1.Very few members of the Medicaid population are also covered by Medicare.
Answer:FALSE2.One of the advantages of a
living trust is that property held in it avoids probate at your death.
Answer:TRUE3.Last-minute “death-bed”
estate planning may fail to carry out your wishes.
Answer:TRUE4.Most speculators use a buy
and hold technique.
Answer:FALSE5.Medicare was never
intended to pay all medical costs.
Answer:TRUE6.Because of the age factor,
most young investors tend to invest a large percentage of their nest egg in growth-oriented
investments.
Answer:TRUE7.For government bonds, the
bid price is the price that a dealer is willing to pay for a government security.
Answer:TRUE8.You can only buy an annuity
by making periodic payments.
Answer:FALSE9.Definite financial
obligations are referred to as variable expenses.
Answer:FALSE10.The full Social Security
benefit for a spouse is one-half of the retired worker’s full benefit.
Answer:TRUE11.The fundamental theory is
based on the assumption that a stock’s intrinsic or real value is determined by the future
earnings of the company.
Answer:TRUE12.Which type of insurance is
sometimes called temporary insurance?
A.whole life insurance
B.term insurance
C.straight life
D.ordinary life
E.modified life
Answer:B13.Which of the following assets
owned by a company can be used to secure a mortgage bond?
A.real estate
B.bonds
C.stocks
D.operating equipment
E.all of the assets listed in the other answers
Answer:E14.George Wade has been selected
to receive the assets of his brother Kyle in the event of Kyle’s death. What is George?
A.executor
B.trustee
C.guardian
D.beneficiary
E.agent
Answer:D15.Which of the following would
increase the amount that a person could afford to spend on a home?
A.increase in family income
B.increase in interest rates
C.decrease in down payment
D.increase in other financial obligations
E.increase in monthly living expenses
Answer:A16.Sandra Jennings gets a loan
from General Motors Acceptance Corporation. Which type of lending institution is this?
A.credit union
B.payday advance company
C.finance company
D.department store
E.commercial bank
Answer:C17.Which type of tax is imposed on
specific goods and services at the time of purchase?
A.estate
B.inheritance
C.excise
D.general sales
E.value-added
Answer:C18.Medicare has two parts: hospital
insurance (Part A) and medical insurance (Part B).
Answer:TRUE19.A cost associated with
home buying would be:
A.renter’s insurance.
B.the security deposit.
C.annual appreciation of the property.
D.property taxes.
E.interest lost on the security deposit.
Answer:D20.Which one of the following
would not typically be closed-end credit?
A.home mortgage
B.installment loan to purchase new furniture
C.line of credit from your bank
D.automobile loan
E.single lump-sum credit loan due in 90 days
Answer:C21.Lester McCann wants to invest
but is worried about risk. In particular, he is worried that the money he invests today will
not buy as much ten years from now. What type of risk concerns Lester?
A.inflation
B.interest rate risk
C.business failure
D.market
E.global investment
Answer:A22.Starting a small business that
may or may not succeed is an example of ___________ risk.
A.speculative
B.pure
C.commercial
D.personal
E.liability
Answer:A23.William Bennett owns a home
in Oviedo, Florida. There was a fire in his home and he and his family had to move to a
motel until his home could be fixed. What part of his homeowner’s insurance policy would
cover the cost of the motel?
A.buildings and other structures
B.additional living expenses
C.personal property
D.personal liability
E.specialized coverage
Answer:B24.Real estate investments are
classified as:
A.participating or nonparticipating.
B.common or preferred.
C.cumulative or noncumulative.
D.direct or indirect.
E.none of the other answers.
Answer:D25.Michael closed on his new
home December 31, 2009 instead of January 1, 2010. As a result, Michael
A.accelerated tax deductions in 2009.
B.accelerated tax deductions in 2010.
C.increased his adjusted gross income in 2009.
D.decreased his adjusted gross income in 2010.
E.decreased tax exemptions in 2009.
Answer:A26.Will Jones has created a will
that leaves everything to his wife except an exemption amount of $2 million. This
exemption amount passes into a trust. What type of will has Will created?
A.simple
B.traditional marital share
C.exemption trust
D.stated dollar amount
E.living
Answer:C27.The rate of return on a savings
account is also referred to as:
A.liquidity.
B.compounding.
C.yield.
D.opportunity cost.
E.asset turnover.
Answer:C28.The money obtained by a
company from selling corporate bonds:
A.is obtained from lenders.
B.is obtained from the owners of the business.
C.is obtained from employee stock option programs.
D.does not have to be repaid.
E.must be allocated to retirement programs.
Answer:A29.If a stock has a 2-for-1 split:
A.the value of the stock is guaranteed to increase.
B.the value of the stock is guaranteed to decrease.
C.total market capitalization increases.
D.total market capitalization decreases.
E.total market capitalization does not change.
Answer:E30.Installment sales credit is a:
A.direct loan of money for personal purposes.
B.direct loan of money for home improvement.
C.loan that allows you to receive merchandise such as a refrigerator or furniture.
D.direct loan for vacation purposes.
E.synonym for a single lump-sum credit.
Answer:C31.Which of the following would
be considered a long-term liability?
A.charge account payment
B.mortgage
C.six month personal loan
D.amount due for taxes
E.amount due on a credit card
Answer:B32.Lori Simpson is thinking about
purchasing some life insurance. She goes to a company where the policyholders are
essentially the owners of the company. What type of life insurance company has she
visited?
A.stock
B.debt
C.mutual
D.exclusionary
E.cooperative
Answer:C33.Which of the following is a
deposit institution?
A.life insurance company
B.investment company
C.mortgage company
D.pawnshop
E.credit union
Answer:E34.Richard Beck has a life
insurance policy which he has altered to include an accidental death benefit payable to his
son and daughter. This alteration has most likely been done by attaching a(n) ____ to the
policy.
A.accelerated benefits clause
B.policy dividend
C.guaranteed insurability clause
D.second-to-die rider
E.double indemnity rider
Answer:E35.Higher prices are likely to result
from:
A.lower demand by consumers.
B.increased production by business.
C.lower interest rates.
D.increased spending by consumers without increased production.
E.an increase in the supply of a product.
Answer:D36.Christopher Pratt just bought
shares of common stock. Which one of the following is he entitled to based on his
ownership of these shares?
A.semi-annual interest payments
B.guaranteed annual dividends
C.right to vote on major corporate issues
D.right to declare a stock split
E.right to declare future dividends
Answer:C37.Lisa Trotter 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 with the homecoming parade for the University of
Central Oklahoma where she goes to school full-time. 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:D38.If closing costs of $1,400 are
associated with the refinance of a mortgage that would reduce the monthly payment from
$980 to $870, it would take approximately ____ months to cover these costs.
A.6
B.9
C.13
D.17
E.22
Answer:C
Number of months = $1,400/($980 – 870) = 13 months
39.The life expectancy of a female at the age of 30 is 47.65 years. It
means that:
A.a 30-year-old female has the highest probability of dying.
B.a 30-year-old female has the highest probability of living.
C.females alive at 30 years of age have an average number of 47.65 years still left to live.
D.47.65 is the average age at which all females, age 30, will die.
E.very few 30-year-old females will live past the age of 77.
Answer:C40.The main purpose of
Consumers Union is to:
A.evaluate the quality of products and services.
B.reduce fire hazards of home appliances.
C.handle consumer complaints from government workers.
D.represent the government in consumer complaint hearings.
E.provide environmental information on automobiles.
Answer:A41.If Widget Corp. has a PEG
value of .5, the stock is most likely:
A.undervalued based on its projected growth rate.
B.overvalued based on its projected growth rate.
C.overvalued based on its $0.50 per share dividend.
D.overvalued based on its good historical earnings.
E.undervalued based on its poor historical earnings.
Answer:A42.Peter Jacobs has set aside
$5,000 in case he has an accident in his 1980 Honda Civic. He does not have collision
insurance on this car. How is Peter managing his risk?
A.avoidance
B.reduction
C.assumption
D.shifting
E.creation
Answer:C43.Sally Forth has a trust that she
can end at any time she wants. What type of trust does Sally have?
A.revocable trust
B.irrevocable trust
C.bargain trust
D.negotiable trust
E.non-negotiable trust
Answer:A44.Which FICO credit score would
represent the least risky borrower?
A.415
B.562
C.685
D.702
E.825
Answer:E
45.When prices are rising at a rate of 3 percent, the cost of products and
services would double in ______ years.
A.3
B.6
C.12
D.24
E.36
Answer:D
Rule of 72, 72/3 = 24
46.Based on the following information, what amount would be subtracted
from the bank balance side of the checking account reconciliation? Service charge $12;
Outstanding checks $145; Interest $3.50; Deposit in transit $80
A.$145.00
B.$12.00
C.$157.00
D.$148.50
E.$80.00
Answer:A
Interest and service charges have already been posted by the bank. Outstanding checks
must be subtracted since the bank is unaware of these checks. Outstanding deposits are
added to the bank balance.
47.You are backing out of your driveway, late for a meeting. A short
mental lapse and BANGyou hit a post at the end of your driveway. The damage seems
minor. What questions should ask when trying to decide whether or not to report the
incident to your insurance company?
Answer:Questions that you would want to consider: Are you
required to file all damages? Was someone else involved? How much is your deductible?
What recent claims have you have? What is the extent of the damage? Was property
belonging to anyone else involved?
48.People are commonly overwhelmed by the many influences on
personal financial decisions. What are the factors affecting financial planning?
Answer:
Answers will vary
Feedback: Students answers will vary. Factors might include personal values, household
situation, age, income level, marital status, employment situation, and economic
conditions.
49.Why do investors purchase mutual funds instead of purchasing stocks,
bonds, or other investments on their own?
Answer:
The major reasons why investors purchase mutual funds are professional management and
diversification. Most investment companies do everything possible to convince individual
investors that they can do a better job of picking securities than individuals can. In reality,
they do have professional portfolio managers with years of experience that spend a lot of
time picking just the right securities for their mutual funds. Of course, it should be pointed
out that even the best managers sometimes make mistakes. The diversification of mutual
funds spells safety; because an occasional loss incurred with one investment is usually
offset by gains from other investments.
50.Bob and Mary Martin are both 35 years old. Although they graduated
from college almost 15 years ago, they have never developed a diversified investment
program. What extra money they had was invested in high-tech stocks that did quite well
until the last five years. Then, with the economic downturn, they encountered major losses.
How could asset allocation have reduced the dollar amounts of the Martin’s losses?
Answer:
Asset allocation is the process of spreading your assets among several different types of
investments to lessen risk. Instead of investing all of their money in high-tech stocks, the
Martins could have taken a more diversified approach with some of their money invested
in more conservative stocks or mutual funds. Depending on their risk tolerance, they could
have also chosen to invest some of their money in corporate or government bonds. Using
the method of well-known personal financial expert, Suze Orman, the Martins should have
75 percent of their investments in growth-oriented investments. (The number 110 minus
the Martin’s age 35 equals 75; page 440. The remainder of their money (25 percent) should
have been invested in safer, more conservative investments.
51.Your parents own a vacation home and find it more difficult to spend
as much time there as they once did. They are thinking about continuing to use it as a
vacation retreat but also want to periodically rent it and use it as an investment. Discuss the
issues they should consider when making this decision.
Answer:The after-tax cost of owning a vacation home has
risen since 1987. How much depends largely on whether the IRS views the property as
your second home or as rental property. It is deemed a second home as long as you don’t
rent it for more than 14 days a year.
In that case, you can write off your mortgage interest and property tax. If you rent the
vacation home regularly, the size of your deduction is determined by whether you actively
manage it and by the size of your income. Another important consideration is whether
property values are growing in the area in which the home is located. Liability issues when
renting a home are also important as is the need to maintain adequate records for the IRS.
52.What are the main components of a personal balance sheet and a cash
flow statement? What is the main purpose of each of these personal financial statements?
Answer:
Answers will vary
Feedback: A balance sheet reports the current financial position of an individual or family;
it includes assets, liabilities, and net worth. A cash flow statement is designed to report the
actual inflow and outflow of cash during a given time period for a person; it includes
current income and cash payments.
53.What is life insurance? What is its purpose and principle?
Answer:
Life insurance is a contract between an insurance company and a policyholder under which
the company agrees to pay a specified sum to a beneficiary upon the death of the insured.
Most people buy life insurance to protect someone who depends on them from financial
losses caused by their death. Fundamental to the life insurance principle is the predictable
mortality experience of a large group of individuals.
54.What types of expenses might increase during retirement?
Answer:
Medical expenses and expenses for leisure activities tend to increase with age.