1.Stocks issued by large corporations in mature industries often have high PE ratios.
Answer:FALSE2.Since 1926, stocks as
measured by the Standard & Poor’s 500 Index have returned on average about 10 percent a
year.
Answer:TRUE3.If you have convertible term
insurance, you can exchange it for a whole life policy without a medical examination and
at a higher premium.
Answer:TRUE4.A good health insurance
plan should offer basic coverage for hospital and doctor bills.
Answer:TRUE5.A prenuptial agreement is a
documentary agreement between spouses after marriage.
Answer:FALSE6.Many people believe that
location is the most important factor to consider when selecting a home.
Answer:TRUE7.One way to gather
information about a product is to use an independent testing organization like Consumers
Union.
Answer:TRUE8.You should avoid probate
because it is expensive, lengthy, and public.
Answer:TRUE9.Up to 85 percent of your
Social Security benefits may be subject to federal income tax.
Answer:TRUE10.A large percentage of
people do little or nothing to provide for those who will survive them.
Answer:TRUE11.A syndicate is a temporary
association of individuals or firms, organized to perform a specific task that requires a
large amount of capital.
Answer:TRUE12.Brenda Lee has received a
$10,000 gift from her mother and is trying to decide how to invest it. She thinks she would
like to invest it in stocks because she knows that stocks have been earning about a 10%
rate of return over the last several years. What aspect of investing interests Brenda?
A.risk
B.return
C.diversification
D.liquidity
E.income
Answer:B13.A ____________ rsum is
designed to obtain a specific job.
A.functional
B.chronological
C.goal-oriented
D.targeted
E.data
Answer:D14.Mortgage loans, automobile
loans, and installment loans for purchasing furniture or appliances are examples of:
A.a line of credit.
B.a credit card loan.
C.open-end credit.
D.closed-end credit.
E.convenience credit.
Answer:D15.A mutual fund that invests in
the common stocks of companies in the same industry is called a(n) ____________ fund.
A.growth-income
B.income
C.sector
D.small-cap
E.money market
Answer:C16.With completion of a bachelor’s
degree one can expect to earn _____ in income over a 40-year period.
A.$2.8 million
B.$1.8 million
C.$3.8 million
D.$2.5 million
E.$4.3 million
Answer:D17.Larry Foster has bought a car
with front and side airbags and antilock brakes. How is Larry managing his risk?
A.avoidance
B.reduction
C.assumption
D.shifting
E.development
Answer:B18.Which health care institution
directly employs or contracts with selected medical care specialists to provide managed
health care services in exchange for a fixed, prepaid monthly premium?
A.Blue Cross
B.Blue Shield
C.Medicare
D.Medicaid
E.HMO
Answer:E19.You are planning to buy a house
in five years. How much do you need to deposit today to have a $10,000 down payment if
your investment will make 6%?
A.$6,000
B.$6,590
C.$7,470
D.$9,400
E.$10,000
Answer:C
Present Value (Table 1-C), $10,000 x .747 = $7470.
20.Caroline lives in City A and earns $50,000 per year. The cost of living
index in City A is .8. She is considering a move to City B which has a cost of living index
of .9. How large a salary will she require in City B to maintain her current standard of
living?
A.$44,444
B.$40,000
C.$56,250
D.$45,000
E.$50,000
Answer:C
$56,250 = (.9 x $50,000)/.8
21.Which one of the following is not an element of corporate culture?
A.management styles
B.work intensity
C.government regulations
D.dress codes
E.lines of communication
Answer:C22.Nick Rodr owns a home in
Edmond, Oklahoma and pays $665 per year in insurance on the home. The $665 is an
example of a:
A.peril.
B.hazard.
C.risk.
D.premium.
E.liability.
Answer:D23.What is the name commonly
used to refer to the recent national crisis in which with many mortgages were issued to
borrowers with poor credit histories, resulting in numerous loan defaults?
A.mortgage meltdown
B.subprime crisis
C.credit default swap
D.credit score crisis
E.mortgage balloon crisis
Answer:B24.Which one of the following
presents a summary of income and outflows for a period of time?
A.balance sheet
B.bank statement
C.investment summary
D.cash flow statement
E.asset report
Answer:D25.Which one of the following
bonds pays interest only at maturity?
A.registered bond
B.registered coupon bond
C.bearer bond
D.zero-coupon bond
E.junk bond
Answer:D
26.The final step of the career planning process is to:
A.plan for career development.
B.evaluate the job market.
C.research specific career areas.
D.identify potential job opportunities.
E.evaluate job offers.
Answer:A27.Which one of the following
insurance policy provisions requires the insured to pay for part of the loss if the property is
not insured for the specified percentage of replacement value?
A.personal property floater
B.an endorsement
C.coinsurance clause
D.umbrella coverage
E.assigned risk clause
Answer:C28.Fred Manufacturing Company
pays an annual dividend of $0.65 per share, has earnings per share of $2.50, and sells for
$35 a share. What is this firm’s dividend payout ratio?
A.18 percent
B.25 percent
C.28 percent
D.26 percent
E.32 percent
Answer:D
Payout ratio= $.65/$2.50 = 26 percent
29.Which of the following would result in a reduction of taxable income?
A.portfolio income
B.tax credits
C.exclusions
D.passive income
E.earned income
Answer:C30.Which of the following is an
example of a closing cost?
A.home inspection fees
B.realtor fees
C.earnest money
D.title insurance
E.down payment
Answer:D31.Which statement is correct
regarding retirement living expenses?
A.It is impossible to estimate your spending needs.
B.Your spending patterns will probably not change.
C.You’ll use a smaller amount of money for food, housing, and medical care.
D.The exact amount of money you’ll need is impossible to predict.
E.Work-related expenses, such as driving back and forth to work, tend to be higher during
retirement.
Answer:D32.Natural abilities that people
possess are called:
A.interests.
B.aptitudes.
C.attitudes.
D.personality traits.
E.occupational techniques.
Answer:B33.Which federal credit law
protects you against an unauthorized use of your credit card?
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:B34.Which type of health insurance
policy may not cover all of your health insurance needs or may deny benefits if you lose
your job?
A.group health
B.individual health
C.Medicare
D.Medicaid
E.private disability income
Answer:A35.Doug Emery purchased a bond
that can be exchanged for a set number of shares of the issuer’s common stock. What type
of bond has Doug purchased?
A.debenture
B.subordinated debenture
C.convertible
D.callable
E.high-yield
Answer:C36.Estimated quarterly tax
payments must be made by people who:
A.are employed in a foreign country.
B.receive dividends.
C.work for the government.
D.do not have adequate amounts withheld from income.
E.itemize deductions.
Answer:D37.When a taxpayer’s income
increases $1,000 and the taxes owed increases from $7,867 to $8,177, the marginal tax rate
is ______ percent.
A.15
B.20
C.25
D.28
E.31
Answer:E
$8,177 – $7,867 = $310; $310/$1,000 = .31 or 31%
38.A request that a stock be bought or sold at the current market price is
called a ____________ order.
A.market
B.limit
C.stop
D.round
E.discretionary
Answer:A39.The borrower’s attitude toward
his or her credit obligations is called:
A.capacity.
B.capital.
C.character.
D.collateral.
E.conditions.
Answer:C40.Home insurance costs are
affected most directly by:
A.the profits of the insurance company.
B.insurance agents’ commission.
C.government regulations that set premiums.
D.processing costs of claims.
E.the number of claims in an area.
Answer:E41.Which type of credit insurance
repays your debt in the event of a loss of income due to illness or injury?
A.credit life insurance
B.credit accident and health insurance
C.credit property insurance
D.credit casualty insurance
E.credit disability insurance
Answer:B42.Which of the following types of
financial institutions provide Federal Deposit Insurance (FDIC) coverage?
A.credit card companies and finance companies
B.credit unions and brokerage firms
C.mortgage companies, commercial banks, and credit unions
D.commercial banks, credit unions, and savings and loans
E.commercial banks, credit card companies, and credit unions
Answer:D43.Explain what dollar cost
averaging is and why an investor would use the technique.
Answer:Answers will vary
Feedback: Dollar cost averaging is a long term technique used by investors who purchase
equal dollar amounts of the same stock at equal intervals. According to the book, dollar
cost averaging helps avoid the “common pitfall” of buying high and selling low. With
dollar cost averaging, the investor will make money as long as the stock is sold at a price
higher than the average cost for a share of stock.
44.Explain the difference between a load fund and a no-load fund. From a
performance standpoint, is there a significant difference between mutual funds that charge
commissions and those that do not?
Answer:
A load fund is a mutual fund in which investors pay a commission either when they
purchase or when they redeem shares. Typical charges may be as high as 8 1/2 percent for
a front-end load. A no-load fund is a mutual fund in which no sales charge is paid by the
individual investor. A no-load fund doesn’t charge commissions because they have no
salespeople. If you want to buy shares of a no-load fund, you must deal directly with the
investment company. Many financial analysts indicate that there is no significant
difference between mutual funds that charge commissions and those that do not. Since
no-load funds offer the same investment opportunities that load funds offer, an investor
should investigate them further before deciding which type of mutual fund is best.
45.Gerry Intel is considering buying a home. What actions would you
recommend for her to take to accomplish this goal of buying a home?
Answer:Answers will vary
Feedback: The process of buying a home involves the following phases: (1) determining
housing needs, (2) finding and evaluating a home, (3) pricing the property, (4) financing
the home purchase, and (5) closing the transaction.
46.Describe the sources of investment information investors can use to
evaluate a potential investment.
Answer:In Chapter 13, the following sources of information
were described: (1) the Internet and online computer services, (2) newspapers and news
programs, (3) business periodicals and government publications, (4) corporate reports, and
(5) investor services and newsletters.
47.What activities are commonly suggested when preparing for a job
interview?
Answer:
Answers will vary
Feedback: In preparation for a successful interview, a person should obtain additional
information about the organization, develop questions that may be asked by the
interviewer, practice interviewing skills, and plan to dress appropriately.
48.Suzanne is beginning to think she needs to find a new job. She is
happy with her present salary and job duties, and has a large corner office with a
wonderful view of the city. In spite of this, she dreads going to work each day. Discuss
four reasons that may be to blame for her dissatisfaction at work.
Answers will vary
Answer: Feedback: At some time in their lives, most workers
change jobs. The following may be indications that it is time to move on: low motivation
toward your current work, physical or emotional stress caused by your job, consistently
poor performance evaluations, a lack of social interactions with coworkers, limited
opportunity for salary or position advancement, and/or a poor relationship with your
supervisor.
49.Describe some of the most common retirement misconceptions, and
explain what you should do if you hold to any of those misconceptions.
Answer:Some of the most common retirement misconceptions
are: my expenses will drop when I retire, my retirement will only last 15 years, I can
depend on Social Security and my company pension to pay for my basic living expenses,
my pension benefits will increase to keep pace with inflation, my employer’s health
insurance plan and Medicare will cover my medical expenses, there’s plenty of time to
start saving for retirement, and saving just a little bit won’t help. If you find yourself falling
into the trap of believing one or more of these misconceptions it is vital to engage in basic
retirement planning activities and to update your retirement plans periodically.