations
creates negative amortization?
A.increasing the amount of the monthly mortgage payment
B.paying less than the monthly interest on a mortgage
C.decreasing the amount paid into an escrow account
D.lowering the mortgage interest rate
E.decreasing the amount of the down payment
Answer:B23.A 32-ounce package selling for
$1.60 would have a unit price of:
A.$1.60.
B.$2.00 a pound.
C.5 an ounce.
D.80 a quart.
E.12 an ounce.
Answer:C
Unit price = $1.60/32 = $0.05 an ounce
24.When a bondholder loses money because interest rates in the economy
increase, it is an example of ____________ risk.
A.market
B.interest rate
C.inflation
D.business failure
E.current
Answer:B25.For the average individual,
which one of the following statements is most likely correct regarding retirement?
A.My costs of daily living will decrease significantly once I retire.
B.I can only expect to live about ten years in retirement, so I don’t need to save all that
much money.
C.Once I retire, all my medical bills will be paid by Medicare.
D.My employer’s pension plan will provide sufficient income to meet all my retirement
needs.
E.I need to save whatever I can, even if it’s a small amount, to help cover my retirement
costs.
Answer:E26.Scott Turner has a bond with 10
years to maturity, a face value of $1,000, an 8% interest rate, and a market price of $800.
What is the yield-to-maturity on this bond?
A.4.00 percent
B.6.67 percent
C.8.00 percent
D.10.00 percent
E.11.11 percent
Answer:E
YTM = {($1,000 x .08) + [($1,000 – 800)/10]}/[($800 + $1,000)/2] = 11.11 percent
27.Experts suggest that you spend no more than ____________ percent
of your net income on credit purchases.
A.10
B.20
C.30
D.40
E.50
Answer:B28.Which one of the following
investments would provide the most predictable source of income?
A.commodities
B.options
C.precious metals
D.common stock
E.government bonds
Answer:E29.Which type of preferred stock
can be exchanged for common stock at the stockholder’s option?
A.none of the other answers
B.convertible
C.participating
D.cumulative
E.callable
Answer:B30.Which federal consumer credit
law prohibits credit discrimination based on sex and marital status?
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:D31.If an investor uses a
reinvestment plan to invest income dividends and capital- gain distributions:
A.then both the income dividends and capital-gain distributions are tax-exempt.
B.only the income dividends are tax-exempt.
C.only the capital-gain distributions are tax-exempt.
D.both the income dividends and capital-gain distributions are currently taxable.
E.then both the income dividends and capital-gain distributions will be tax-deferred.
Answer:D32.On small gold bars, dealers and
banks add a ____________ percent premium over the pure gold bullion value.
A.1 to 2
B.3 to 5
C.5 to 8
D.6 to 7
E.9 to 12
Answer:C33.Some savings and investment
choices have the potential for higher earnings. However, these may also be difficult to
convert to cash when you need the funds. This problem refers to:
A.Inflation risk
B.Interest rate risk
C.Income risk
D.Personal risk
E.Liquidity risk
Answer:E34.Which one of the following
statements is true?
A.Corporations are required by law to report all activities to their stockholders each month.
B.Stockholders must approve major changes to corporate policies.
C.Stockholders must approve the sale of all goods and services by the company.
D.Corporations are required by law to have two stockholder meetings each year.
E.Stockholders may vote only by proxy.
Answer:B35.Jose Gonzales just turned 65
this year. He should apply for Medicare benefits at a local:
A.office of the National Institutes of Health.
B.IRS office.
C.Social Security office.
D.county medical hospital.
E.post office.
Answer:C36.The face value of a Series EE
U. S. Savings Bond refers to the:
A.original purchase price
B.redemption value at maturity
C.effective yield of the bond
D.monthly interest accrual amount
E.taxable portion of the accrued interest
Answer:B37.Another name for a mutual fund
that charges a contingent deferred sales load is a class ____________ fund.
A.A
B.B
C.C
D.D
E.E
Answer:B38.Good disability plans pay when
you are:
A.unable to work at your regular job.
B.unable to work at any job.
C.unable to work at a related job.
D.ill even for a short period.
E.fired from your regular job.
Answer:A39.The baby boom generation
currently represents about 30 percent of the population but holds nearly ____________
percent of the debt outstanding.
A.80
B.70
C.60
D.50
E.40
Answer:C40.A common criticism of
including a career objective on a rsum is that it:
A.may be too vague.
B.takes too much room on the rsum.
C.is frequently the same as that of other candidates.
D.is not of interest to most employers.
E.usually does not relate to the job sought.
Answer:A41.A system that requires each
insurance company operating in a state to provide coverage to individuals who have been
unable to obtain other insurance is referred to as:
A.no-fault insurance.
B.an assigned risk pool.
C.premium discounts.
D.equal opportunity insurance.
E.comprehensive coverage.
Answer:B42.A firm is short on cash. Which
of the following would be paid first?
A.dividends to common stock owners.
B.cash to buy shares of stock from shareholders.
C.cash to buy bonds from current bondholders.
D.interest to bond owners.
E.dividends to preferred stock owners.
Answer:D43.Equity capital is money:
A.obtained from the owners of a business.
B.borrowed through banks.
C.obtained by employee benefit programs.
D.that has to be repaid.
E.that has been allocated to a retirement program.
Answer:A44.A person’s net worth would
increase as a result of:
A.reduced amounts owed to others.
B.reduced earnings.
C.increased spending for current living expenses.
D.decreased value of personal possessions.
E.decreased value of investments.
Answer:A45.Money received by an
individual for personal effort is classified as ______________ income.
A.passive
B.earned
C.portfolio
D.excluded
E.capital gains
Answer:B46.James Green just bought a
security which he expects will provide him with a quarterly cash payment, although that
payment is not guaranteed. In fact, he expects the amount of the payment to vary over
time. What type of payment is he expecting to receive?
A.option premium
B.interest
C.capital gain
D.dividend
E.rebate
Answer:D47.An investment theory based on
the assumption that a stock’s market value is determined by the forces of supply and
demand in the stock market as a whole is called the ____________ theory.
A.fundamental
B.technical analysis
C.efficient market
D.primary
E.market
Answer:B48.If you borrow $100 at 10
percent simple annual interest and repay it in one lump-sum at the end of one year, you
will repay:
A.$100.
B.$105.
C.$110.
D.$115.
E.$120.
Answer:C
Repayment = $100 + (.10 x $100) = $110
49.You can borrow from your Roth IRA.
Answer:FALSE50.A market for existing
financial securities that are currently traded among investors is called the ____________
market.
A.technical
B.fundamental
C.efficient
D.secondary
E.primary
Answer:D51.You should review your will if:
A.you move to a different state.
B.you have sold property mentioned in the will.
C.the size and composition of your estate has changed.
D.you have married, divorced, or remarried.
E.you have done any of the things listed in the other answers.
Answer:E52.Medicare medical insurance is:
A.mandatory.
B.financed by corporations.
C.voluntary, and you must sign up for coverage.
D.state supported and partially funded by the National Institutes of Health.
E.paid for by state governments.
Answer:C53.Attempts to increase income are
part of the ____________ component of financial planning.
A.planning
B.obtaining
C.saving
D.sharing
E.protecting
Answer:B54.Who has the greatest need for
life insurance?
A.households with small children
B.singles living alone
C.singles living with parents
D.dual income couple
E.children
Answer:A55.What types of housing options
are available to retirees?
Answer:
Staying in their present home, whether a single-family dwelling, a condominium, or an
apartment, is the alternative preferred by most people approaching retirement. Universal
design homes may become popular with retirees.
56.Describe either the purchase options or withdrawal options that can be
used to invest in or withdraw money from the investment company that sponsors an open-
end mutual fund.
Answer:To purchase shares in an open-end mutual fund, you
may use these options: regular account transactions, voluntary savings plans, contractual
savings plans, and reinvestment plans. The Securities and Exchange Commission, other
government agencies, and financial planners are especially critical of the contractual
savings plans because if an investor drops out of this type of plan, he or she sacrifices the
prepaid or front-end load charges. Shares in an open-end fund can be sold on any business
day to the investment company that sponsors the fund. In this case, shares are redeemed at
their net asset value. In addition, most funds have provisions that allow investors with a
minimum net asset value of at least $5,000 to use four options to systematically withdraw
money. First, investors may withdraw a specified fixed dollar amount each investment
period. Second, investors may sell off a certain number of shares each investment period.
Third, investors may withdraw a fixed percentage of asset growth. Fourth, investors may
withdraw all income that results from interest, dividends, and capital gains earned during
an investment period.
57.What are a few things to consider before you cosign a loan?
Answer:
Answers will vary
Feedback: Here are a few things to consider before you cosign:
a. Be sure you can afford to pay the loan.
b. Cosigning may keep you from getting other credit you want.
c. If the borrower defaults, you could lose property you pledge.
d. Request that a copy of overdue payment notices be sent to you.
58.What are the risks and rewards of investing in precious metals, gems,
and collectibles?
Answer:
Some investors prefer to invest in precious metals, such as gold, platinum, and silver;
precious stones, such as diamonds; or collectibles, such as stamps, rare coins, works of art,
antiques, rare books, and Chinese ceramics. Collectibles do not provide current income,
and they may be difficult to sell in a hurry. However, precious metals, gems, and
collectibles may provide a hedge against inflation.
59.Linda Ashworth is trying to decide whether to keep her money in a
savings account or in a mutual fund. What would you tell her to help her analyze her
decision?
Answer:
Answers will vary
Feedback: Students answers will vary. Suggested responses might mention gathering
information, comparing alternatives, analyzing risks, assessing personal goals, and
contacting financial planning experts.