1.To boost demand for universal design homes, builders are marketing to families of all
ages.
Answer:TRUE2.You may not be denied
credit because you receive Social Security or public assistance.
Answer:TRUE3.Treasury bonds are issued in
$5,000 units with 10-year maturities.
T-bonds are issued in minimum units of $100 that have a 30-year maturity.
Answer:FALSE4.Furniture, jewelry, and an
automobile are examples of liquid assets.
Answer:FALSE5.The annualized holding
period yield calculation takes into account the time the investment is held.
Answer:TRUE6.A SEP-IRA plan is simply
an individual retirement account funded by the employer.
Answer:TRUE7.Easing of international
tensions or disinflation causes a decline in gold prices.
Answer:TRUE8.The purpose of a household
inventory is to provide evidence of items covered by home insurance.
Answer:TRUE9.Money received in the form
of dividends or interest is commonly called “earned income.”
Answer:FALSE10.When preparing a bank
reconciliation, interest earned on your checking account is added to the bank statement
balance.
Answer:FALSE11.A blue-chip stock is too
speculative for most investors.
Answer:FALSE12.The tax laws prevent real
estate investors from taking losses in excess of the actual amounts they invest.
Answer:TRUE13.Which of the following can
be a management problem when investing directly in real estate?
A.maintaining the rental property
B.inability to sell your interest in a limited partnership
C.disagreements among syndicate members
D.limited financial liability
E.all of the other answers
Answer:A14.The information in your credit
report is primarily used by the credit bureau to compute your
A.debt to equity ratio
B.FICO credit score
C.debt payment to income ratio
D.liquidity ratio
E.long term capitalization ratio
Answer:B15.The most expensive loans are
available from:
A.parents.
B.friends.
C.banks.
D.finance companies.
E.credit unions.
Answer:D16.Some retirement planning
experts suggest that you start retirement planning while you are:
A.in school.
B.married.
C.divorced.
D.middle-aged.
E.still employed.
Answer:A17.What is the approximate market
value of a $1,000 corporate bond that pays 8 percent interest when comparable bonds are
paying 9 percent interest?
A.$80
B.$90
C.$889
D.$1,000
E.$1,125
Answer:C
Approximate value = ($1,000 x .08)/.09 = $889
18.Elaine’s Embroidery Emporium which is run out of Elaine’s home is
visited by an IRS agent who wants to verify the office expenses Elaine claims are valid.
What type of IRS audit is this?
A.correspondence audit
B.office audit
C.field audit
D.detailed audit
E.research audit
Answer:C19.Which is a CD that offers a
higher rate for every six months you are invested?
A.bump-up
B.indexed
C.callable
D.global
E.promotional
Answer:A20.Creative rsums or those with a
gimmick are most appropriate for careers in:
A.accounting.
B.finance.
C.advertising.
D.information technology.
E.human resources.
Answer:C21.A personal check with
guaranteed payment is called a:
A.traveler’s check.
B.bank draft.
C.certified check.
D.money order.
E.cashier’s check.
Answer:C22.What is the term used to refer to
the yield on a long term bond issued by the federal government?
A.prime rate
B.discount rate
C.mortgage rate
D.treasury bond rate
E.corporate bond rate
Answer:D23.The cash values of a(an)
____________ life insurance policy fluctuate according to the yields earned by a separate
fund, which can be a stock fund, a money market fund, or a long-term fund.
A.modified
B.variable
C.adjustable
D.ordinary
E.temporary
Answer:B24.Diane Chambers buys an
apartment building for $2 million. Which one of the following exhibits the highest degree
of financial leverage?
A.$500,000 down payment and mortgage of $1,500,000
B.$250,000 down payment and loan of $1,750,000
C.$150,000 down payment and loan of $1,850,000
D.$100,000 down payment and loan of $1,900,000
E.$1 million down payment and loan of $1 million
Answer:D25.Tax-deferred retirement plans
are a type of:
A.exemption.
B.itemized deduction.
C.passive income.
D.tax shelter.
E.tax credit.
Answer:D26.Jamie McFarland has
determined that the value of her liquid assets is $4,500, the value of her real estate is
$108,000, 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 $9,500 and
the value of her long term liabilities is $68,000. What is Jamie’s net worth?
A.$267,500
B.$105,500
C.$170,000
D.$205,500
E.None of the above
Answer:C
Total assets = $4,500 + 108,000 + 62,000 + 73,000 = $247,500; Total liabilities = $9,500 +
68,000 = $77,500; Net worth = ($247,500 – 77,500) = $170,000
27.Income dividends and capital gain distributions are:
A.exempt from taxation.
B.subject to federal taxation.
C.subject to federal taxation after the first $1,000.
D.subject to federal taxation after the first $5,000.
E.subject to federal taxation after the first $10,000.
Answer:B28.Terry Hamilton has just
received $30,000 from an uncle who died and is trying to decide how to invest it. She has
done some research has decided that about 30% of the money should go into large cap
stocks, 20% into medium cap stocks, 15% into small cap stocks, 10% into bonds, 10% into
foreign stock, and 15% into cash. She thinks that even if one area does not do that well, the
rest will so that her overall return will be pretty good. What aspect of investing is Terry
most concerned about?
A.income
B.return
C.diversification
D.liquidity
E.investment growth
Answer:C29.The amount of interest is
determined by multiplying the amount in savings by the:
A.annual interest rate.
B.time period.
C.number of months in a year.
D.time period and number of months.
E.annual interest rate and the time period.
Answer:E30.Which one of the following
wills is called an “I love you” will?
A.simple
B.traditional marital share
C.exemption trust
D.stated dollar amount
E.holographic
Answer:A31.Which one of the following is
an advantage of buying?
A.mobility
B.tax benefits
C.fewer responsibilities
D.minimal financial commitment
E.declining equity
Answer:B32.Which one of the following
expenditures for retirees is most likely to decrease?
A.food
B.insurance
C.expenses for leisure activities
D.medical expenses
E.federal income taxes
Answer:E33.Which of the following
expenses is paid from an escrow account?
A.title insurance
B.property insurance
C.points
D.loan application fee
E.real estate agent’s commission
Answer:B34.Duane Miller wants to know
what price home he can afford. His annual gross income is $60,000. He has no other debt
expenses and expects property taxes and insurance to cost $400 per month. He knows he
can get a 6%, 15year mortgage so his mortgage payment factor is 8.43. He expects to make
a 10% down payment. What is Duane’s affordable home purchase price? Round your
answer to the nearest $100.
A.$148,300
B.$177,900
C.$164,800
D.$197,700
E.$1,483,000
Answer:C
See page 299 for detailed example.
Step 1) $60,000/12 = $5,000
Step 2) $5,000 x .33 = $1,650
Step 3) $1,650 – 400 = $1,250
Step 4) ($1,250/8.43) x $1,000 = $148,280
Step 5) $148,280/(1 – .1) = $164,800 (rounded)
35.Norma Rose is buying shares in a mutual fund that only invests in
companies from countries other than the United States. What type of mutual is she buying?
A.aggressive growth fund
B.equity income fund
C.global fund
D.international fund
E.regional fund
Answer:D36.Tara Guest owns a home in
Edmond, Oklahoma. She is worried about a tornado causing damage to her home. The
tornado is an example of a:
A.peril.
B.hazard.
C.risk.
D.premium.
E.liability.
Answer:A37.During which of the following
economic periods is the price of a precious metal, such as gold, silver or platinum, likely to
increase?
A.recession
B.depression
C.peace time
D.deflationary
E.inflationary
Answer:E38.Tim Gleason has set up a legal
agreement that allows the First State Bank of Orlando to manage funds set aside for his
daughter’s college education. What type of financial service is Tim using?
A.payment service
B.savings service
C.borrowing service
D.trust service
E.asset management
Answer:D39.Which of the following
institutions makes loans based on the value of tangibles possessions, such as jewelry and
collectibles?
A.life insurance company
B.finance company
C.mortgage company
D.pawnshop
E.investment company
Answer:D40.Which is correct with respect to
life expectancy?
A.Men have a long life expectancy than women at any age.
B.There is no difference in life expectancy between men and women.
C.Women have a longer life expectancy than men.
D.There is no difference in life expectancy among racial groups in the U.S.
E.None of the other statements is correct.
Answer:C41.What is the annual depreciation
for tax purposes on residential real estate purchased at a cost of $200,000?
A.$6,349
B.$20,000
C.$2,750
D.$7,273
E.$6,667
Answer:D
Tax depreciation = $200,000/27.5 years = $7,273
42.John Dean has just moved into a new house and needs a lawn mower
since he has always lived in apartments and now he has a lawn to mow. What type of goal
would this be for John?
A.Consumable-products goal
B.Durable-products goal
C.Intangible goal
D.Intermediate goal
E.Long term goal
Answer:B43.Which document explains,
adds, or deletes provisions in your existing will?
A.codicil
B.tracer
C.addendum
D.rider
E.floater
Answer:A44.If your primary goal is current
yield, which one of these bonds is the wiser investment? Bond A: $1,000 corporate bond
that pays 7 percent and has a current market value of $800; or Bond B: $1,000 corporate
bond that pays 8.25 percent and has a current market value of $950?
Answer:
Answers will vary
Feedback: Bond A current yield = ($1,000 x .07)/$800 = 8.75%;
Bond B current yield = ($1,000 x .0825)/$950 = 8.68%;
Bond A has a marginally better current yield.
45.What are some possible disadvantages of real estate investments?
Answer:
Real estate investments may have these disadvantages: declining values, illiquidity, lack of
diversification, and the reduction or elimination of tax advantages.
46.John Ashford needs to sell his home because of a job transfer to
another city. What actions should John take to sell his home?
Answer:Answers will vary
Feedback: When selling a home, you should first prepare the property by cleaning it and
making needed repairs. You next need to determine the selling price by considering
comparable homes, features of your home, current interest rates, and the demand for
housing. Finally, you need to decide whether to sell the property by yourself or use the
services of a real estate agent.
47.What is meant by the term “Time Value of Money?”
Answer:Answers will vary
Feedback: Time value of money refers to the increase of an amount of money as a result of
interest earned. You can calculate the increased value of your money in two ways: You can
calculate the total amount that will be available later (future value) or you can determine
the current value of an amount desired in the future (present value). Future value and
present value can both be calculated by using a single sum or an annuity.
48.Cindy and John Appleby just inherited $30,000 and would like to
invest the money in a conservative mutual fund. Since they have never invested in mutual
funds, they ask for your help. In your own words, describe the sources of information
available for evaluating a mutual fund investment.
Answer:The following factors can be used to evaluate a
potential investment in mutual funds:
(1) the Internet;
(2) professional advisory services;
(3) current newspaper quotations;
(4) the fund’s prospectus;
(5) the fund’s annual report; and
(6) financial publications that include Business Week, Kiplinger’s Personal Finance
Magazine, Forbes, Money, and other finance or consumer oriented magazines.
They should also decide if they want to invest in a managed or index fund.
49.To manage a financial crisis, many experts recommend that you take
action to make sure your financial affairs are in order. Name and describe five steps you
can take to ensure that your financial affairs are in order.
Answer:Students may choose from the list of eight steps listed
below.
1. Establish a larger than usual emergency fund. Under normal circumstances, an
emergency fund of three months’ living expenses is considered adequate, but you may
want to increase your fund in anticipation of a crisis.
2. Know what you owe. Make a list of all your debts and the amount of the required
monthly payments, and then identify the debts that must be paid. Typically these include
the mortgage or rent, medicine, utilities, food, and transportation.
3. Reduce spending. Cut back to the basics and reduce the amount of money spent on
entertainment, dining at restaurants, and vacations. Although this is not pleasant, the
money saved from reduced spending can be used to increase your emergency fund or pay
for everyday necessities.
4. Pay off credit cards. Get in the habit of paying your credit card bill in full each month. If
you have credit card balances, begin by paying off the balance on the credit card with the
highest interest rate.
5. Apply for a line of credit. As defined earlier in this section, a line of credit is a
preapproved loan and will provide access to cash for future emergencies.
6. Notify credit card companies and lenders if you are unable to make payments.Although
not all lenders are willing to help, many will work with you and lower your interest rates,
reduce your monthly payment, or extend the time for repayment.
7. Monitor the value of your investment and retirement accounts. Tracking the value of
your stock, mutual fund, and retirement accounts, for example, will help you decide which
investments to sell if you need cash for emergencies. Continued evaluation of your
investments can also help you reallocate your investments to reduce investment risk.
8. Consider converting investments to cash to preserve value. According to personal
finance experts, most investors accumulate more money when they use a buy-and-hold
approach over a long period of time. Still, there may be times when you could sell some of
your investments and place the cash in a savings account to weather an economic crisis.
50.What role can a REIT play in diversifying an individual’s investment
portfolio?
Answer:
A REIT is an investment in real estate and can add another dimension to a portfolio that
also contains stocks, bonds, or mutual funds that contain such securities. Since different
classes of investments tend to move differently, i.e. they are not highly correlated, the
addition of a REIT can aid in diversification of an investment portfolio.
51.Why would tax-exempt income provide greater short-term financial
benefits than tax-deferred income?
Answer:
Answers will vary
Feedback: Tax exempt income is not taxed at any time and is generally available for
immediate spending. Tax-deferred income is eventually taxed and is not usually
immediately available to be spent.
52.What is consumer credit? What are its advantages and disadvantages?
Answer:Answers will vary
Feedback: Consumer credit is the use of credit by individuals and families for personal
needs. Among the advantages of using credit are purchasing goods when they are needed
and paying for them gradually, meeting financial emergencies, achieving convenience in
shopping, credit rating, making forced savings, and employing credit as leverage. But
credit costs money, encourages impulse buying and overspending, and ties up future
income; and its misuse can create serious long-term financial difficulties.