1.Most people cannot afford the expense of setting up trusts.
Answer:FALSE2.Saving money doesn’t
come naturally to many young people.
Answer:TRUE3.The accuracy of credit
reports has worsened recently.
Answer:FALSE4.A formal will may be either
typed or on a preprinted form.
Answer:TRUE5.Increased demand for a
product or service will usually result in lower prices for the item.
Answer:FALSE6.In the 5 Cs of credit,
character refers to the borrower’s attitude toward credit obligations.
Answer:TRUE7.Whether or not you are
covered by a pension plan, you can still make nondeductible IRA contributions.
Answer:TRUE8.An implied warranty is
usually in written form.
Answer:FALSE9.If creditors add finance
charges after subtracting payments made during the billing period, this is called the
previous balance method.
Answer:FALSE10.You may invest in gold by
purchasing the common stocks of gold mining companies.
Answer:TRUE11.You can put your IRA
funds in many kinds of investmentsstock, bonds, mutual funds, real estate, and
U.S.-minted gold and silver coins.
Answer:TRUE12.Your expenses for leisure
activities will probably decrease during retirement.
Answer:FALSE13.Although medical
expenses vary from person to person, they tend to decrease with age.
Answer:FALSE14.A credit-shelter trust is
perhaps the most common estate-planning trust.
Answer:TRUE15.Most economists do not
recognize consumer credit as a major force in the American economy.
Answer:FALSE16.Hermione Granger
borrowed her best friend’s car and was in an accident. She was at fault. The car was
totaled. What part of Hermione’s automobile insurance policy would cover the damage to
her friend’s car?
A.bodily injury liability
B.medical payments coverage
C.property damage liability
D.collision
E.comprehensive physical damage
Answer:C17.By evaluating your credit
options, you may:
A.reduce your finance charges.
B.reconsider your decision to borrow money.
C.discover a less expensive type of loan.
D.find a lender that charges a lower rate.
E.All of the other answers.
Answer:E18.Mathematical abilities,
problem-solving skills, and physical dexterity are examples of:
A.interests.
B.survival skills.
C.aptitudes.
D.occupational attitudes.
E.on-the-job training.
Answer:C19.Your home insurance policy has
a $500 deductible. If a windstorm causes $2,000 damage to your home, what amount of
the claim would the insurance company pay?
A.$2,000
B.$1,000
C.$1,500
D.$500
E.$0
Answer:C
$2,000 – $500 = $1,500
20.Which country has the highest per capita medical expenditures of any
industrialized country in the world?
A.Australia
B.Britain
C.Canada
D.Denmark
E.U.S.A.
Answer:E21.While cleaning your home, a
worker damages some furniture. You take action against the worker’s employer to cover
the cost of the damage. This is an example of a(n) ____________ liability.
A.umbrella
B.assigned
C.common situation
D.peril
E.vicarious
Answer:E22.Stuart Michelson has invested in
several pieces of real estate. Which one of the properties that Stuart owns would be
considered commercial real estate?
A.4 bedroom home that he does not rent out
B.20 acre tract of farm land that is sitting idle
C.fourplex that he rents to college students
D.100 acres of land in the mountains that he hopes to subdivide and sell as residential lots
E.all of the other answers
Answer:C23.Which of the following is true?
A.More than 87 million individual Americans own mutual funds.
B.Nearly half of all U.S. households own mutual funds.
C.There are more than 12,000 mutual funds available.
D.By the end of 2009, the combined value of assets held by mutual funds exceeded 12.2
trillion dollars.
E.all of the other answers
Answer:E24.A good health insurance plan
should:
A.provide at least one year’s hospital room and board in full.
B.provide at least a $2 million lifetime maximum for each family member.
C.pay 100 percent for out-of-hospital expenses.
D.offer basic coverage for hospital and doctor bills.
E.limit your out-of-pocket expenses to no more than $1,000 per year.
Answer:D25.A documentary agreement
between spouses before marriage in which one or both parties often waive a right to
receive property under the other’s will or under state law is called a:
A.letter of last instruction.
B.codicil.
C.prenuptial agreement.
D.marital agreement.
E.marital share will.
Answer:C26.The risk premium you receive
as a saver is based in part on:
A.your credit rating.
B.the amount of money you are borrowing.
C.the uncertainty associated with getting your money back.
D.the expected rate of inflation.
E.C & D above.
Answer:E27.One aspect of financial planning
is to control your use of credit. Which aspect of financial planning does this deal with?
A.Borrowing
B.Spending
C.Managing Risk
D.Investing
E.Retirement and Estate Planning
Answer:A28.Gerry Legere has died without
writing a will. What is the legal term for this?
A.probate
B.intestate
C.testamentary
D.statutory
E.codicil
Answer:B29.Renting is more advantageous
than buying a home when you are seeking:
A.lower short-term living costs.
B.a place to remodel.
C.a long-term investment.
D.tax benefits.
E.permanence of residence.
Answer:A30.A short-term investment
objective is one that will be accomplished within a period of:
A.one year or less.
B.two to five years.
C.more than five years.
D.three years or less.
E.two years or less.
Answer:A31.Which of the following
statements is false?
A.The purpose of investing in a closed-end, exchange-traded fund or open-end mutual
fund is to earn a financial return.
B.Income dividends are the earnings that a fund pays to shareholders from its dividend and
interest income.
C.Capital gain distributions are the payments made to a fund’s shareholders that result
from the sale of securities in the fund’s portfolio.
D.The only way to make money on a mutual fund is by selling shares at a higher price than
was initially paid for them.
E.All of the above statements are true.
Answer:D32.The uncertainties of direct and
indirect losses to personal or real property due to fire, wind, accident, theft, etc., are called
____________ risks.
A.personal
B.business
C.property
D.liability
E.speculative
Answer:C33.Many financial planners
recommend that investors pick a mutual fund with an expense ratio that is:
A.1 percent or less.
B.between 1 and 2 percent.
C.between 2 and 3 percent.
D.between 3 and 4 percent.
E.over 4 percent.
Answer:A34.The purpose of the invoice
price is to inform customers of the:
A.sales tax on the vehicle.
B.suggested retail price.
C.sticker price.
D.charge for optional extras.
E.dealer’s cost.
Answer:E35.Harry Mayhue gets a bad case
of the flu and ends up in the hospital for three days. Which part of his basic insurance
coverage should help pay for this stay?
A.hospital expense
B.surgical expense
C.physician expense
D.major medical
E.Medicare Part B
Answer:A36.Your annual income is $50,000.
What is your life insurance need based on the easy method?
A.$245,000.
B.$300,000.
C.$345,000.
D.$400,000.
E.$450,000.
Answer:A
Insurance need = $50,000 x .7 x 7 = $245,000
37.An exclusion affects a person’s taxes by:
A.reducing the amount of taxable income.
B.increasing itemized deductions.
C.decreasing itemized deductions.
D.decreasing the number of exemptions a person can claim.
E.increasing the number of exemptions a person can claim.
Answer:A38.Which one of these is not an
example of systematic risk?
A.recession
B.inflation
C.political upheaval such as war
D.decline in the auto industry
E.decline in national economy
Answer:D
39.When prices are increasing at a rate of 6 percent, the cost of products
would double in about how many years?
A.7.2 years
B.10 years
C.6 years
D.12 years
E.18 years
Answer:D
Rule of 72: 72/6 = 12
40.Which CD pays earnings based on the stock market?
A.bump-up
B.indexed
C.callable
D.global
E.promotional
Answer:B41.Renting would be most
appropriate for people who:
A.want to reduce their taxes.
B.have difficulty establishing credit.
C.have limited funds currently available.
D.enjoy remodeling their residence.
E.desire the financial benefits of increased equity.
Answer:C42.Possible losses due to
negligence resulting in bodily harm or property damage to others are called ____________
risks.
A.speculative
B.liability
C.property
D.personal
E.commercial
Answer:B43.Which one of the following is
not a warning sign that you might be getting into credit card trouble?
A.paying off your credit card balance off each month
B.using your credit card to pay for small purchases
C.taking advantage of the cash advance feature
D.using a large number of credit cards
E.using the cash advance feature of one credit card to occasionally pay the monthly
payment on another credit card
Answer:A44.The success of a financial plan
will be determined by:
A.the amount of income available.
B.the stage of the adult life cycle.
C.a person’s tax status.
D.how resources are used.
E.current economic conditions.
Answer:D45.Albert Finney owns a home in
Pompano Beach, Florida. His house is broken into and the burglar steals his computer, his
big screen TV, his stereo equipment, and his toaster. What part of his homeowner’s
insurance would cover this loss?
A.buildings and other structures
B.additional living expenses
C.personal property
D.personal liability
E.specialized coverage
Answer:C46.One aspect of financial planning
is to make wise decisions as to what to purchase and when to purchase it. Which aspect of
financial planning does this deal with?
A.Borrowing
B.Spending
C.Managing Risk
D.Investing
E.Retirement and Estate Planning
Answer:B47.Which of the following is a part
of estate planning?
A.making a will
B.setting up a trust
C.accumulating funds for your future
D.providing for your family’s financial security after you die
E.all of the actions listed in the other answers
Answer:E48.Rebecca Murphy is planning for
her retirement. She has done some checking and thinks she will get about $1,025 a month
from Social Security. She also thinks her pension plan will pay her about $1,125 per
month. In addition, she has some personal retirement accounts that she thinks will pay her
$500 per month. What step in the retirement planning process is Rebecca completing?
A.analyzing her current assets and liabilities
B.estimating her spending needs
C.evaluating her planned retirement income
D.evaluating her retirement housing
E.developing a balanced budget based on her retirement income
Answer:C49.Which one of the following
savings plans is not covered by federal deposit insurance?
A.passbook account at a savings and loan
B.regular checking account at a commercial bank
C.money market account at a commercial bank
D.money market fund with an investment company
E.certificate of deposit at a commercial bank
Answer:D50.(p.117 – 120)What factors
determine whether a taxpayer will use the Form 1040EZ, Form 1040A, or Form 1040?
Answer:
Answers will vary
Feedback: The 1040 form used by a taxpayer is influenced by the amount and type of his
or her income, marital status, number of exemptions, types of deductions, and other forms
that must be filed.
51.What are the two general rules of measuring credit capacity?
Answer:
Answers will vary
Feedback: The two general rules of measuring credit capacity are debt
payments-to-income ratio and debt-to-equity ratio. Debt payments-to-income ratio is
calculated by dividing your monthly debt payments (not including house payments) by
your net monthly income. The debt-to-equity ratio is calculated by dividing your total
liabilities by your net worth, excluding both the value of your home and your mortgage.
52.(p.424-427-433)After graduating from a community college, you
obtain a job as a medical records technician. Your monthly take-home salary is $2,000.
Your monthly expenses are $1,600. Based on this information, what steps should you take
to establish a long-term investment program?
Answer:
The following steps for establishing an investment program are described in Chapter 13:
(1) establish investment goals and objectives. (2) perform a financial checkup. (3) obtain
enough money to start an investment program. (4) establish a personal plan of action for
investing that includes the steps illustrated in Exhibit 13.6.
53.What do the terms “term”, “decreasing” or “declining term”, and
“whole life” mean with respect to life insurance?
Answer:
Term or level term provides a fixed amount of coverage for a specific period of time.
Declining term provides coverage that decreases in amount over a specified period of time.
Whole life provides a fixed amount of coverage for the life of the insured. In essence it
combines declining term with a forced saving feature. Neither level term nor declining
term has a savings feature and are thus less expensive than whole life.
54.Diane Rossiter lives with her two sons, ages 6 and 9. They have had
difficulty managing their finances. What purposes could a budget serve for the Rossiters?
What actions would you suggest for the budgeting process to be successful?
Answer:
Answers will vary
Feedback: A budget can help a person or family live within their income, spend money
wisely, reach financial goals, prepare for financial emergencies, and develop wise financial
management habits. A successful budget should be well-planned, realistic, flexible, and
clearly communicated.
55.Your parents are considering the purchase of shares in a mutual fund.
Discuss three advantages and three disadvantages of mutual fund investing that you
believe are important for potential investors to consider.
Answer: Students may choose from the following advantages
and disadvantages:
ADVANTAGES OF MUTUAL FUND INVESTING
Diversification.
Professional management.
Ease of buying and selling shares.
Multiple withdrawal options.
Distribution or reinvestment of income and capital gain distributions.
Switching privileges within the same fund family.
Services that include toll-free telephone numbers, complete records of all transactions, and
savings and checking accounts.
DISADVANTAGES OF MUTUAL FUND INVESTING
Purchase/withdrawal costs.
Ongoing management fees and 12b-1 fees.
Poor performance that may not match the Standard & Poor’s 500 stock index or some other
index.
Inability to control when capital gain distributions occur and complicated tax-reporting
issues.
Potential market risk associated with all investments.Some sales personnel may be
aggressive and/or unethical.
56.What is disability income insurance? What are the major sources of
disability income insurance?
Answer:
Disability income insurance benefits provide regular cash income lost by employees as the
result of an accident or illness. Sources of disability income insurance include your
employer, Social Security, workers’ compensation, the Veterans Administration, the federal
government, unions, and private insurance.