1.One important feature of a whole life policy is the nonforfeiture clause.
Answer:TRUE2.A fixed annuity is a plan
under which the monthly payments vary.
Answer:FALSE3.The fund manager is
ultimately responsible for a fund’s success.
Answer:TRUE4.If overall interest rates in the
economy fall, then a corporate bond with a fixed interest rate will decrease in value.
Answer:FALSE5.Many investors buy land
with the intention of subdividing it.
Answer:TRUE6.Most American families
face substantial loss when one spouse dies unexpectedly.
Answer:TRUE7.The limited partnership is
formed by a limited partner, who has unlimited liability for its debts.
Answer:FALSE8.REITs, Ginnie Maes,
Freddie Macs, and syndicates do not provide any diversification.
Answer:FALSE9.Term life insurance
premiums decrease as you get older.
Answer:FALSE10.In a newspaper quotation,
the letter “p” means a 12b-1 distribution fee is charged.
Answer:TRUE11.A restrictive endorsement
will usually include the words “for deposit only.”
Answer:TRUE12.Permanent insurance can
be limited payment, variable, adjustable, or universal life insurance.
Answer:TRUE13.Which one of the following
statements is true?
A.Most mutual funds are managed funds.
B.The role of a fund manager is not important because the investment company is always
changing managers.
C.You should ignore fees when comparing mutual funds.
D.Managed funds are usually index funds.
E.A team of managers is always better than a single fund manager.
Answer:A14.If creditors give you no credit
for payments made during the billing period, this is called the:
A.APR method.
B.discount method.
C.previous balance method.
D.adjusted balance method.
E.average daily balance method.
Answer:C15.The credit bureau cannot charge
you a disclosure fee if you ask to see your file within ______ days of being notified of a
denial based on a credit report.
A.10
B.20
C.30
D.40
E.60
Answer:E16.Another name for closed-end
credit is:
A.a line of credit.
B.convenience credit.
C.revolving credit.
D.installment credit.
E.bank card credit.
Answer:D17.What is the rate that the Federal
Reserve charges banks for loans called?
A.prime
B.discount
C.mortgage
D.treasury bond
E.corporate bond
Answer:B18.Last year, High-Tech
Electronics earned $1.50 per share. If the current market value for a share of stock is $45,
what is the firm’s P/E ratio?
A.0.03
B.3.30
C.30.00
D.33.00
E.45.00
Answer:C
P/E = $45/$1.50 = 30
19.Tiffany Scott puts $10,000 into a load mutual fund. She knows that her
up-front sales commission is 6%. How much of her money actually goes to buy shares in
the mutual fund?
A.$10,000
B.$9,400
C.$600
D.$10,600
E.$950
Answer:B
Net investment = $10,000 x (1 – .06) = $9,400
20.Diversification in direct real estate investments is:
A.difficult and expensive.
B.easy and inexpensive.
C.a drawback.
D.easier than diversification in indirect real estate investments.
E.difficult but inexpensive.
Answer:A21.Catherine Carey has made the
choice to stay home and raise her three kids while her husband works. She wants to
determine her insurance need. What method was specifically designed for someone in her
situation?
A.easy method
B.DINK method
C.nonworking spouse method
D.family need method
E.soccer mom method
Answer:C22.By paying cash for a purchase,
you:
A.forgo the opportunity to keep the cash in an interest-bearing account.
B.always get a cash discount.
C.can build a better credit rating.
D.get better personal service from store employees.
E.have a better selection of goods than if you use credit.
Answer:A23.Which one of the following
statements is true?
A.Board members are appointed by a company’s CEO.
B.Stockholders do not pay taxes on stock dividends.
C.Intelligent investors should be concerned about future after-tax corporate profits when
investing.
D.If a cash dividend is declared by the board of directors, each stockholder will receive a
different dollar amount depending on the length of time they have owned their shares.
E.Corporate dividends are always paid in cash.
Answer:C24.Medigap is sold or serviced by:
A.Medicare.
B.Medicaid.
C.private insurance companies.
D.Health Care Financing Administration.
E.National Institutes of Health.
Answer:C25.Personal risks, property risks,
and liability risks are types of ________ risk.
A.speculative
B.avoided
C.assumed
D.pure
E.reduced
Answer:D26.What are the two most popular
personal retirement plans?
A.Keogh account and Social Security
B.Social Security and Roth IRA Plus
C.Keogh accounts and individual retirement accounts
D.401(k) and Social Security
E.403(b) and 401(k)
Answer:C27.One of the drawbacks of
borrowing from parents or family members is that such loans:
A.tend to be more expensive than other types of loans.
B.must be interest-free.
C.may create tension within the family.
D.are limited to oral agreements.
E.are legally prohibited from establishing repayment dates and terms.
Answer:C28.A suicide clause means that the
insurance company:
A.can cancel the policy if suicide is proven.
B.will pay the death benefit equal to the amount of the premium paid, if the insured dies
during the first two years that the policy is in force.
C.will pay only half the death benefits if the insured commits suicide.
D.automatically pays the premium out of the policy’s cash value.
E.will not pay any death benefits is suicide is suspected.
Answer:B29.Michele Walsh is considering an
additional charitable contribution of $2,000 to a tax-deductible charity, bringing her total
itemized deductions to $16,000. If Michele is in a 28 percent tax bracket, how much will
this $2,000 contribution reduce her taxes?
A.$0
B.$560
C.$1,600
D.$2,000
E.$4,480
Answer:B
$2,000 x .28 = $560
30.The stock of ABC Company has a current market price of $75. The
corporation has paid a dividend of $3.75 over the last 12 months and has earnings per
share of $5. What is the dividend yield?
A.0.8 percent
B.1.3 percent
C.5.0 percent
D.6.7 percent
E.7.5 percent
Answer:C
Dividend yield = $3.75/$75 = 5 percent
31. Patricia Newton is going to buy a new car, and she needs to apply for
a loan to cover the purchase. She knows she can get a loan for up to 6 years, but she would
prefer a shorter-term loan. She selects a 4-year loan. Patricia reducing her lender’s risk by:
A.Sharing the interest rate risk.
B.Pledging collateral.
C.Paying a larger cash deposit.
D.Repaying the loan faster.
E.Sharing inflation risk with her lender.
Answer:D32.When Pete Mills went to
withdraw $5,000 from the Nationwide Fidelity Mutual fund, he was informed that the fund
would charge 5 percent of the amount withdrawn. What is the dollar amount of the
withdrawal charge?
A.$2,500
B.$500
C.$250
D.$25
E.$50
Answer:C
Fee = .05 x $5,000 = $250
33.Will Hopkins is getting ready to purchase shares in a mutual fund. He
will have to pay an upfront sales commission to purchase these shares. What type of shares
is he buying?
A.class A
B.class B
C.class C
D.either class A or B
E.either class B or C
Answer:A34.Patricia McDonald has
determined the following information about her own financial situation. Her checking
account is worth $850 and her savings account is worth $1,200. She owns her own home
that has a market value of $98,000. She has furniture and appliances worth $12,000 and a
home computer and laptop worth $3,300. She has a car worth $12,500 and owes $7,800 on
her auto loan. She has also purchased some stock worth $5,500 and she has a retirement
account worth $38,550. What is the total value of her assets?
A.$2,050
B.$98,000
C.$27,800
D.$44,050
E.$171,900
Answer:E
Total assets = $850 + 1,200 + 98,000 + 12,000 + 3,300 + 12,500 + 5,500 + 38,550 =
$171,900
35.When a lender uses your house as collateral to buy an annuity for you
from a life insurance company, it is called:
A.an obverse annuity mortgage.
B.a reverse annuity mortgage.
C.mortgage life insurance.
D.a level-premium annuity.
E.whole life insurance.
Answer:B36.Renee Crowgy’s policy includes
a $500 deductible and a coinsurance provision requiring her to pay 20 percent thereafter.
Her medical bills total $5,500. What amount is she required to pay personally?
A.$1,500
B.$500
C.$1,000
D.$5,000
E.$5,500
Answer:A
Personal liability = $500 + .20 ($5,500 – $500) = $1,500
37.Which federal law, passed in 1969, requires creditors to state the cost
of borrowing in common language?
A.Fair Credit Reporting Act
B.Fair Credit Billing Act
C.Equal Credit Opportunity Act
D.Fair Debt Collection Practices Act
E.Truth in Lending Act
Answer:E38.If a homeowner leaves toys on
stairs that results in injury to a delivery person, this may be ruled as:
A.vicarious liability.
B.negligence.
C.assigned risk.
D.umbrella coverage.
E.coinsurance.
Answer:B39.A corporate bond rated B by
Moody’s would be suitable for:
A.every investor.
B.very cautious investors.
C.speculators.
D.no one because the bond issue is in default.
E.investors who are highly dependent upon the interest income.
Answer:C40.If a family planned to spend
$370 for food during March but only spent $348, this difference would be referred to as a:
A.variance.
B.deficit.
C.fixed living expense.
D.budget reduction.
E.contribution to net worth.
Answer:A41.Treasury bills:
A.are rated by Moody’s.
B.pay interest every six months.
C.are long-term securities issued by the federal government.
D.are discounted securities.
E.pay a higher interest rate than corporate bonds.
Answer:D42.Conrad Maestro is buying
shares in a mutual fund that seeks rapid price appreciation by purchasing stocks whose
price is expected to increase dramatically in a short period of time. What type of mutual
fund is he purchasing?
A.aggressive growth fund
B.equity income fund
C.global fund
D.international fund
E.regional fund
Answer:A43.Which of the following are
common uses of life insurance proceeds?
A.education of children
B.make charitable bequests after death
C.pay off the mortgage on a home
D.uncovered medical expenses and funeral costs
E.all of the uses listed in the other answers
Answer:E