1.A REIT may engage in speculative, short-term holding of real estate to sell for quick
profits.
Answer:FALSE2.A term insurance policy
pays a benefit only if you die during the period that the policy covers.
Answer:TRUE3.A call option gives the
purchaser the right to sell 100 shares of a stock at a guaranteed price before a definite
expiration date.
Answer:FALSE4.When imposters take your
name, they are committing a crime.
Answer:TRUE5.A simple will creates lower
overall taxation for all individuals.
Answer:FALSE6.A successful, happy
retirement just doesn’t happen; you have to plan for it.
Answer:TRUE7.You can keep money in
most retirement plans indefinitely.
Answer:FALSE8.If you want to reduce your
borrowing costs, you may need to accept conditions that lower the risk for your lender.
Answer:TRUE9.If your debit card is lost or
stolen, you must work directly with the issuer.
Answer:TRUE10.Insolvency is a result of
having more liabilities than assets.
Answer:TRUE11.All information related to
management fees, contingent deferred sales fees, 12b-1 fees, and other expenses are
contained in a mutual fund’s fee table.
Answer:TRUE12.Preferred stock represents
the most basic form of corporate ownership.
Answer:FALSE13.Financial leverage is the
use of borrowed funds for investment purposes.
Answer:TRUE14.Using a “debit” card is
basically the same as writing a check.
Answer:TRUE15.Indirect real estate
investments include investing in real estate syndicates, REITs, and participation
certificates.
Answer:TRUE16.Lori Burroughs wants to
gain some needed experience so when she is ready to start a career she has something to
offer a company. She has talked to the career placement center at her university. They tell
her she can get a job with a local company for the summer and earn college credit while
working. Which of the following employment strategies is she pursuing?
A.part-time employment
B.volunteer work
C.internship
D.campus project
E.cooperative education program
Answer:C17.A mutual fund:
A.is a way of investing in a single stock.
B.pools the money of many investorsits shareholdersto invest in a variety of securities.
C.is insured by the FDIC.
D.is a form of an indirect real estate investment.
E.is professionally managed so investors need not monitor fund results.
Answer:B18.Karen Price has determined that
her net worth is $30,000, excluding her home. She owes $80,000 on her mortgage and
$15,000 on a car loan. What is Karen’s debt-to-equity ratio?
A.3.2
B.2.0
C.0.5
D.2.7
E.0.3
Answer:C
$15,000/$30,000 = 0.5
19.Refinancing of a mortgage is recommended when:
A.interest rates rise.
B.interest rates fall.
C.the escrow account balance declines.
D.two or more points are required by the lender at the time of closing.
E.the escrow account balance increases.
Answer:B20.A person who has worked in
many fields and has a variety of skills in categories such as communications, research, and
personnel administration would probably be best served with the use of a ____________
rsum.
A.targeted
B.functional
C.chronological
D.goal-oriented
E.career change
Answer:B21.Sam Waters just received
$10,000 from his grandmother’s estate. He has thought about buying himself a new Harley
with the money but has decided instead to add the money to his mutual fund account.
Which suggestion for obtaining the money he needs for investing is he following?
A.paying himself first
B.taking advantage of employer-sponsored retirement programs
C.participating in an elective savings program
D.making a special effort once or twice a year to save
E.taking advantage of gifts, inheritance and other windfalls
Answer:E22.Which of the following groups
have undertaken innovative activities to contain the costs of health care?
A.employers
B.labor unions
C.health insurers
D.consumers
E.all of the other parties listed
Answer:E23.James Gripka has a mutual fund
that automatically takes $50 out of his checking account each month. Which suggestion for
obtaining the money he needs for investing is he following?
A.taking advantage of gifts, inheritance and other windfalls
B.taking advantage of employer-sponsored retirement programs
C.participating in an elective savings program
D.making a special effort once or twice a year to save
E.using financial leverage to increase investment returns
Answer:C24.The basic unit of gold bullion is
one:
A.kilogram.
B.troy ounce.
C.pound.
D.ton.
E.wafer.
Answer:A25.An investment company
sponsoring a mutual fund must give potential investors a(n):
A.12b-1 report.
B.prospectus.
C.disclosure/evaluation form.
D.redemption fee sheet.
E.annual report.
Answer:B26.Matt Jackson is single and 24.
He has just graduated from college and obtained a job making $26,400 a year. Which one
of the following investments would you recommend for his long-term investment
program?
A.corporate bonds
B.government bonds
C.growth stocks
D.commodities
E.money-market fund
Answer:C27.Ms. Nelson is a single mom
with three children; Dana is 18 and a high school senior, Derrick is 20 and a college
sophomore, and Tonya is 25 and unemployed. All three children live at home. How many
exemptions can Ms. Nelson claim on her tax return?
A.1
B.2
C.3
D.4
E.0
She can include herself and all three of her children since two are in school and the third is
unemployed and thus dependent upon her mother for support.
Answer:D28.Your first step in retirement
planning is to:
A.estimate your spending needs.
B.analyze your current assets and liabilities.
C.adjust your spending needs for inflation.
D.evaluate your planned retirement income.
E.determine if you’ll have to work during retirement.
Answer:B29.A mutual fund that requires
investors to make regular purchases over a specified period of time is called a:
A.regular account.
B.voluntary savings plan.
C.contractual savings plan.
D.minimum withdrawal plan.
E.free contract plan.
Answer:C30.In what type of ownership is
each individual considered to own a proportionate share for tax purposes with only your
share being included in your estate?
A.tenancy by default
B.tenancy by the entirety
C.tenants in common
D.joint tenants with the right of survivorship
E.tenancy by performance
Answer:C31.Which of the following is a
benefit on which you pay taxes at some future date?
A.cafeteria-style benefit
B.vesting
C.tax-deferred benefit
D.tax-exempt benefit
E.exclusion
Answer:C32.Which will should be written,
dated, and signed entirely in your own handwriting?
A.informal
B.marital trust
C.formal
D.statutory
E.holographic
Answer:E33.Orlando Blodgett is buying
stock in the Getaway Caribbean Cruise Company today. He had thought about buying the
stock yesterday and if he had, he would have received this quarter’s dividend. However,
since he waited until today, he will not receive that dividend payment. Given this
information, which one of the following dates applies to this stock today?
A.record date
B.ex-dividend date
C.payment date
D.stock split date
E.stock repurchase date
Answer:B34.Jennifer Rodrick uses a
computer to help her record her spending each month. She updates her records weekly.
This would be an example of:
A.money management.
B.an opportunity cost.
C.a balance sheet.
D.creative accounting.
E.electronic analysis.
Answer:A35.One of the advantages of
investing in limited partnerships, REITs, mortgages, or participation certificates is that you
do not need to worry about:
A.federal income taxes.
B.state income taxes.
C.capital gains taxes.
D.declining property taxes.
E.maintenance chores.
Answer:E36.A good example of closed-end
credit is:
A.a credit card issued by a department store.
B.a credit card issued by VISA or MasterCard.
C.the use of overdraft protection at a bank.
D.the use of a cashier’s check to pay for a purchase.
E.a mortgage loan.
Answer:E37.Which federal consumer credit
law regulates the advertising of credit terms?
A.Fair Debt Collection Practices Act
B.Equal Credit Opportunity Act
C.Fair Credit Billing Act
D.Fair Credit Reporting Act
E.Truth in Lending Act
Answer:E38.What type of personal liability
coverage is also called a personal catastrophe policy?
A.umbrella policy
B.personal property floater
C.coinsurance floater
D.assigned risk clause
E.medical payments coverage
Answer:A
39.A contract condition that states that the agreement is binding only if a
certain event occurs is a(n):
A.dual agency.
B.contingency clause.
C.counteroffer.
D.zoning law.
E.prefabrication.
Answer:B40.(p.501, 508)Which type of bond
would provide the most price stability?
A.discount
B.short-term
C.long-term
D.speculative
E.zero-coupon
Answer:B41.Money received in the form of
dividends or interest is classified as ____________ income.
A.passive
B.earned
C.excluded
D.capital gain
E.investment
Answer:E42.The changing cost of money is
referred to as ____________ risk.
A.interest-rate
B.inflation
C.economic
D.trade-off
E.personal
Answer:A43.Most income tax documents
should be kept for _____ year(s).
A.0
B.1
C.3
D.5
E.7
Answer:E44.Assume that you purchased 100
shares of a stock for $70 a share, that you received an annual dividend of $0.60 a share,
and that you sold your stock for $80 a share at the end of one year. What is the total return
for your investment? (Ignore commission amounts for this question.)
A.$100
B.$60
C.$760
D.$860
E.$1,060
Answer:E
Total return = 100($80 + 0.60 – 70) = $1,060
45.In estate planning, if you are married:
A.you do not need a will as your spouse is entitled to all of your assets.
B.your estate planning becomes simpler once you have children.
C.you should let your spouse do all of your estate planning.
D.your situation is more complex than when you were still single.
E.your planning consists solely of naming beneficiaries for your life insurance.
Answer:D46.June Tavia is trying to calculate
the taxable equivalent yield for a municipal bond. If the bond she owns pays 4.5 percent
interest and she is in the 25 percent tax bracket, what is the taxable-equivalent yield?
A.4.50 percent
B.5.50 percent
C.6.00 percent
D.7.72 percent
E.6.93 percent
Answer:C
TEY = .045/ (1 – .25) = 6 percent
47.Which one of the following statements is true?
A.Corporate bonds do not have a maturity date.
B.The maturity dates for corporate bonds are generally less than a year.
C.Corporate bonds do not have any default risk.
D.Corporate bonds are a form of equity.
E.Long-term corporate bonds have maturities over 15 years.
Answer:E48.A document attached to the
policy that modifies its coverage by adding or deleting a specified condition is called a(n):
A.rider.
B.waiver of premium.
C.automatic premium loan.
D.beneficiary.
E.incontestability clause.
Answer:A49.Brad Hayden has a piece of
paper that guarantees the conditions, under which he can return, replace, or repair an item
that he has purchased. What is it he most likely has?
A.coupon
B.rebate
C.warranty
D.rain check
E.class action suit
Answer:C50.What is an annuity? What is the
difference between life insurance and an annuity?
Answer: Include payment options and tax considerations.
An annuity is a financial contract written by an insurance company that provides you with
a regular income. Generally, you receive the income monthly, often with payments
arranged to continue for as long as you live. The payments may begin at once (immediate
annuity) or at some future date (deferred annuity). The annuity is often described as the
opposite of life insurance: It pays while you live, while life insurance pays when you are
deceased. As with the life insurance principle, the predictable mortality experience of a
large group of individuals is fundamental to the annuity principle. By determining the
average number of years a large number of persons in a given age group will live, the
insurance company can calculate the annual amount to pay to each person in the group
over his or her entire life. A primary reason for buying an annuity is to give you retirement
income for the rest of your life. A fixed annuity states that the annuitant (the person who is
to receive the annuity) will receive a fixed amount of income over a certain period or for
life. With a variable annuity, the monthly payments vary because they are based on the
income received from stocks or other investments. Variable annuities offer many optional
features including stepped-up death benefit, a guaranteed minimum income benefit, or
long-term care insurance. These features often come with additional fees and charges.
When you buy an annuity, the interest on the principal, as well as the interest compounded
on that interest, builds up free of current income tax. The Tax Reform Act of 1986
preserved the tax advantages of annuities (and insurance), however, the Health Care and
Education Reconciliation Act of 2010 imposes a 3.8 percent income tax for individuals
considered wealthy.
51.Explain the difference between direct and indirect investments in real
estate. Give examples of each.
Answer:Real estate investments are classified as direct or
indirect. Direct real estate investments, in which the investor holds legal title to the
property, include a home, a vacation home, commercial property, and raw land. Indirect
real estate investments include real estate syndicates, REITs, mortgages, and participation
certificates. In indirect investment a trustee holds legal title to the property.
52.List some of the important provisions found in most life insurance
policies.
Answer:The naming of the beneficiary, the grace period,
policy reinstatement, the incontestability and suicide clauses, automatic premium loans,
the misstatement of age provision, and the policy loan provision are important provisions
in most life insurance policies as are the waiver of premium disability benefit, the
accidental death benefit, and the guaranteed insurability option.
53.What are some things that you can do to reduce your personal health
care costs?
Answer:
The best way to avoid the high cost of illness is to stay well. The prescription is the same
as it has always been: eat a balanced diet and keep your weight under control, avoid
smoking and don’t drink in excess, get sufficient rest, relaxation, and exercise, and drive
carefully. In addition to these common sense approaches, here are some other things you
can do to reduce your own health care costs:
-Consider participating in a flexible spending account if your employer offers it; consider a
high-deductible health plan; ask your physician and pharmacist if less expensive generic
drug is available; consider using a mail-order or legitimate online pharmacy; see if your
state offers free or low-cost coverage for children who do not have health insurance; see if
your state offers State Pharmacy Assistance Programs; if your doctor wants you to return
for a follow up visit see if a phone follow up will work; review billing statements and
practice preventative care.
54.How can you protect yourself against debit/credit card fraud?
Answer:Answers will vary
Feedback: Here are the ways to protect yourself from fraud:
a. Keep records of your online transactions.
b. Review your monthly bank and credit card statements.
c. Read the policies of websites you visit.
d. Keep your personal information private.
e. Give payment information only to businesses you know and trust.
f. Never give your password to anyone online.
g. Don’t download files sent to you by a stranger or click on hyperlinks from people you
don’t know.
55.A friend comes to you for advice about improving their credit score.
What advice would you give them? Make sure to include the five steps for improving your
credit score.
Answers will vary
Answer: Feedback: You will want to make sure to tell them to
go to a reputable source for a credit report and then take them through the following steps.
1) Get copies of your credit report – then make sure the information is correct.
2) Pay your bills on time.
3) Understand how your credit score is determined.
4) Learn the legal steps to take to improve your credit report.
5) Beware of credit-repair scams.
56.What factors affect the availability of employment positions?
Answer:
Answers will vary
Feedback: The job market is influenced by economic, industrial, technological, social, and
geographic factors.
57.What is the primary difference between common stock and preferred
stock?
Answer:
Answers will vary
Feedback: The primary difference is that preferred stockholders receive their cash
dividends before common stockholders. Holders of cumulative preferred also have claim
to any missed dividends; common stockholders do not have this same privilege. This
factor is especially important when a corporation is experiencing financial problems and
cannot pay cash dividends to both preferred and common stockholders. Of lesser
importance is the fact that preferred stockholders do have a first claim when compared to
common stockholders if the firm enters bankruptcy or is dissolved. In reality, this priority
claim is seldom of value because if the firm enters bankruptcy the creditors (including
bondholders) have to be paid in full before preferred or common stockholders receive
anything.
58.Bond’s are generally considered a relatively safe investment. How is it
possible to lose money on bonds?
Answer:
Answers will vary
Feedback: An investor can actually lose money by selling the bond before its maturity date
at a time when the prevailing interest rate is above the coupon rate of the bond. In addition
a bondholder suffers if the company that issued the bond goes out of business and there are
insufficient assets to pay the bondholders.