1.The most basic method of calculating interest is the compound interest calculation.
Answer:FALSE2.The most common type of
permanent life insurance is the whole life policy.
Answer:TRUE3.The Fair Credit Billing Act
sets the procedures for promptly correcting billing errors.
Answer:TRUE4.Representation by a lawyer
is usually required in small claims court.
Answer:FALSE5.For Moody’s and Standard
& Poor’s, the first four individual bond-rating categories represent investment-grade
securities.
Answer:TRUE6.A personal balance sheet
reports your income and expenses.
Answer:FALSE7.An exclusion is earnings
not included in taxable income.
Answer:TRUE8.A codicil is a document that
explains, adds, or deletes provisions in your existing will.
Answer:TRUE9.The easy method of
determining life insurance is based on the rule of thumb that a “typical family” will need
about 70 percent of a wage-earner’s salary for seven years.
Answer:TRUE10.Diversification in direct
real estate investment is difficult because of the large size of most real estate projects.
Answer:TRUE11.Income dividends are the
earnings a fund pays to shareholders from its dividend and interest income.
Answer:TRUE12.One risk associated with a
global investment is the difficulty of obtaining reliable accounting information needed to
evaluate stocks issued by international companies.
Answer:TRUE13.Inflation increases the
purchasing power of your retirement savings.
Answer:FALSE14.Make sure you have
enough insurance, but don’t over insure.
Answer:TRUE15.Medicaid differs from
Medicare because eligibility for Medicaid depends on having very low income and assets.
Answer:TRUE16.From an investor’s
standpoint, an increase in estimates of earnings per share is a good sign.
Answer:TRUE17.Your Social Security
benefits may be reduced if you earn above a certain amount a year, depending on your age
and the amount you earn.
Answer:TRUE18.Accelerated benefits are
life insurance policy proceeds paid to the policyholder who is terminally ill before he or
she dies.
Answer:TRUE19.You can depend on Social
Security and your company pension to pay for your basic living expenses.
Answer:FALSE20.The commission for
purchasing a $1,000 bond would most likely be:
A.$0.50.
B.$1 to $2.
C.$5 to $35.
D.$35 to $50.
E.over $50.
Answer:C21.Maryanne Strothman wants to
leave some words of encouragement and spiritual advice to her children to encourage their
faith in the event that something happens to her. What type of document would be best for
her to prepare?
A.ethical will
B.durable power of attorney
C.letter of last instruction
D.codicil
E.formal will
Answer:A22.(p.84, 88)A decrease in net
worth could be the result of:
A.income exceeding expenses for a month.
B.expenses exceeding income for a month.
C.assets exceeding expenses.
D.increased earnings on the job.
E.income and expenses being equal for a month.
Answer:B23.Which of the following
statements is true with respect to U.S. Treasury issues?
A.Treasury bills are issued in minimum units of $10,000 with maturities that range from
10 to 30 years.
B.Treasury notes are issued in $100 units with a maturity of more than 1 year, but not more
than 10 years.
C.Treasury bonds are issued in $5,000 units with 10-year maturities.
D.The Treasury no longer issues Treasury bills.
E.Treasury bills generally pay a higher interest rate than Treasury bonds.
Answer:B24.John Peterson purchased a bond
that is priced far below its face value, that makes no interest payments, and that will be
redeemed at its face value at maturity. In all likelihood, he purchased a(n) ____________
bond.
A.debenture
B.convertible
C.indenture
D.registered
E.zero-coupon
Answer:E25.Which type of computation
would a person use to determine current value of a desired amount for the future?
A.simple interest
B.future value of a single amount
C.future value of a series of deposits
D.present value of a single amount
E.present value of a series of deposits
Answer:D26.Patsy Banz owns 220 shares of
a stock. For the last calendar quarter, the company paid a dividend of $0.47 a share. What
is the total amount she received in her dividend check for this quarter?
A.$0.47
B.$47.00
C.$94.20
D.$103.40
E.$25.85
Answer:D
Dividend check = 220 x $.47 = $103.40
27.Joan Wilder receives a phone call from a salesperson who tries to sell
her an insurance policy by scaring her about her high risk of death from this disease. She
knows that this type of insurance policy has a notoriously poor value so she politely
declines. What type of insurance policy did this salesperson likely try to sell her?
A.comprehensive major medical
B.hospital indemnity
C.long-term care
D.cancer
E.disability income
Answer:D28.Which type of insurance is
probably the most neglected form of available insurance protection?
A.life
B.liability
C.disability
D.car
E.home and property
Answer:C29.Becky Martinez paid $65 a
share for stock in GBX Corporation. The stock has a current market value of $48 a share
and pays $1.60 a year in dividends. What is the dividend yield?
A.2.5 percent
B.7.4 percent
C.3.3 percent
D.30.0 percent
E.40.0 percent.
Answer:C
Yield = $1.60/$48 = 3.3 percent
30.Which of the following is not a deposit institution?
A.life insurance company
B.commercial bank
C.savings and loan association
D.credit union
E.mutual savings bank
Answer:A31.Which one of the following
financing methods provides a float period?
A.installment loan
B.credit card
C.lump-sum loan
D.home equity line of credit
E.auto loan
Answer:B32.An example of an economic
buying influence would be:
A.family size.
B.inflation.
C.advertising.
D.hobbies.
E.place of residence.
Answer:B33.Francesca Brown has a life
insurance policy that provides her with protection for the next five years. However, she can
get five more years of protection at the end of this term without having to have a medical
examination because she will be less than 70 years old at that time. Her premiums will rise
during each five-year period. What type of term life insurance does Francesca likely have?
A.straight
B.renewable
C.convertible
D.decreasing
E.accelerated
Answer:B34.A question associated with the
saving component of financial planning is:
A.Do you have an adequate emergency fund?
B.Is your will current?
C.Is your investment program appropriate to your income and tax situation?
D.Do you have a realistic budget for your current financial situation?
E.Are your transportation expenses minimized through careful planning?
Answer:A35.To assess the current value of a
lump-sum retirement benefit that will be received in 10 years, use the ____________
calculation.
A.present value of annuity
B.present value of a single amount
C.future value of an annuity
D.future value of a single amount
E.retained earnings
Answer:B36.Which one of the following is a
true statement?
A.Professional management is an especially important factor for investors purchasing a
mutual fund.
B.The only reason investors purchase mutual funds is interest rate risk.
C.With mutual funds may experience loss, your original investment is guaranteed.
D.Mutual funds are all designed to appeal to conservative investors with no investment
goals.
E.Professional market timers will always choose the right mutual fund for a particular
individual.
Answer:A37.Cooperatives are most
commonly organized to sell:
A.service contracts.
B.furniture.
C.auto repair service.
D.food.
E.information processing service.
Answer:D38.If inflation is increasing at 3
percent per year, and your salary increases at the same rate, how long will it take your
salary to double?
A.30 years
B.24 years
C.18 years
D.12 years
E.6 years
Answer:B
Rule of 72: 72/3 = 24
39.Georgia Owen was in an accident in which her car was totaled. What
part of Georgia’s automobile insurance would cover the damage to her car?
A.bodily injury liability
B.medical payments coverage
C.property damage liability
D.collision
E.comprehensive physical damage
Answer:D40.A VA-guaranteed loan program
provides assistance to:
A.military veterans.
B.recent college graduates.
C.low-income homebuyers.
D.government employees.
E.the elderly.
Answer:A41.In respect to your federal
income taxes, which one of the following may you have to do during retirement, even if
you did not have to do so prior to retiring? (Assume you have both pre- and
post-retirement income.)
A.report your dividend and interest income
B.file an annual tax return no later than April 15
C.file semi-annual tax returns in April and October
D.file quarterly estimated tax returns
E.file semi-annual reports listing all of your income sources
Answer:D42._____________ families rely
heaviest on student loans to finance college.
A.Low-income
B.Middle-income
C.High-income
D.Large
E.Small
Answer:B43.Arnell Johnson bought 200
shares of Black Petroleum Company for $95 per share and paid a commission of $60. He
sold the stock five years later for $120 per share and paid $75 commission. While he held
the stock, it paid a dividend of $5.50 per share. What was Arnell’s total dollar return on this
stock?
A.$5,000
B.$4,865
C.$1,100
D.$6,100
E.$5,965
Answer:E
Total return = 200($120 + 5.50 – 95) – ($60 + 75) = $5,965 (Change as shown.)
44.If you are seeking federally tax-exempt income, which type of mutual
fund should you purchase?
A.junk bond fund
B.intermediate corporate bond fund
C.municipal bond fund
D.short-term government bond
E.world bond fund
Answer:C45.A $1,000 corporate bond pays
6.5 percent a year. What is the annual interest you will receive?
A.$0.65.
B.$6.50.
C.$65.00.
D.$1,060.50.
E.$1,065.00.
Answer:C
Annual interest = .065 x $1,000 = $65
46.The contribution Billy Freniere’s employer makes to his retirement
plan depends on the profits of the company. What type of retirement plan does Billy have?
A.money-purchase pension plan
B.stock bonus plan
C.profit-sharing plan
D.salary reduction plan
E.403(b) plan
Answer:C47.What is the most popular type
of home ownership?
A.condominium
B.duplex
C.cooperative
D.prefabricated home
E.single family dwelling
Answer:E48.A legal document authorizing
someone to act on your behalf is called a:
A.codicil.
B.rider.
C.power of attorney.
D.trustor.
E.proxy.
Answer:C49.The current financial position
(including net worth) of an individual or family is best presented with the use of a(n):
A.budget.
B.cash flow statement.
C.balance sheet.
D.bank statement.
E.time value of money report.
Answer:C50.Which federal law sets
minimum standards for pension plans in private industry and protects more than 50 million
workers?
A.Employee Retirement Income Security Act
B.Tax Reform Act
C.Early Retirement Act
D.Income Protection and Guarantee Act
E.Civil Rights Act
Answer:A