1.A budget is a specific plan of how a person or family will spend their money.
Answer:TRUE2.Increased liability insurance
is available with an umbrella policy.
Answer:TRUE3.When you purchase
precious stones, it is difficult to determine whether you are getting a good stone.
Answer:TRUE4.A proxy is a legal form that
lists the issues to be decided at a stockholders’ meeting and requests that stockholders
transfer their voting rights to some individual or individuals.
Answer:TRUE5.The most commonly
purchased type of credit insurance is credit life insurance.
Answer:TRUE6.The number of Americans
without basic health insurance has been decreasing since the 1980s.
Answer:FALSE7.The book value for a share
of stock is determined by deducting all liabilities from the corporation’s assets and dividing
the remainder by the number of outstanding shares of common stock.
Answer:TRUE8.”Keeping up with the
Joneses” is one of the reasons for indebtedness.
Answer:TRUE9.While mutual fund income
dividends are subject to taxation, capital gain distributions are not subject to taxation.
Answer:FALSE10.The family of funds
concept makes it convenient for shareholders to switch their investments among funds as
different funds offer more potential.
Answer:TRUE11.Generally, U.S.
government securities issued by the Treasury Department:
A.are not graded because they are risk free for practical purposes.
B.receive the Standard & Poor’s AAA rating.
C.receive the Moody’s Aaa rating.
D.receive The Wall Street Journal’s U.S. Government rating.
E.receive the Treasury Department’s “risk-free” rating.
Answer:A12.Which one of the following
statements is true?
A.Investors should put all of their “eggs in one basket.”
B.Individuals can ignore their tolerance for risk when selecting specific investments.
C.Diversification is one way to lessen systematic risk.
D.The amount of time a specific investment has to work is an important consideration
when developing an investment portfolio.
E.Younger investors should invest a large percentage of their portfolio in
income-producing securities.
Answer:D13.A mutual fund that invests in
stocks issued by companies with a long history of paying dividends is called a(n)
____________ fund.
A.balanced
B.equity income
C.industry
D.sector
E.money market
Answer:B14.A bond that is repaid from the
income generated by the project it is designed to finance is called a(n):
A.Treasury bill.
B.savings bond.
C.revenue bond.
D.general obligation bond.
E.agency bond.
Answer:C15.Tara Guest wants to gain some
needed experience so when she is ready to start a career she has something to offer a
company. She has decided to help the Edmond Historical Society present programs to local
school children. Which of the following employment experience strategies is she pursuing?
A.part-time employment
B.volunteer work
C.internship
D.campus project
E.cooperative education program
Answer:B16.An authoritative rating guide to
the financial stability of the nation’s insurers is published by all of the following except:
A.Dow Jones & Company.
B.Standard & Poor’s.
C.Moody’s Rating Service.
D.A. M. Best Company.
E.Duff & Phelps.
Answer:A17.If you default on your
automobile loan:
A.an advance notice to you is required before your car is repossessed.
B.no advance notice is required before repossession.
C.the federal consumer credit laws give you protection from your car being repossessed.
D.you don’t have to pay the full balance due on your automobile loan.
E.you pay fifty percent of the balance due on your automobile loan.
Answer:B18.Sources for financial planning
can be found from:
A.print and media.
B.digital sources.
C.financial institutions.
D.financial experts.
E.all of the above
Answer:E19.Frank Riley just purchased a
bond that is unsecured and is secondary to other unsecured bonds should the issuer declare
bankruptcy. What type of bond has Frank purchased?
A.debenture
B.subordinated debenture
C.convertible
D.callable
E.municipal
Answer:B20.Which one of the following is
most apt to qualify as an itemized deduction?
A.interest on a credit card or charge account
B.unreimbursed job-related travel expenses
C.cost of commuting to work
D.life insurance premiums
E.traffic violation fee
Answer:B21.The federal government
requires that a corporation selling a new issue of securities must disclose information about
the company and its finances in a(n):
A.annual report.
B.quarterly report.
C.accountant’s audit report.
D.prospectus.
E.stock guide.
Answer:D22.Which type of health insurance
pays for physician’s care that does not involve surgery?
A.surgical expense
B.hospital expense
C.physician’s expense
D.long-term care
E.Medicare Part B
Answer:C23.For most mutual funds, the net
asset value is calculated:
A.yearly.
B.quarterly.
C.weekly.
D.daily.
E.hourly.
Answer:D24.Joan Zemke expects interest
rates to decline over the next few months. To maximize her earnings she should use a(n):
A.regular savings account.
B.interest-bearing checking account.
C.five-year certificate of deposit.
D.six-month certificate of deposit.
E.money market fund.
Answer:C25.The DINK method assumes
that:
A.you have only two children.
B.your spouse does not work.
C.your insurance needs are complex.
D.your spouse will continue to work after your death.
E.your spouse is in an occupation with an uncertain future.
Answer:D26.To determine a person’s
solvency, which financial document should be consulted?
A.cash flow statement
B.budget
C.debt consolidation statement
D.balance sheet
E.credit report
Answer:D27.If you desire your money to
double in 6 years, what rate of return would you need to earn?
A.6 percent
B.8 percent
C.9 percent
D.10 percent
E.12 percent
Answer:E
Rule of 72, 72/x =6, 6X =72, 72/6 = 12
28.Which federal law regulates the use of credit reports, requires the
deletion of obsolete information, and gives you access to your file?
A.Truth in Lending Act of 1969
B.Fair Credit Billing Act of 1975
C.Equal Credit Opportunity Act of 1975
D.Fair Credit Reporting Act of 1971
E.Fair Debit Collection Practices Act of 1978
Answer:D29.You can determine your net
worth by:
A.subtracting your assets from your liabilities.
B.subtracting the value of your home from the mortgage balance.
C.adding your liabilities and assets.
D.subtracting your liabilities from your assets.
E.adding the value of your home to that of your other assets.
Answer:D30.Which of the following is an
example of a conventional mortgage?
A.an FHA mortgage
B.a buy-down
C.a fixed-rate mortgage
D.a shared-appreciation mortgage
E.a home equity loan
Answer:C31.The legal conditions for a
corporate bond are described in the:
A.trustee contract.
B.bondholder’s covenant.
C.corporate charter.
D.bond indenture.
E.bond debenture.
Answer:D32.This month, Ken Grossman has
cash inflows of $3,100 and cash outflows of $2,950, resulting in a
A.balanced budget.
B.surplus of $150.
C.deficit of $150.
D.surplus of $3,100.
E.deficit of $2,950.
Answer:B
$3,100 – 2,950 = $150 surplus
33.(p.235, Exhibit 7-5)What is (are) the signal(s) of potential debt
problems?
A.Paying only the minimum balance each month.
B.Missing payments or paying late.
C.Using savings to pay normal bills.
D.Depending on overtime to meet normal expenses.
E.All of the above are danger signals.
Answer:E34.Lynn Roy will retire in the next
year and has $675,000 in savings and investments and owns her own home that is worth
$250,000. Which step in the financial
planning process does this situation demonstrate?
A.Determining her current financial situation
B.Developing her financial goals
C.Identifying alternative courses of action
D.Evaluating her alternatives
E.Implementing her financial plan
Answer:A35.Todd Foley is applying for a
$100,000 mortgage. He can select either a $600 monthly payment with no points or a $520
payment with two points. How many months will it take Todd to cover the cost of the
discount points if he takes the lower monthly payment?
A.6
B.10
C.18
D.25
E.48
Answer:D
Number of months = (.02 x $100,000)/($600 – 520) = 25 months (Change as shown.)
36.What is prepaid interest charged by a mortgage company called?
A.escrow
B.points
C.origination fee
D.title fee
E.deed
Answer:B37.What advantages do real estate
investments offer?
Answer:
Real estate investments may have these advantages: a hedge against inflation, easy entry,
limited financial liability, no management headaches, and financial leverage.
38.Which type of automobile insurance is usually considered to be most
important?
Answer:
While protection from financial loss as a result of damage or theft of your vehicle is
important, most financial and insurance advisors consider liability coverage most crucial.
An accident in which you are responsible for the injuries of another person could result in
a financial claim against you in the hundreds of thousands or millions of dollars.
39.What types of financial records and documents should be kept in a
safe deposit box?
Answer:
Answers will vary
Feedback: A safe deposit box should be used to store financial records that are difficult to
replace and that are not needed on a day-to-day basis. Examples of items stored in a safe
deposit box include stock certificates, contracts, insurance policies, a record of personal
belongings, mortgage papers, rare coins, collectibles, and other rare and valuable items.
40.Explain why borrowers benefit more than lenders in times of high
inflation.
Answer:Answers will vary
Feedback: Inflation can also adversely affect lenders of money. Unless an adequate interest
rate is charged, amounts repaid by borrowers in times of inflation have less buying power
than the money they borrowed. If you pay 10 percent interest on a loan and the inflation
rate is 12 percent, the dollars you pay the lender have lost buying power.
41.Explain the concept of “float.”
Answer:Answers will vary
Feedback: Float refers to a period when no interest is charged. For example, if you pay off
your credit card balance every month, float is the time between your purchase of an item
with your card and the due date for the payment.